As filed with the Securities and Exchange Commission on April 27,
1999
Registration No. 333-______
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST LEESPORT BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 6720 23-2354007
(State or other jurisdic- (Primary Standard (I.R.S. Employer
tion of incorporation or Industrial Class- Identification
organization) ification Code No.)
Number)
133 North Centre Avenue
Leesport, Pennsylvania 19533
(610) 926-2161
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Raymond H. Melcher, Jr.
President and Chief Executive Officer
First Leesport Bancorp, Inc.
133 North Centre Avenue
Leesport, Pennsylvania 19533
(610) 926-2161
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
David W. Swartz, Esquire Nicholas Bybel, Jr., Esquire
Stevens & Lee, P.C. B. Tyler Lincoln, Esquire
111 North Sixth Street Shumaker Williams, P.C.
P.O. Box 679 3425 Simpson Ferry Road
Reading, PA 19603 Camp Hill, PA 17011
(610) 478-2000 (717) 763-1121
<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 to be
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,
please check the following box and list the Securities Act
registration statement number of the earlier 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 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, 538,600 Not Not $2,026.17
$5.00 par value shares Applicable Applicable
_________________________________________________________________
(1) Based on the maximum number of shares of the Registrant's
common stock that may be issued in connection with the
proposed merger of Merchants of Shenandoah Ban-Corp 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 book value of the common stock of
Merchants on March 31, 1999, of $23.84 and based on 305,721
shares of Merchants common stock to be exchanged in the
merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
_________________________________________________________________
<PAGE>
Proxy Statement of Proxy Statement/Prospectus of
Merchants of Shenandoah Ban-Corp First Leesport Bancorp, Inc.
Merger Proposed -- Your Vote Is Very Important
The Boards of Directors of First Leesport Bancorp, Inc. and
Merchants of Shenandoah have approved the acquisition of
Merchants by First Leesport through a merger.
If you are a Merchants shareholder and the merger is
completed, you will receive 1.5854 shares of First Leesport
common stock for each share of Merchants common stock that you
own on the date of the merger. On May __, 1999, the closing sale
price of First Leesport common stock was $___________, making the
value of 1.5854 shares of First Leesport common stock equal to
$__________ on that date. We will adjust the amount of First
Leesport common stock that you receive if the 30-day average
price of First Leesport common stock immediately prior to the
merger is less than $20.00 or more than $28.00.
We cannot complete the merger unless the shareholders of
both companies approve it. Both companies have scheduled special
meetings of shareholders to vote on this merger proposal. Your
vote is very important. Whether or not you plan to attend your
meeting, please take the time to vote by completing and mailing
the enclosed proxy card. If you sign, date and mail your proxy
card without indicating how you want to vote, your proxy will be
counted as a vote in favor of the merger. Not returning your
card or not instructing your broker how to vote any shares held
for you in "street name" will not permit us to vote your shares
in favor of the merger.
The date, time and place of each meeting is as follows:
FOR FIRST LEESPORT SHAREHOLDERS: FOR MERCHANTS SHAREHOLDERS:
_____________, June __, 1999 ____________, June __, 1999
______ a.m. ______ a.m.
_____________________________ ___________________________
_____________________________ ___________________________
____________, Pennsylvania ____________, Pennsylvania
First Leesport common stock is traded on the Nasdaq Stock
Market under symbol "FLPB." Merchants common stock is not
actively traded.
We strongly support this combination of our companies and
enthusiastically recommend that you vote in favor of the merger.
John T. Connelly Anthony R. Cali
Chairman of the Board President and Chief
First Leesport Bancorp, Inc. Executive Officer
Merchants of Shenandoah
Ban-Corp
Raymond H. Melcher, Jr.
President and Chief Executive
Officer
First Leesport Bancorp, Inc.
- -----------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state
securities regulators have approved the First Leesport common
stock to be issued in the merger or passed upon the adequacy or
accuracy of the proxy statement/prospectus. Any representation
to the contrary is a criminal offense. The shares of First
Leesport common stock to be issued in the merger are not savings
or deposit accounts or other obligations of any bank, and they
are not insured by the Federal Deposit Insurance Corporation or
any governmental agency.
- -----------------------------------------------------------------
This Proxy Statement/Prospectus is dated May ___, 1999 and
was first mailed to shareholders on or about May ___, 1999.
<PAGE>
Table of Contents
Page
QUESTIONS AND ANSWERS ABOUT THE MERGER. . . . . . . . . . . . . . . 1
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A WARNING ABOUT FORWARD LOOKING INFORMATION . . . . . . . . . . . . 13
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . 14
First Leesport Selected Financial Data . . . . . . . . . . . . 15
Merchants Selected Financial Data. . . . . . . . . . . . . . . 16
PRO FORMA COMBINED FINANCIAL INFORMATION. . . . . . . . . . . . . . 17
Pro Forma Combined Balance Sheet as of December 31,
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Pro Forma Statements of Income for the Years Ended December 31,
1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . 19
THE SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . 23
Matters To Be Considered at the Meetings . . . . . . . . . . . 23
Votes Required . . . . . . . . . . . . . . . . . . . . . . . . 23
Voting of Proxies. . . . . . . . . . . . . . . . . . . . . . . 24
Revocability of Proxies. . . . . . . . . . . . . . . . . . . . 25
Record Date; Stock Entitled to Vote; Quorum. . . . . . . . . . 25
Solicitation of Proxies. . . . . . . . . . . . . . . . . . . . 26
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Background of the Merger . . . . . . . . . . . . . . . . . . . 27
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . 28
Recommendations of the Boards of Directors . . . . . . . . . . 31
Effect of the Merger . . . . . . . . . . . . . . . . . . . . . 32
What Merchants Shareholders Will Receive . . . . . . . . . . . 32
Opinions of Independent Financial Advisors . . . . . . . . . . 34
Effective Date of the Merger . . . . . . . . . . . . . . . . . 50
Exchange of Merchants Stock Certificates . . . . . . . . . . . 50
Conditions to the Merger . . . . . . . . . . . . . . . . . . . 51
Subsidiary Banks . . . . . . . . . . . . . . . . . . . . . . . 52
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . 53
Representations and Warranties . . . . . . . . . . . . . . . . 54
Business Pending the Merger. . . . . . . . . . . . . . . . . . 55
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
No Solicitation of Transactions. . . . . . . . . . . . . . . . 59
Amendment; Waivers . . . . . . . . . . . . . . . . . . . . . . 60
Termination; Effect of Termination . . . . . . . . . . . . . . 60
Management and Operations after the Merger . . . . . . . . . . 61
Employee Benefits and Severance Benefits . . . . . . . . . . . 62
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . 64
Material Federal Income Tax Consequences . . . . . . . . . . . 64
Expenses . . . . . . . . . . . . . . . . . . . . . . 65 <PAGE 1>
Resale of First Leesport Common Stock. . . . . . . . . . . . . 66
Dissenters Rights of Appraisal . . . . . . . . . . . . . . . . 66
FINANCIAL INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS . . . . . . 69
Indemnification; Directors and Officers Insurance. . . . . . . 69
Anthony R. Cali Employment Agreement . . . . . . . . . . . . . 70
Director Fees. . . . . . . . . . . . . . . . . . . . . . . . . 70
INFORMATION WITH RESPECT TO FIRST LEESPORT. . . . . . . . . . . . . 72
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Market Price of and Dividends on First Leesport Common
Stock and Related Shareholder Matters. . . . . . . . . . 72
INFORMATION WITH RESPECT TO MERCHANTS . . . . . . . . . . . . . . . 73
Description of Business. . . . . . . . . . . . . . . . . . . . 73
Supervision and Regulation . . . . . . . . . . . . . . . . . . 73
Prompt Corrective Action Rules . . . . . . . . . . . . . . . . 75
Regulatory Restrictions on Dividends . . . . . . . . . . . . . 75
FDIC Insurance Assessments . . . . . . . . . . . . . . . . . . 75
New Legislation. . . . . . . . . . . . . . . . . . . . . . . . 76
Interstate Banking . . . . . . . . . . . . . . . . . . . . . . 76
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 77
Management's Discussion and Analysis of Financial
Condition and Results of Operation . . . . . . . . . . . 77
Market Price of and Dividends on Merchants Common Stock
and Related Stockholder Matters. . . . . . . . . . . . . 92
DESCRIPTION OF FIRST LEESPORT CAPITAL SECURITIES. . . . . . . . . . 94
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 94
Special Charter and Pennsylvania Corporate Law
Provisions . . . . . . . . . . . . . . . . . . . . . . . 95
COMPARISON OF SHAREHOLDER RIGHTS. . . . . . . . . . . . . . . . . . 98
Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Shareholders' Meetings . . . . . . . . . . . . . . . . . . . . 100
Required Shareholder Votes . . . . . . . . . . . . . . . . . . 101
Amendment of Bylaws. . . . . . . . . . . . . . . . . . . . . . 101
Mandatory Tender Offer Provision . . . . . . . . . . . . . . . 102
ADJOURNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . 103
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . . . . 104
<PAGE 2>
MERCHANTS FINANCIAL STATEMENTS . . . . . . . . . . . . . . . .F-1
ANNEXES
A. Agreement and Plan of Merger between
First Leesport and Merchants
dated as of January 12, 1999. . . . . . . . . . . . . . .A-1
B. Opinion of Ryan, Beck & Co., Inc. . . . . . . . . . . . .B-1
C. Opinion of Hopper Soliday . . . . . . . . . . . . . . . .C-1
D. Section 1930 and 1571-1580 of the Pennsylvania Business
Corporation Law of 1988, as amende. . . . . . . . . . . .D-1
PAGE 3
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What do I need to do now?
A: Just indicate on your proxy card how you want your shares to
be voted, then sign and mail it in the enclosed prepaid
return envelope as soon as possible, so that your shares may
be represented and voted at the special meeting to be held
on June __, 1999.
Your vote is very important. Approval of the merger
requires the affirmative vote of a majority of the votes
cast at the special meetings of First Leesport and Merchants
Shareholders, and therefore you should return your signed
proxy card as soon as possible.
The Boards of Directors of both First Leesport and Merchants
unanimously recommend voting "FOR" the merger.
Q: If my shares are held in "street name" by my broker, will my
broker vote my shares for me?
A: Your broker will vote your shares only if you provide
instructions on how to vote. You should follow the
directions provided by your broker. Without instructions,
your shares will not be voted on the merger agreement.
Q: Can I change my vote after I have mailed my signed proxy
card?
A: Yes. There are three ways for you to revoke your proxy and
change your vote. First, you may send a written notice to
the person to whom you submitted your proxy stating that you
would like to revoke your proxy. Second, you may complete
and submit a new proxy card with a later date. Third, you
may vote in person at the special meeting. If you have
instructed a broker to vote your shares, you must follow
directions received from your broker to change your vote.
Q: If I am a Merchants shareholder, should I send in my stock
certificates now?
A: No. Shortly after the merger is completed, First Leesport
will send you written instructions for exchanging your stock
certificates. We will request that you return your
Merchants stock certificates at that time.
Q: When do you expect to merge?
A: We are working towards completing the merger as quickly as
possible. In addition to the approval of our shareholders,
we must also obtain regulatory approval. We expect to
receive all necessary approvals in late June or early July.
<PAGE 1>
Q: Whom should I call with questions or to obtain additional
copies of this proxy statement/prospectus?
A: You should contact either:
First Leesport Bancorp, Inc.
133 North Centre Avenue
Leesport, Pennsylvania 19533
Attention: Jeanette L. Eck, Corporate Secretary
Telephone: (610) 926-2161
Merchants of Shenandoah Ban-Corp
101 North Main Street
Shenandoah, Pennsylvania _____
Attention: Jane E. Mallick, Corporate Secretary
Telephone: (570) 462-1983
SUMMARY
This summary highlights selected information from this
proxy statement/prospectus and may not contain all of the
information that is important to you. To understand the merger
fully, and for more complete descriptions of the legal terms of
the merger, you should read carefully this entire joint proxy
statement/prospectus and the attached annexes. See "Where You
Can Find More Information" on page (___) for reference to
additional information available to you regarding First Leesport
and Merchants.
What Merchants Shareholders Will Receive in the Merger (See pages
___ - ___)
If you are a Merchants shareholder, when the merger is
completed you will receive 1.5854 shares of First Leesport common
stock for each share of Merchants common stock that you own on
the date of the merger. On May __, 1999, the closing sale price
of First Leesport common stock was $__________, making the value
of 1.5854 shares of First Leesport common stock $__________ on
that date. We will adjust the amount of First Leesport common
stock that you receive in the merger if the 30-day average price
of First Leesport common stock immediately prior to the merger is
less than $20.00 or more than $28.00.
In addition to First Leesport common stock, a Merchants
shareholder may also receive a check for a small amount of cash
for any fractional shares the shareholder might otherwise
receive.
Neither Merchants nor First Leesport has the right to
terminate the merger agreement solely as a result of increases or
decreases in the price of First Leesport common stock.
<PAGE 2>
No Federal Income Tax on Shares Received in the Merger
(See page ____)
Merchants shareholders generally will not recognize
gain or loss for federal income tax purposes for the shares of
First Leesport common stock they receive in the merger. First
Leesport's attorneys have issued a legal opinion to this effect,
which we have included as an exhibit to the registration
statement filed with the SEC for the shares to be issued in the
merger. Merchants shareholders will be taxed on cash received
instead of any fractional share. Tax matters are complicated,
and tax results may vary among shareholders. We urge you to
contact your own tax advisor to understand fully how the merger
will affect you.
Dissenters Rights of Merchants Shareholders (See pages ___-___)
Pennsylvania law provides shareholders of Merchants
with the right to dissent from the merger, and to demand and
receive cash for the "fair value" of their shares of stock
instead of receiving First Leesport common stock in the merger.
In order to assert these dissenters rights, Merchants'
shareholders must:
- file a written notice of intent to dissent with
Merchants prior to the shareholder vote at the meeting;
- not vote in favor of the merger;
- file a written demand for payment and deposit the
certificates representing their shares as requested by
the notice to demand payment that will be sent by
Merchants or First Leesport; and
- comply with certain other statutory procedures set
forth in Pennsylvania law.
If you are a Merchants shareholder and you sign and return your
proxy without voting instructions, we will vote your proxy in
favor of the merger and you will lose any dissenters rights that
you may have. We have included a copy of the sections of
Pennsylvania law dealing with dissenters rights to this proxy
statement/prospectus as Annex D.
If you do not follow the procedures required by
Pennsylvania law, you may lose your dissenters rights with
respect to the merger. We urge you to read carefully "The
Merger--Dissenters Rights" on page __ and Annex D to this proxy
statement/prospectus.
First Leesport shareholders do not have dissenters
rights in the merger.
<PAGE 3>
Former Shareholders of Merchants to Own Approximately 27% of
First Leesport Following the Merger
Based on an exchange ratio of 1.5854 shares of First
Leesport common stock for each share of Merchants common stock,
First Leesport will issue approximately 485,000 shares in the
merger. This means that former shareholders of Merchants will
own approximately 27% of the outstanding stock of First Leesport
after the merger. The shares of First Leesport common stock
issued in the merger will be listed for trading on the Nasdaq
Small Cap Market under the symbol "FLBP."
Financial Advisors Say Consideration Fair from a Financial Point
of View (See Pages ____-___)
We each asked our financial advisors, Hopper Soliday, a
Division of Tucker Anthony Incorporated, for First Leesport and
Ryan Beck & Co., Inc., for Merchants for advice on the fairness,
from a financial point of view, of the amount that First Leesport
is offering to Merchants shareholders in the merger. Our
advisors performed a number of analyses in which they compared
the companies' historical stock prices and other measures of
financial performance, compared the financial terms of the merger
to those of other publicly announced transactions, and estimated
the relative values of First Leesport and Merchants based on past
and anticipated future performance and the financial benefits
that could be expected from the merger. Hopper Soliday delivered
an opinion to First Leesport and Ryan Beck delivered an opinion
to Merchants that the exchange ratio is fair to the respective
company's shareholders from a financial point of view. These
opinions are attached as Annex C and Annex D to this proxy
statement/prospectus.
Conditions That Must be Satisfied to Complete the Merger (See
pages ___-___)
To complete the merger, we must meet a number of
conditions in addition to obtaining the votes of our
shareholders, including the following:
- no law or injunction may effectively prohibit the
merger;
- we must receive the approval of the Federal Reserve
Board;
- we must receive a legal opinion that the merger will be
treated as a tax-free reorganization under the Internal
Revenue Code; and
- First Leesport's independent accountants must concur in
management's determination that First Leesport may
account for the merger as a pooling of interests.
<PAGE 4>
Certain conditions to the merger may be waived by the
company entitled to the benefit of the condition. In some
instances, if we wish to waive a condition, we may be required to
resolicit the approval of shareholders.
Termination of the Merger Agreement (See pages ___-___)
We can agree jointly to abandon the merger (and
terminate the merger agreement) without completing the merger at
any time prior to completion of the merger. Also, either First
Leesport or Merchants can decide, without the consent of the
other, to abandon the merger if any of the following occurs:
- the merger is not completed by September 30, 1999;
- the merger is not approved by shareholders of either
First Leesport or Merchants;
- a court or other governmental authority permanently
prohibits the merger; or
- the other party breaches or materially fails to comply
with any of its representations or warranties or
obligations under the merger agreement.
Amendment, Waiver and Extension of the Merger Agreement (See
page ___)
We can amend the merger agreement at any time before
the merger actually takes place, and can agree to extend the time
within which any action required by the merger agreement is to
take place. Shareholders must approve, however, any amendment
that changes the amount or form of what Merchants' shareholders
would receive in the merger.
We Will Use Pooling of Interests Accounting Treatment (See
page ___)
Merchants and First Leesport intend that the
transaction be accounted for as a pooling of interests for
financial reporting purposes.
Affirmative Vote of a Majority of Votes Cast Required to Approve
the Merger (See pages ____)
Approval of the merger agreement requires the
affirmative vote of a majority of the votes cast at both the
First Leesport special meeting and the Merchants special meeting
provided a quorum is present. The approval of the adjournment
proposals also requires the affirmative vote of a majority of the
votes cast at each special meeting. You will have one vote for
each share of common stock that you own on each matter considered
at your special meeting.
<PAGE 5>
Certain Shareholders Will Vote in Favor of the Merger (See
page ___)
The directors and executive officers of First Leesport
intend to vote all shares of First Leesport common stock that
they own for approval of the merger agreement. On the record
date for the First Leesport special meeting, directors and
executive officers of First Leesport owned approximately 100,485
shares of First Leesport common stock, or approximately 7.9% of
the outstanding shares of First Leesport common stock.
The directors and executive officers of Merchants have
agreed to vote all shares of Merchants common stock that they own
for approval of the merger agreement. On the record date for the
Merchants special meeting, directors and executive officers of
Merchants owned approximately _________ shares of Merchants
common stock, or approximately ___% of the then outstanding
shares of Merchants common stock.
First Leesport Bancorp (See page ___)
First Leesport, a Pennsylvania business corporation, is
the holding company for the First National Bank of Leesport, a
national bank. At December 31, 1998, First Leesport and its
subsidiaries had total consolidated assets of $231.6 million,
deposits of $183.3 million and shareholders' equity of
$20.6 million. The First National Bank of Leesport's primary
business consists of attracting deposits from its seven full
service community banking offices located in Berks County,
Pennsylvania, and originating commercial, consumer and
residential mortgage loans and home equity lines of credit in the
communities served by those offices. First Leesport's
subsidiary, Essick & Barr, Inc., offers a full line of personal
and commercial property and casualty insurance, as well as group
insurance for businesses, employee benefit plans and life
insurance. The principal executive offices of First Leesport are
located at 133 North Centre Avenue, Leesport, Pennsylvania 19533,
and its telephone number is (610) 926-2161.
Merchants of Shenandoah Ban-Corp (See page ___)
Merchants, a Pennsylvania business corporation, is the
holding company for Merchants Bank of Pennsylvania, a
Pennsylvania state bank. At December 31, 1998, Merchants had
total consolidated assets of $58.4 million, deposits of
$46.2 million and shareholders' equity of $7.2 million. In
addition to the main office in Schuylkill County, Merchants Bank
has 1 branch office located in Luzerne County, Pennsylvania.
Merchants is engaged principally in the business of taking
deposits and originating commercial, consumer and residential
mortgage loans. The principal executive offices of Merchants are
located 101 North Main Street, Shenandoah, Pennsylvania 17976 and
its telephone number is (570) 462-1983.
<PAGE 6>
Comparison of Shareholder Rights (See page ___)
After the merger, shareholders of Merchants will become
shareholders of First Leesport. Although Merchants and First
Leesport are each Pennsylvania business corporations, certain
differences exist in the rights of the shareholders of Merchants
and First Leesport. These differences are due to the differences
in the articles of incorporation and bylaws of Merchants and of
First Leesport and to the fact that First Leesport common stock
is registered under the Securities Exchange Act of 1934.
The most significant differences between the rights of
the shareholders of Merchants and stockholders of First Leesport
include the following:
- Certain provisions contained in First Leesport's
Articles of Incorporation may prevent a change of
control of First Leesport and keep First Leesport's
current management in their positions. Merchants'
Articles of Incorporation contain some similar items
but there are certain differences in these anti-
takeover items.
- First Leesport common stock is registered under the
Securities Exchange Act of 1934 and trades on the
Nasdaq Stock Market, while Merchants common stock is
not registered under the Securities Exchange Act of
1934, and trades on a limited basis in the over-the-
counter market.
- Additional provisions of Pennsylvania law applicable to
Pennsylvania corporations with a class of securities
registered under the Securities Exchange Act of 1934
may inhibit a change of control of First Leesport.
Merchants is not subject to those provisions because
Merchants common stock is not registered under the
Exchange Act.
Management and Operations after the Merger (See page ___)
Following the merger, First Leesport will add three
individuals presently serving as directors of Merchants,
Andrew J. Kuzneski, Jr., Roland C. Moyer and Anthony R. Cali, to
its Board of Directors.
The officers of First Leesport will not change after
the merger except that Mr. Cali, the President and Chief
Executive Officer of Merchants, will become an Executive Vice
President of First Leesport. Mr. Cali will also remain President
of Merchants Bank.
Following the merger, The First National Bank of
Leesport will add Frank C. Milewski, presently a director of
Merchants, to its Board of Directors. In addition, if Merchants
Bank is combined with the First National Bank of Leesport within
<PAGE 7> two years following the merger, First Leesport has
agreed to elect two additional directors of Merchants to the
Board of Directors of The First National Bank of Leesport until
three years have elapsed from the merger date.
Following the merger, Merchants Bank will add
Raymond H. Melcher, Jr., the President and Chief Executive
Officer of First Leesport and The First National Bank of
Leesport, to its Board of Directors. If Merchants Bank merges
into The First National Bank of Leesport prior to two years after
the merger, First Leesport will maintain the Merchants Bank Board
as an Advisory Board for the remainder of the two-year period.
First Leesport will operate Merchants Bank as a
separate banking subsidiary under the name "Merchants Bank of
Pennsylvania" for at least two years after the merger. We can
combine Merchants with The First National Bank of Leesport prior
to the expiration of this two-year period only with the unanimous
approval of First Leesport's Board of Directors, including the
former directors of Merchants serving on the First Leesport
Board.
Financial Interests of Merchants Directors and Executive Officers
(See page ___)
When considering the recommendation of the Merchants
Board, shareholders of Merchants should be aware that some
directors and officers of Merchants have interests in the merger
in addition to their interests as shareholders.
First Leesport and Merchants Bank have entered into a
three-year employment agreement with Anthony R. Cali, President
and Chief Executive Officer of Merchants and Merchants Bank. The
employment agreement will become effective when we complete the
merger.
Directors of Merchants and Merchants Bank will continue
to receive directors' fees as members of the Boards of Directors
of First Leesport or the First National Bank of Leesport, as
continuing directors of Merchants Bank or as members of the
Merchants Bank Advisory Board for a period at least through the
annual meeting of shareholders of Merchants Bank in the spring of
2000.
Comparative Per Share Data
The following table compares certain unaudited per
share data relating to book value per share, cash dividends
declared per share and basic net income per share. The table
shows information on an historical basis for First Leesport and
Merchants, on a pro forma basis per share of First Leesport
common stock to reflect completion of the merger, and on an
equivalent pro forma basis per share of Merchants common stock to
reflect the exchange of Merchants shares for First Leesport
shares. The information shows how a share of Merchants common
<PAGE 8> stock would have participated in the book value, cash
dividends and net income if the merger had been completed at the
beginning of the periods presented. The pro forma information
gives effect to the merger using the pooling of interests method
of accounting. You should read this information together with
the consolidated financial statements of First Leesport and
Merchants incorporated by reference or included in this proxy
statement/prospectus, and the other financial data appearing
elsewhere in this proxy statement/prospectus. See "Selected
Financial Data" beginning on page ___, "Index Where You Can Find
More Information" on page ___ and "Index to Merchants Financial
Statements" on page ___.
PAGE 9
<PAGE>
At December 31,
1998
Book Value Per Common Share:
Historical:
First Leesport.............. $ 16.28
Merchants................... 23.67
Pro Forma(1):
Pro forma per share of
First Leesport
Common Stock.............. 15.91
Equivalent pro forma per
share of Merchants Common
Stock..................... 25.22
For the Year Ended
December 31,
1998 1997 1996
Cash Dividends Paid Per Common Share:
Historical:
First Leesport..................... $0.52 $0.52 $0.49
Merchants.......................... 0.70 0.58 0.50
Pro Forma(2):
Pro forma per share of First Leesport
Common Stock..................... 0.52 0.52 0.49
Equivalent pro forma per share
of Merchants Common Stock........ 0.82 0.82 0.78
Basic Net Income Per Common Share:
Historical:
First Leesport.................... $0.86 $1.21 $1.43
Merchants......................... 1.59 1.83 1.49
Pro Forma(3):
Pro forma per share of First Leesport
Common Stock.................... 0.90 1.20 1.29
Equivalent pro forma per share of
Merchants Common Stock.......... 1.43 1.90 2.05
__________________
(1) Pro forma book value per share of First Leesport common
stock was calculated by dividing total pro forma combined
shareholders' equity amounts as of the applicable date by
the sum of (i) 1,264,655 shares of First Leesport common
stock outstanding as of December 31, 1998 and
(ii) 305,721 shares of Merchants common stock outstanding as
of December 31, 1998, multiplied by an exchange ratio of
1.5854 shares of First Leesport common stock for each share
of Merchants common stock. Equivalent pro forma book value
per share of Merchants common stock represents the pro forma
book value per share of First Leesport common stock
multiplied by an exchange ratio of 1.5854.
<PAGE 10>
(2) First Leesport pro forma dividends per share represent
historical dividends paid by First Leesport. Merchants pro
forma equivalent dividends per share represent such amounts
multiplied by the exchange ratio of 1.5854 shares of First
Leesport common stock for each share of Merchants common
stock.
(3) First Leesport pro forma basic net income per common share
represents historical net income for First Leesport and
Merchants combined on the assumption that First Leesport and
Merchants had been combined for the periods presented on a
pooling of interests basis, divided by the weighted average
number of shares of First Leesport common stock outstanding
during each period plus the number of shares of First
Leesport assumed to be issued in the merger. Merchants
equivalent pro forma basic net income per common share
represents such amounts multiplied by an exchange ratio of
1.5854 shares of First Leesport common stock for each share
of Merchants common stock.
PAGE 11
<PAGE>
Market Value of Securities
The following table shows the market value per share of
First Leesport common stock, the market value per share of
Merchants common stock and the equivalent market value per share
of Merchants common stock on January 11, 1999 and May __, 1999.
The equivalent market value per share of Merchants common stock
shows the value of a share of Merchants common stock if the
merger had been completed on the dates shown based on an exchange
ratio of 1.5854 shares of First Leesport common stock for each
share of Merchants common stock.
The historical market values for First Leesport common
stock are the per share last sale prices on January 11, 1999 and
April __, 1999, as reported on the Nasdaq Stock Market Small Cap
Market. The historical market values per share of for Merchants
common stock are based on the last known sales prices known to
management in privately negotiated transactions.
First Leesport Merchants
Equivalent
Market Value
Historical Per Share
January 11, 1999 $ _____ $ ______ $ ______
April __, 1999 _____ ______ ______
The market price of First Leesport common stock will
fluctuate prior to the merger. Merchants shareholders should
obtain current market quotations for First Leesport common stock.
First Leesport Results of Operations for the Quarter Ended
March 31, 1999
For the quarter ended March 31, 1999, First Leesport
reported net income of $437,000 compared to $199,000 for the
first quarter of 1998. Basic earnings per share for the quarter
ended March 31, 1999 were $.35, an increase of 106% from $.17 in
the first quarter of 1998. The increase in earnings resulted, in
part, from a 16.3% increase in net interest income, a 295%
increase in fee income, primarily from commissions on insurance
sales, and focused expense management. Deposits at March 31,
1999 increased 21.7% to $194,012,000 from $159,494,000 deposits
at March 31, 1998, and net loans increased 35.6% to $178,701,000
at March 31, 1999 from $131,877,000 at March 31, 1998.
PAGE 12
<PAGE>
A WARNING ABOUT FORWARD LOOKING INFORMATION
This proxy statement/prospectus contains and
incorporates certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include certain statements
regarding intent, belief or current expectations about matters
including statements as to "beliefs," "expectations",
"anticipations," "intentions" or similar words. Forward-looking
statements are also statements that are not statements of
historical fact. Forward-looking statements are subject to
risks, uncertainties and assumptions. These include, by their
nature:
- the effects of changing economic conditions in
First Leesport's and Merchants' market areas, the
Commonwealth of Pennsylvania and nationally;
- credit risks of commercial, real estate, consumer
and other lending activities;
- significant changes in interest rates;
- changes in federal and state banking laws and
regulations which could impact operations;
- funding costs; and
- other external developments which could materially
affect the business and operations of First
Leesport and Merchants.
If one or more of these risks or uncertainties occurs or if the
underlying assumptions prove incorrect, actual results,
performance or achievements in 1999 and beyond could differ
materially from those expressed in, or implied by, the forward-
looking statements.
PAGE 13
<PAGE>
SELECTED FINANCIAL DATA
The following tables show certain historical
consolidated summary financial data for both First Leesport and
Merchants. This information is derived from and you should read
it together with the consolidated financial statements of First
Leesport and Merchants incorporated by reference or appearing
elsewhere in this joint proxy statement/prospectus, and the pro
forma combined financial information, appearing elsewhere in this
joint proxy statement/prospectus. See "Where You Can Find More
Information" on page ___ and "Index to Merchants Financial
Statements" on page ___.
PAGE 14
<PAGE>
First Leesport Selected Financial Data
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
1998 1997 1996 1995 1994
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Interest income $ 14,723 $ 13,020 $ 12,340 $ 11,534 $ 10,123
Interest expense 7,740 6,182 5,464 5,252 3,911
Net interest income 6,983 6,838 6,876 6,282 6,212
Provision for loan losses 590 500 210 270 168
Net interest income after provision
for loan losses 6,393 6,338 6,666 6,012 6,044
Other income 975 749 484 459 390
Other expenses 6,148 5,252 4,928 4,602 4,643
Income before income taxes 1,220 1,835 2,222 1,869 1,791
Federal income taxes 196 387 513 417 375
Net income $ 1,024 $ 1,448 $ 1,709 $ 1,452 $ 1,416
Per Share Data
Basic Earnings $ 0.86 $ 1.21 $ 1.43 $ 1.22 $ 1.19
Cash Dividends 0.52 0.52 0.49 0.45 0.42
Book value 16.28 15.25 14.37 13.68 12.26
Average shares outstanding 1,195,696 1,191,171 1,191,171 1,191,171 1,191,171
Balance Sheet Data
Assets $ 231,575 $ 180,265 $ 162,023 $ 152,402 $ 141,867
Securities 50,753 38,346 39,690 37,849 34,244
Loans receivable, net 160,777 128,296 109,773 104,092 97,063
Deposits 183,273 148,499 137,537 133,438 117,413
Short-term borrowings 5,700 8,000 5,700 - 2,000
Long-term debt 12,500 - - 1,000 1,000
Stockholders' equity 20,589 18,163 17,121 16,277 14,601
Ratios
Return on average assets 0.50% 0.85% 1.08% 0.99% 1.05%
Return on average equity 5.29 8.21 10.36 9.41 9.83
Equity to assets (year end) 8.89 10.08 10.57 10.68 10.29
Loans to deposits (year end) 87.73 86.40 79.81 78.01 82.67
Dividend payout (percentage of income) 60.47 42.98 34.27 36.89 35.29
________________
</TABLE>
PAGE 15
<PAGE>
Merchants Selected Financial Data
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
1998 1997 1996 1995 1994
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data
Interest income $ 3,824 $ 4,022 $ 4,051 $ 4,027 $ 3,731
Interest expense 1,751 1,809 1,939 2,000 1,672
Net interest income 2,073 2,213 2,112 2,027 2,059
Provision for loan losses 30 43 88 45 -
Net interest income after provision
for loan losses 2,043 2,170 2,024 1,982 2,059
Other income 174 155 172 177 188
Other expenses 1,609 1,591 1,615 1,663 1,860
Income before income taxes 608 734 581 496 387
Federal income taxes 121 175 124 126 88
Net income $ 487 $ 559 $ 457 $ 370 $ 299
Per Share Data*
Basic Earnings $ 1.59 $ 1.83 $ 1.49 $ 1.21 $ 0.98
Cash Dividends 0.70 0.58 0.50 0.46 0.44
Book value 23.67 22.82 20.72 20.10 17.33
Average shares outstanding 305,721 305,721 305,721 305,721 305,721
Balance Sheet Data
Assets $ 58,370 $ 55,302 $ 58,129 $ 59,741 $ 61,846
Securities 21,872 22,593 24,098 24,042 26,502
Loans receivable, net 32,381 29,311 29,371 29,923 31,203
Deposits 46,169 47,809 49,709 51,513 54,421
Short-term borrowings 1,000 - - - 3,250
Long-term debt 3,500 - 1,600 1,710 560
Stockholders' equity 7,236 6,976 6,335 6,146 5,298
Ratios
Return on average assets .87% .99% .78% .61% .50%
Return on average equity 6.72 8.42 7.32 6.46 5.29
Equity to assets (year end) 12.40 12.61 10.90 10.29 8.57
Loans to deposits (year end) 70.14 61.31 59.09 58.09 57.34
Dividend payout (percentage of income) 43.07 30.22 31.89 36.25 42.92
<FN>
* Outstanding and per share information for all years presented has been restated to give effect to stock dividends and stock
splits issued through December 31, 1998.
________________
</TABLE>
PAGE 16
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables show selected unaudited pro forma
financial data reflecting the merger accounted for using the
pooling of interests method of accounting. See "The Merger --
Accounting Treatment" on page ___.
We present the following pro forma information for
illustration purposes only. The pro forma financial information
does not necessarily reflect what the actual results of First
Leesport would be following completion of merger.
We have prepared the pro forma information based on an
exchange ratio of 1.5854 shares of First Leesport common stock
for each share of Merchants common stock outstanding. The
exchange ratio is subject to adjustment if the 30-day average
trading price of First Leesport common stock immediately prior to
the merger is lower than 20.00 or higher than $28.00. See "The
Merger - Terms of the Merger" on page ___.
Pro Forma Combined Balance Sheet as of December 31, 1998
The following pro forma consolidated balance sheet
information combines the historical consolidated balance sheets
of First Leesport and Merchants as of December 31, 1998. The
merger is reflected using the pooling of interests method of
accounting as though we completed the merger on December 31,
1998. You should read this pro forma information together with
the historical consolidated financial statements of First
Leesport and Merchants incorporated by reference or appearing
elsewhere in this joint proxy statement/prospectus.
PAGE 17
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Leesport Merchants Adjustments Combined
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 4,675 $ 2,090 $ $ 6,765
Federal funds sold - 650 650
Securities 50,753 21,872 72,625
Loans receivable 162,533 32,754 195,287
Allowance for loan losses (1,756) (373) (2,129)
Other assets 15,370 1,377 16,747
Total Assets $231,575 $58,370 $ - $289,945
Deposits 183,273 46,169 229,442
Federal funds purchased 5,509 - 5,509
Short-term borrowings 5,700 1,000 6,700
Long-term debt 12,500 3,500 16,000
Other liabilities 4,004 465 4,469
Total Liabilities 210,986 51,134 - 262,120
Common Stock 6,366 611 (611)A 8,789
2,423 A
Treasury Stock (118) - (118)
Surplus 4,417 1,155 (1,155)A 3,760
(657)A
Retained Earnings 9,245 5,384 14,629
Accumulated other
comprehensive income 679 86 765
Total Stockholders' Equity 20,589 7,236 - 27,825
Total Liabilities and
Stockholders' Equity $231,575 $58,370 $ - $289,945
____________________________
</TABLE>
A -- Assumes that First Leesport will exchange 484,690 shares of
First Leesport common stock for 305,721 shares of Merchants
common stock.
PAGE 18
<PAGE>
Pro Forma Statements of Income for the Years Ended December 31,
1998, 1997 and 1996
The following three tables show pro forma statements of
income for the years ended December 31, 1998, 1997, and 1996. We
prepared this pro forma information under the pooling of
interests method of accounting assuming that the merger occurred
on the first day of each period for which information is
presented. Under the pooling of interests method of accounting,
the income statements of the separate companies are added
together for each period shown. You should read this pro forma
information together with the historical financial statements of
First Leesport and Merchants incorporated by reference or
appearing elsewhere in this proxy statement/prospectus.
PAGE 19
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(dollars in thousands, except per share data)
Pro Forma
Leesport Merchants Combined
Interest income $14,723 $3,824 $18,547
Interest expense 7,740 1,751 9,491
Net interest income 6,983 2,073 9,056
Provision for loan losses 590 30 620
Net interest income after
provision for loan losses 6,393 2,043 9,436
Other income 975 174 1,149
Other expenses 6,148 1,609 7,757
Income before income taxes 1,220 608 1,828
Income taxes 196 121 317
Net income $ 1,024 $ 487 $ 1,511
Basic earnings per share $ 0.86 $ 1.59 $ 0.90
Weighted average number of
shares outstanding 1,195,696 305,721 1,680,386
PAGE 20
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(dollars in thousands, except per share data)
Pro Forma
Leesport Merchants Combined
Interest income $13,020 $4,022 $17,042
Interest expense 6,182 1,809 7,991
Net interest income 6,838 2,213 9,051
Provision for loan losses 500 43 543
Net interest income after
provision for loan losses 6,338 2,170 8,508
Other income 749 155 904
Other expenses 5,252 1,591 6,843
Income before income taxes 1,835 734 2,569
Income taxes 387 175 562
Net income $ 1,448 $ 559 $ 2,007
Basic earnings per share $ 1.21 $ 1.83 $ 1.20
Weighted average number of
shares outstanding 1,191,171 305,721 1,675,861
PAGE 21
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(dollars in thousands, except per share data)
Pro Forma
Leesport Merchants Combined
Interest income $12,340 $4,051 $16,391
Interest expense 5,464 1,939 7,403
Net interest income 6,876 2,112 8,988
Provision for loan losses 210 88 298
Net interest income after
provision for loan losses 8,666 2,024 8,690
Other income 484 172 656
Other expenses 4,928 1,615 6,543
Income before income taxes 2,222 581 2,803
Income taxes 513 124 637
Net income $ 1,709 $ 457 $ 2,166
Basic earnings per share $ 1.43 $ 1.49 $ 1.29
Weighted average number of
shares outstanding 1,191,171 305,721 1,675,861
PAGE 22
<PAGE>
THE SPECIAL MEETINGS
Matters To Be Considered at the Meetings
General. The Boards of Directors of First Leesport and
Merchants are each sending this proxy statement/prospectus to
their shareholders to solicit proxies for use at the First
Leesport special meeting and the Merchants special meeting.
At both the First Leesport special meeting and the
Merchants special meeting, shareholders will consider and vote
upon proposals to:
- approve and adopt the merger agreement;
- approve the proposal to adjourn the meeting if
more time is needed to solicit proxies; and
- consider any other matters properly brought before
the meeting.
A vote for approval of the merger agreement is a vote
for approval of the merger of Merchants into First Leesport and
for the exchange of Merchants common stock for First Leesport
common stock.
Votes Required
First Leesport. Approval of the merger agreement
requires the affirmative vote of a majority of the votes cast in
person or by proxy to vote at the special meeting. Approval of
the adjournment proposal also requires the affirmative vote of a
majority of the votes cast in person or by proxy at the special
meeting.
Shareholders of First Leesport have one vote for each
share of First Leesport common stock that they hold of record on
each matter to be considered at the First Leesport special
meeting.
The directors and executive officers of First Leesport
have indicated that they intend to vote all shares of First
Leesport common stock that they own for approval and adoption of
the merger agreement. As of the record date for the special
meeting, directors and executive officers of First Leesport and
their affiliates beneficially owned and were entitled to vote
approximately 100,485 shares of First Leesport common stock,
which represented approximately 7.9% of the outstanding shares of
First Leesport.
Merchants. Approval of the merger agreement requires
the affirmative vote of a majority of the votes cast in person or
<PAGE 23> by proxy at the special meeting. Approval of the
adjournment proposal also requires the affirmative vote of a
majority of the votes cast in person or by proxy at the Merchants
special meeting.
Shareholders of Merchants have one vote for each share
of Merchants common stock that they hold of record on each matter
to be considered at the Merchants special meeting.
The directors and executive officers of Merchants have
agreed to vote all shares of Merchants common stock that they own
for approval and adoption of the merger agreement. As of the
record date for the special meeting, directors and executive
officers of Merchants and their affiliates beneficially owned and
were entitled to vote approximately _______ shares of Merchants
common stock, which represented approximately ___% of the shares
of Merchants common stock outstanding on the Record Date.
Voting of Proxies
The proxyholders will vote shares represented by all
properly executed proxies received in time for the First Leesport
special meeting or the Merchants special meeting at the
applicable special meeting in the manner specified on each proxy.
The proxyholders will vote properly executed proxies that do not
contain voting instructions in favor of the merger agreement and
in favor of the adjournment proposal.
The abstention from voting on any proposal by any
shareholder who is present in person or by proxy at the First
Leesport special meeting or the Merchants special meeting will
not count as a vote "for" or "against" the proposal. Under the
applicable rules of the New York Stock Exchange and the National
Association of Securities Dealers, brokers who hold your shares
in street name cannot give a proxy to vote your shares on the
merger agreement or the adjournment proposal in the absence of
specific instructions from you. We will not count these broker
non-votes as a vote "for" or "against" the merger agreement or
the adjournment proposal for purposes of the special meeting. As
a result, because the approval of both the merger agreement and
the adjournment proposal requires the affirmative vote of a
majority of all votes cast at the special meeting, abstentions
and broker-nonvotes will not affect the vote on these matters.
We do not expect that any matter other than those
described in the proxy statement/prospectus will come before
either the First Leesport special meeting or the Merchants
special meeting. If, however, a shareholder properly presents
another matter for a vote at either the First Leesport special
meeting or the Merchants special meeting, the persons named as
proxies will use their judgment to vote on those matters.
<PAGE 24>
Revocability of Proxies
First Leesport. If you are a shareholder of First
Leesport and you grant a proxy, you may revoke your proxy at any
time until it is voted by:
- delivering a notice of revocation or delivering a
later dated proxy to Jeanette L. Eck, Secretary,
First National Bank of Leesport, 133 North Centre
Avenue, Leesport, Pennsylvania 19533; or
- appearing at the First Leesport special meeting
and voting in person.
Attendance at the First Leesport special meeting will
not in and of itself revoke a proxy.
Merchants. If you are a shareholder of Merchants and
you grant a proxy, you may revoke your proxy at any time until it
is voted by:
- delivering a notice of revocation or delivering a
later dated proxy to Jane E. Mallick, Secretary,
Merchants of Shenandoah Ban-Corp, 101 North Main
Street, Shenandoah, Pennsylvania 17976; or
- appearing at the Merchants special meeting and
voting in person.
Attendance at the Merchants special meeting will not in
and of itself revoke a proxy.
Record Date; Stock Entitled to Vote; Quorum
First Leesport. Only holders of record of First
Leesport common stock on April __, 1999 will receive notice of,
and can vote at, the First Leesport special meeting. On
April __, 1999, 1,264,655 shares of First Leesport common stock
were issued and outstanding and held by approximately 600 holders
of record.
A quorum at the First Leesport special meeting for
purposes of voting on approval of the merger agreement and the
adjournment proposal requires the presence in person or by proxy
of shareholders entitled to cast at least a majority of the votes
which all shareholders of First Leesport are entitled to cast on
the record date.
Merchants. Only holders of record of Merchants common
stock on April __, 1999 will receive notice of, and can vote at,
the Merchants special meeting. On April __, 1999, 305,721 shares
of Merchants common stock were issued and outstanding and held by
approximately 235 holders of record.
<PAGE 25>
A quorum at the Merchants special meeting for purposes
of voting on approval of the merger agreement and the adjournment
proposal requires the presence in person or by proxy of
shareholders entitled to cast at least a majority of the votes
which all shareholders of Merchants are entitled to cast on the
record date.
First Leesport and Merchants each intend to count the
following shares as present at the special meeting for the
purpose of determining a quorum:
- shares of common stock present in person at the
special meeting but not voting;
- shares of common stock relating to proxies
received on which holders of the shares have
abstained on any matter; and
- shares of common stock for which it has received
proxies from a broker with no indication of how to
vote the shares.
Solicitation of Proxies
First Leesport and Merchants will each bear the cost of
the solicitation of proxies from its shareholders. First
Leesport and Merchants will share equally the cost of printing
this proxy statement/prospectus.
First Leesport and Merchants will each solicit proxies
by mail. In addition, directors, officers and employees of First
Leesport and Merchants and their subsidiaries may solicit proxies
from shareholders by telephone, telegram or in person. First
Leesport and Merchants will make arrangements with brokerage
houses and other custodians, nominees and fiduciaries for the
forwarding of proxy solicitation material to the beneficial
owners of stock held of record by those persons, and First
Leesport or Merchants will reimburse such custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses.
Merchants shareholders should not send stock
certificates with their proxy cards. As described below under
the caption "the merger -- exchange of Merchants stock
certificates," First Leesport will provide each Merchants
shareholder with materials for exchanging shares of Merchants
common stock shortly after the merger.
PAGE 26
<PAGE>
THE MERGER
General
In this section of the proxy statement/prospectus we
describe the material terms and provisions of the proposed
merger. We have attached a copy of the merger agreement that
provides for the merger to this proxy statement/prospectus as
Annex A. We urge all shareholders to read the merger agreement
carefully.
Background of the Merger
The Board of Directors of Merchants has for several
years, as part of its long-range planning practices, periodically
reviewed and evaluated the various strategic options and
alternatives available to Merchants. In particular, the Board
has considered the relative merits of maintaining the
independence of Merchants and Merchants Bank and of merging
Merchants and/or Merchants Bank with a larger financial
institution in light of current economic, financial and
regulatory conditions and their impact on the financial services
industry. The Board has also considered the desirability of
increasing the value and liquidity of the Merchants stock by
arranging a merger in which Merchants' shareholders would receive
publicly-traded stock in a larger banking organization. The
Board's primary consideration in taking the actions that led to
the execution of the merger agreement was to provide fair
financial return to shareholders and to increase the liquidity of
their stock, while maintaining, to the extent possible, local
identity and autonomy for Merchants Bank in order to serve
Merchants' other constituencies, including the community and the
customers and employees of Merchants Bank. The Board concluded
that in a rapidly changing, increasingly competitive market for
financial services, Merchants can compete more effectively as
part of a larger banking organization with more resources and a
wider range of products and services than those that Merchants
currently offers. Through the merger, Merchants believes it can
expand its resources and its range of products and services on an
accelerated timetable as compared to reliance on internal growth.
In general, Merchants is entering into the agreement because it
believes it can better maximize shareholders' long-term return
through an affiliation with a larger, more diversified financial
institution. Merchants' Board of Directors believes that First
Leesport's greater resources will enable Merchants Bank to offer
expanded services and products to its customers in the
communities it serves.
In addition, the merger with First Leesport will
increase the liquidity of the stock held by Merchants'
shareholders by exchanging it for a stock in a larger banking
organization. In considering the merger, Merchants' Board of
Directors considered, among other things discussed in this proxy
statement/prospectus: <PAGE 27>
- the financial terms of the merger;
- the structure of the transaction;
- the historic and current financial performance of First
Leesport;
- the First Leesport strategic plan;
- the commitment of First Leesport to the communities it
serves;
- First Leesport's operating culture; and
- the opinion of its financial advisor as to the fairness
of the transaction, from a financial point of view, to
Merchants' shareholders.
The Board of Directors of Merchants negotiated the
consideration that you are to receive in the merger as a
Merchants' shareholder in light of various factors, including:
- Merchants' and First Leesport's recent operating
results,
- current financial condition, and
- perceived future prospects.
Ryan, Beck has advised the Board of Directors that, in its
opinion, the exchange ratio is fair, from a financial point of
view.
Reasons for the Merger
First Leesport. The First Leesport Board of Directors
believes the terms of the merger agreement are fair and in the
best interests of First Leesport and its shareholders. In
reaching this determination, the First Leesport Board consulted
with legal counsel with respect to its legal duties and the terms
of the merger agreement. The First Leesport Board also
consulted with its financial advisor with respect to a due
diligence examination of Merchants, the financial aspects of the
transaction and the fairness of the exchange ratio from a
financial point of view. The First Leesport Board also
consulted with representatives of First Leesport's independent
auditor regarding their due diligence with respect to the
financial statements of Merchants and related matters.
The following discussion of the information and factors
considered by the First Leesport Board of Directors is not
intended to be exhaustive, but does include all material factors
considered by the Board. In reaching its decision to approve
the merger agreement, the First Leesport Board of Directors
considered the following:
- That First Leesport does not presently have any office
or operations in the market area served by Merchants so
that the transaction will result in expansion by First
Leesport into a new geographic market that is
complementary to its existing markets and should result
in new customers to whom First Leesport can market its
broader range of financial services. <PAGE 28>
- The financial condition, results of operations, cash
flows, business and prospects of Merchants, including
its asset and deposit composition, asset quality, and
capital levels.
- The opinion of Hopper Soliday that the exchange ratio
provided for in the merger agreement is fair from a
financial point of view to the shareholders of First
Leesport.
- The results of the due diligence investigations of
Merchants undertaken by First Leesport personnel, and
representatives of First Leesport' financial advisor
and independent auditors, including Merchants'
investment portfolio, loan portfolio and adequacy of
loan loss reserves, funds management policies, employee
benefit plans, Year 2000 compliance matters, and audit
procedures.
- That First Leesport intends to account for the merger
as a pooling of interests and that pooling accounting
treatment is a condition to First Leesport's obligation
to complete the transaction.
- The detailed financial analyses, pro forma and other
information, with respect to First Leesport and
Merchants discussed by Hopper Soliday.
- That Anthony R. Cali, President and Chief Executive
Officer of Merchants, would continue to serve in that
capacity and would become an Executive Vice President
of First Leesport following the transaction, and would
enter into a written employment agreement with First
Leesport prior to closing.
- That the merger agreement prohibits Merchants from
initiating or encouraging discussion with third parties
relating to an alternative transaction and that
Merchants would pay First Leesport a fee under certain
circumstances if acquired by another party within
twelve months following a termination of the merger
agreement.
- That the transaction would be tax-free to First
Leesport and its shareholders.
- That three representatives of the Merchants Board would
become members of the First Leesport Board and a fourth
representative of the Merchants Board would become a
member of the First National Bank of Leesport Board,
thereby promoting continuity with respect to the
continuing operations of Merchants Bank and valuable
input into the market area served by Merchants.
<PAGE 29>
In reaching its conclusion to approve and recommend the
merger agreement, the First Leesport Board did not assign any
relative or specific weights to the foregoing factors, and
individual directors may have evaluated and weighed the factors
differently.
Merchants. In evaluating the merger, the Merchants Board of
Directors considered a variety of information and factors. We do
not intend that the following discussion of the information and
factors considered by the Merchants Board of Directors be
exhaustive. The discussion does, however, include all material
factors considered by the Board. In reaching its decision to
approve the merger agreement, the Merchants Board of Directors
considered, among other things:
- the consideration offered to Merchants' shareholders in
relation to the market value, book value, earnings per
share and projected earnings per share of Merchants;
- the quality of a financial investment in and the
liquidity of the Leesport common stock;
- the historical results of operations, current financial
condition and future prospects of Leesport and
Merchants; and
- the presentation by Ryan, Beck, Merchants' financial
advisors, as to the fairness of the exchange ratio
provided for in the merger agreement from a financial
point of view to Merchants' shareholders.
The Board considered a number on non-financial factors,
including:
- prospects for continued local identity and autonomy for
Merchants Bank;
- continued employment for current employees of the bank
and continued service for current directors of the
bank;
- the recent acquisition of Essick & Barr, Inc., a Berks
County, Pennsylvania based insurance agency,
demonstrating implementation of First Leesport's
strategic plan;
- a structure that should provide advantageous service to
the community and customers of the bank; and
- the quality of Leesport and its operating history,
including its products and services.
Leesport also has an operating culture that is similar to
Merchants' and the Leesport institutional geographic coverage is
in an area of greater potential growth. In this regard, the
Merchants Board of Directors received a written opinion from
Ryan, Beck dated January 12, 1999, and updated as of the date of
this proxy statement/prospectus that, as of those dates, the
exchange ratio is fair to Merchant's shareholders from a
financial point of view. The updated opinion is attached as
Annex D to this proxy statement/prospectus. A summary of the
Ryan, Beck presentation is set forth in "Opinions of Independent
<PAGE 30> Financial Advisors." The Merchants Board of Directors
considered other financial and non-financial factors including:
- the resources that Leesport would bring to face the
competitive environment from financial institutions
generally;
- the compatibility of the respective business management
philosophies of Merchants and Leesport;
- the ability of Leesport to provide comprehensive
financial services to the markets currently served by
Merchants Bank;
- the projected social and economic effects of the merger
upon Merchants, its shareholders and other corporate
constituencies, including employees, suppliers and
customers in the communities in which it does business;
- the financial terms of other recent business
combinations in the local financial services industry;
- the fact that Leesport, as a larger financial
institution, has the financial resources to serve the
lending and deposit needs of the local communities
served by Merchants.
The Merchants Board of Directors determined, in light of the
material factors discussed above, that the terms of the merger
agreement are fair to, and in the best interests of, Merchants
and its shareholders. The Merchants Board of Directors believes
that the factors discussed above are all of the material factors
considered by the Board of Directors in evaluating the merger.
In view of the wide variety of material factors considered in
connection with its evaluation of the merger, the Merchants Board
did not find it practical to, and did not, quantify or otherwise
attempt to assign any relative weight to the various factors
considered, except, however, that liquidity and the size and
attributes of Leesport were determined by the Board to be
significant factors. In addition, individual directors may have
given different weights to different factors. The Board of
Directors cannot assure that any of the potential opportunities
it considered will be achieved through consummation of the
merger.
Recommendations of the Boards of Directors
First Leesport. The Board of Directors of First
Leesport believes that the terms of the merger are fair and in
the best interests of the shareholders of First Leesport. The
Board of Directors of First Leesport has unanimously approved the
merger agreement. The Board of Directors of First Leesport
unanimously recommends that the shareholders of First Leesport
approve the merger agreement.
<PAGE 31>
Merchants. The Board of Directors of Merchants
believes that the terms of the merger are fair and in the best
interests of the stockholders of Merchants. The Board of
Directors of Merchants has unanimously approved the merger
agreement. The Board of Directors of Merchants unanimously
recommends that the shareholders of Merchants approve the merger
agreement.
Effect of the Merger
As a result of the merger, Merchants will merge into
First Leesport, and the separate legal existence of Merchants
will cease. All property, rights, powers, duties, obligations,
debts and liabilities of Merchants will automatically transfer to
and vest in First Leesport, in accordance with Pennsylvania law.
The Articles of Incorporation and Bylaws of First Leesport in
effect immediately prior to completion of the merger will
continue to apply to First Leesport as the surviving corporation
in the merger.
What Merchants Shareholders Will Receive
If you are a Merchants shareholder, when the merger is
completed you will receive 1.5854 shares of First Leesport common
stock for each share of Merchants common stock that you own on
the date of the merger. This exchange ratio is subject to
adjustment to ensure that you receive a specified minimum value
for your Merchants common stock and that you do not receive more
than a specified maximum value. To determine the exact value of
what you receive, we will multiply 1.5854 by the average closing
sale price of a share of First Leesport common stock for the 30
trading days preceding the merger. If there is no closing sale
price on a particular day, we will use the closing bid price on
that day.
If the average price of a share of First Leesport
common stock over the 30-day period is between $20.00 and $28.00,
you will receive 1.5854 shares of First Leesport common stock for
each of your shares of Merchants common stock. If the average
price of a share of First Leesport common stock over the 30-day
period is less than $20.00, the exchange ratio will increase so
that you will receive the number of shares of First Leesport
common stock necessary to provide you with a total value of
$31.71 for each share of your Merchants common stock. If the
average price of a share of First Leesport common stock over the
30-day period is greater than $28.00, the exchange ratio will
decrease so that you will receive the number of shares of First
Leesport common stock necessary to provide you with a total value
of $44.39 for each share of your Merchants common stock.
For example, if the average price of a share of First
Leesport common stock for the 30 trading days preceding the
merger is $25.00, you would receive 1.5854 shares of First
Leesport common stock because the 30-day average price is between
$20.00 and $28.00. <PAGE 32>
If, however, the 30-day average price of First Leesport
common stock is $19.00, you would receive more than 1.5854 shares
of First Leesport stock to ensure that you receive shares with a
minimum total value of $31.71 based on the First Leesport average
share price. In this example of First Leesport common stock
having an average price of $19.00, you would receive 1.6689
shares of First Leesport common stock for each share of Merchants
common stock, determined by dividing $31.71 by $19.00. If, on
the other hand, the 30-day average price of First Leesport common
stock is $29.00, you would receive fewer than 1.5854 shares of
First Leesport common stock so that you receive shares with a
maximum total value of $44.39 based on the First Leesport average
share price. In this example of First Leesport common stock
having an average price of $29.00, you would receive 1.5307
shares of First Leesport common stock for each share of Merchants
common stock, determined by dividing $44.39 by $29.00.
The following chart shows the number of shares of First
Leesport common stock a Merchants shareholder would receive for
each share of Merchants common stock based on different assumed
average prices of First Leesport common stock over the thirty
trading days immediately prior to the merger. We have included
this chart for illustrative purposes only. It is not intended to
show what the actual price of First Leesport common stock will be
at the time of the merger or at any future time.
No. of Shares of First
First Leesport Leesport Exchanged for
30-day Average Stock Price each share of Merchants
$16.00 1.9819
17.00 1.8653
18.00 1.7617
19.00 1.6689
20.00 1.5854
21.00 1.5854
22.00 1.5854
23.00 1.5854
24.00 1.5854
25.00 1.5854
26.00 1.5854
27.00 1.5854
28.00 1.5854
29.00 1.5307
30.00 1.4797
31.00 1.4319
32.00 1.3872
In addition to First Leesport common stock, Merchants
shareholders may also receive a check for a small amount of cash
for any fractional shares. For instance, if you own 100 shares
of Merchants common stock and the exchange ratio is 1.5854 shares
of First Leesport common stock for each share of Merchants common
stock, you would receive 158 shares of First Leesport common
stock in the merger (1.5854 multiplied by 100). Assuming that
<PAGE 33> the 30-day average First Leesport common stock price
was $25.00, you would also receive a check for $13.50 (.54
multiplied by $25.00) instead of a fractional share of First
Leesport common stock.
If First Leesport effects a stock split or a stock
dividend or any similar change in its common stock prior to the
merger, we will adjust proportionately the number of shares of
First Leesport common stock issuable in exchange for shares of
Merchants common stock.
Opinions of Independent Financial Advisors
First Leesport Financial Advisor
Under the engagement letter dated October 27, 1998, the
First Leesport Board retained Hopper Soliday to render financial
advisory and investment banking services to First Leesport in
connection with the possible acquisition of Merchants by First
Leesport. Hopper Soliday has no other material relationship with
First Leesport or Merchants.
Hopper Soliday is a regional investment banking firm
and as a customary part of its investment banking business is
engaged in the valuation of bank and bank holding company
securities in connection with mergers, acquisitions,
underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for various other
purposes. As a specialist in the securities of financial
institutions, Hopper Soliday has experience in, and knowledge of,
the valuation of banking enterprises. The First Leesport Board
selected Hopper Soliday on the basis of Hopper Soliday's ability
to evaluate the fairness of the merger from a financial point of
view, its qualifications, its previous experience and its
reputation in the banking and investment communities. Hopper
Soliday has acted exclusively for the First Leesport Board in
rendering its fairness opinion and will receive a fee from First
Leesport for its services. Hopper Soliday represented First
Leesport in the acquisition of Essick & Barr and received
customary fees for its services.
Hopper Soliday has rendered a written opinion to the
First Leesport Board, dated as of the date of this joint proxy
statement/prospectus, to the effect that, as of that date, the
merger consideration is fair, from a financial point of view, to
the shareholders of First Leesport. The full text of the Hopper
Soliday opinion is attached as Annex C to this joint Proxy
statement/prospectus and is incorporated herein by reference. We
urge First Leesport shareholders to read the Hopper Soliday
opinion in its entirety for a description of the procedures
followed, assumptions made, matters considered, and
qualifications and limitations on the review undertaken by Hopper
Soliday rendering its opinion. We qualify the following summary
of the Hopper Soliday opinion in its entirety by reference to the
full text of the Hopper Soliday opinion. First Leesport and
<PAGE 34> Merchants determined the merger consideration by
negotiation. Hopper Soliday did not determine the merger
considerations. See "The Merger -- Background of the Merger."
The Hopper Soliday Opinion is directed only to the
merger consideration and is not a recommendation to any First
Leesport shareholder as to how the shareholder should vote at the
special meeting.
In rendering its opinion, Hopper Soliday reviewed,
among other things:
- Merchants' Quarterly Call Reports as filed with the
Federal Deposit Insurance Corporation (FDIC) for the
periods ending March 31, 1998, June 30, 1998, and
September 30, 1998 and audited financial statements for
fiscal years ended December 31, 1994 through
December 31, 1997;
- First Leesport's Annual Reports on Form 10-KSB and
related financial information for fiscal years ended
December 31, 1994 through December 31, 1997, and First
Leesport's Quarterly Reports on Form 10-QSB and related
unaudited financial information for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
- certain information concerning the respective
businesses, operations, regulatory condition and
prospects of First Leesport and Merchants, including
financial forecasts relating to the business, earnings,
assets and prospects of First Leesport and Merchants,
furnished to Hopper Soliday by First Leesport and
Merchants, which Hopper Soliday discussed with members
of senior management of First Leesport and Merchants;
- historical market prices and trading activity for the
First Leesport common stock and Merchants common stock
and similar data for certain publicly traded companies
which Hopper Soliday deemed to be relevant;
- the results of operations of First Leesport and
Merchants and similar data for certain companies which
Hopper Soliday deemed to be relevant;
- the financial terms of the merger contemplated by the
merger agreement and the financial terms of certain
other mergers and acquisitions which Hopper Soliday
deemed to be relevant;
- the pro forma impact of the merger on the earnings and
book value per share, consolidated capitalization and
certain balance sheet and profitability ratios of First
Leesport;
- the merger agreement; <PAGE 35>
- other matters that Hopper Soliday deemed necessary.
Hopper Soliday also met with certain members of senior
management and other representatives of First Leesport and
Merchants to discuss the foregoing as well as other matters
Hopper Soliday deemed relevant. Hopper Soliday also considered
such financial and other factors as it deemed appropriate under
the circumstances and took into account its assessment of general
economic, market and financial conditions, and its experience in
similar transactions, as well as its experience in securities
valuation and its knowledge of the banking industry generally.
The Hopper Soliday opinion is necessarily based upon conditions
as they existed and could be evaluated on the respective dates
thereof and the information made available to Hopper Soliday
through the respective dates thereof.
Hopper Soliday relied without independent verification
upon the accuracy and completeness of all of the financial and
other information reviewed by and discussed with it for purposes
of its opinion. With respect to the financial forecasts reviewed
by Hopper Soliday in rendering its opinion, Hopper Soliday
assumed that such financial forecasts were reasonably prepared on
bases reflecting the best currently available estimates and
judgments of the managements of First Leesport and Merchants as
to the future financial performance of First Leesport and
Merchants. Hopper Soliday did not make any independent
evaluation or appraisals of the assets or liabilities of
Merchants nor was it furnished with any such appraisals.
The summary set forth below is not a complete
description of the analyses performed by Hopper Soliday in this
regard. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not
readily susceptible to summary description. Accordingly,
notwithstanding the separate factors discussed below, Hopper
Soliday believes that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors
considered by it, without considering all analyses and factors,
could create an incomplete view of the evaluation process
underlying its opinion. No one of the analyses performed by
Hopper Soliday was assigned a greater significance with respect
to industry performance, business and economic conditions and
other matters, many of which are beyond First Leesport's or
Merchants' control. The analyses performed by Hopper Soliday are
not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested
by such analyses. Additionally, analyses relating to the values
of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
Transaction Summary. Hopper Soliday reviewed with the
First Leesport Board the key financial terms of the proposed
merger, including the expected method of accounting, the exchange
<PAGE 36> ratio, the share price of First Leesport as of
December 10, 1998, the resulting indicated value per share of
Merchants common stock of the merger and the resulting indicated
aggregate consideration to be paid in the merger. The proposed
method of accounting for the merger was a pooling of interests in
a tax-free exchange. The indicated value was $38.05 per share of
Merchants common stock, determined by multiplying the exchange
ratio by the closing price on the Nasdaq Small Cap Market of
First Leesport common stock on December 10, 1998. The indicated
aggregate consideration to be paid in the merger was
$11.6 million based on 305,721 fully diluted shares of Merchants'
common stock outstanding. Hopper Soliday noted that the value of
the merger consideration represented a 29% premium to Merchants'
market price of $29.00 per share on December 10, 1998. Hopper
Soliday also noted that the $38.05 per share value represented
160% of Merchants' fully-diluted book value per share as of
September 30, 1998 and a multiple of 23.6 times Merchants' net
income for the twelve months ended September 30, 1998.
Contribution Analysis. Hopper Soliday reviewed the
contribution made by each of First Leesport and Merchants' to
various balance sheet items and net income of the combined
company at the proposed exchange ratio based on balance sheet
data at September 30, 1998 and trailing twelve months earnings as
of September 30, 1998. This analysis showed that Merchants'
shareholders would own approximately 28.8% of the aggregate
shares outstanding of the combined company and that Merchants was
contributing 20.9% of total assets, 17.0% of total loans, 21.0%
of total deposits, 28.0% of shareholders' equity and 29.4% of net
income, respectively, of the pro forma combined company as of
September 30, 1998.
Summary Comparison of Selected Institutions - First
Leesport. Hopper Soliday compared selected balance sheet data,
asset quality, capitalization and profitability ratios and market
statistics using financial data at or for the twelve months ended
September 30, 1998 and market data as of December 9, 1998 for
First Leesport to a peer group of Pennsylvania banks and bank
holding companies consisting of twelve institutions with total
assets between $160 million and $260 million. The analysis
included, but was not limited to, the following ratios: loans/
deposits, equity/assets, non-performing assets/total assets,
allowance for loan losses/non-performing assets, net interest
margin, efficiency ratio, return on average assets, return on
average equity, price/earnings, price/book and dividend yield.
The analysis showed that:
- First Leesport's loans/deposits ratio was 85.6% versus
a First Leesport peer group median of 81.2%;
- First Leesport's equity/assets ratio was 9.02% versus a
First Leesport peer group median of 10.21%;
<PAGE 37>
- First Leesport's ratio of non-performing assets to
total assets was 2.34% versus a First Leesport peer
group median of 0.70%;
- First Leesport's allowance for loan losses/non-
performing assets ratio was 34.1% versus a First
Leesport peer group median of 113.6%;
- First Leesport's net interest margin was 4.06% versus a
peer group median of 4.36%;
- First Leesport's efficiency ratio was 75.46% versus a
peer group median of 60.74%;
- First Leesport's return on average assets and return on
average equity were 0.65% and 6.61%, respectively,
versus First Leesport peer group medians of 1.34% and
12.32%, respectively;
- First Leesport's price/earnings and price/book ratios
were 24.0x and 156.0%, respectively, versus First
Leesport peer group medians of 17.5x and 200.0%,
respectively;
- First Leesport's dividend yield was 2.19% versus a peer
group median of 2.01%.
Summary Comparison of Selected Institutions -
Merchants. Hopper Soliday compared selected balance sheet data,
asset quality, capitalization and profitability ratios and market
statistics using financial data at or for the twelve months ended
September 30, 1998 and market data as of December 9, 1998 for
Merchants to a peer group of Pennsylvania banks and bank holding
companies consisting of nine institutions with total assets
between $77 million and $157 million. The analysis included, but
was not limited to, the following ratios: loans/deposits,
equity/assets, non-performing assets/total assets, allowance for
loan losses/non-performing assets, net interest margin,
efficiency ratio, return on average assets, return on average
equity, price/earnings, price/book and dividend yield. The
analysis showed that:
- Merchants' loans/deposits ratio was 65.7% versus a
Merchants peer group median of 81.9%;
- Merchants' equity/assets ratio was 12.34% versus a
Merchants peer group median of 9.88%;
- Merchants' ratio of non-performing assets to total
assets was 0.32% versus a Merchants peer group median
of 0.41%;
- Merchants' allowance for loan losses/non-performing
assets ratio was 211.4% versus a Merchants peer group
median of 155.1%; <PAGE 38>
- Merchants' net interest margin was 3.99% versus a peer
group median of 4.39%;
- Merchants' efficiency ratio was 69.3% versus a peer
group median of 60.2%;
- Merchants' return on average assets and return on
average equity were 0.92% and 7.42%, respectively,
versus Merchants peer group medians of 1.24% and
11.61%, respectively;
- Merchants' price/earnings and price/book ratios were
15.9x and 129.0%, respectively, versus Merchants peer
group medians of 17.6x and 161.0%, respectively;
- Merchants' dividend yield was 1.90% versus a peer group
median of 1.70%.
Summary of Selected Bank Merger and Acquisition
Transactions. Hopper Soliday compared the ratios of price/book,
price/trailing 12 months earnings, book/book, First Leesport's
price/book/transaction price/book and First Leesport's price/
earnings/transaction price/earnings for the proposed merger to
the maximum, mean, median and minimum ratios for a group of 20
transactions announced since January 1, 1995. The selected
transactions involved the acquisition of profitable banks and
bank holding companies headquartered in Pennsylvania, Maryland,
New Jersey, New York, Ohio and West Virginia with total assets
less than $150 million, announced transaction values between
$10 million and $50 million and target equity/assets in excess of
10%. This analysis showed that:
- the merger consideration represented 160.0% of
Merchants' fully-diluted book value versus a median of
218.8% for the selected transactions;
- the merger consideration represented a price/trailing
12 months earnings ratio of 23.6x compared to a median
of 22.1x for the selected transactions;
- the merger consideration represented a book/book of
102.6% compared to a median of 101.0% for selected
transactions;
- the merger consideration represented a ratio of First
Leesport's price/book to the transaction price/book of
97.5% compared to a median of 94.2% for the selected
transactions; and
- the merger consideration represented a ratio of First
Leesport's price/earnings to the transaction price/
earnings of 105.9% compared to a median of 72.6% for
the selected transactions.
<PAGE 39>
No company or transaction used in the above analysis as
a comparison is identical to First Leesport, Merchants or the
contemplated transaction. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves
complex consideration and judgments concerning differences in
financial and operating characteristics of the companies and
other factors that could affect the public trading value of the
companies to which they are being compared. The ranges of
valuations resulting from any particular analysis described above
should not be taken to be Hopper Soliday's view of the actual
value of First Leesport or Merchants. The fact that we referred
to any specific analysis in the summary above does not indicate
that Hopper Soliday gave the analysis more weight than any other
analyses.
In performing its analyses, Hopper Soliday made
numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many
of which are beyond the control of First Leesport or Merchants.
The analyses performed by Hopper Soliday are not necessarily
indicative of actual values or actual future results, which may
be significantly more or less favorable than suggested by such
analyses. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or
the prices at which any securities may trade at the present time
or at any time in the future. In addition, as described above,
Hopper Soliday's opinion and presentation to the First Leesport
Board is just one of many factors taken into consideration by the
First Leesport Board.
Pursuant to the Hopper Soliday engagement letter, First
Leesport agreed to pay Hopper Soliday a contingent fee of 0.75%
of the aggregate consideration to be paid in the merger. A
retainer fee of $5,000 was paid to Hopper Soliday upon execution
of the Hopper Soliday engagement letter. A payment of $20,000
was made to Hopper Soliday upon delivery of Hopper Soliday's
written fairness opinion. The balance of the fee is due upon
consummation of the merger. Both the retainer fee and the
$20,000 payment will be credited towards the contingent fee.
Hopper Soliday will be reimbursed for reasonable out-of-pocket
expenses incurred on behalf of First Leesport. First Leesport
has agreed to indemnify Hopper Soliday against certain
liabilities.
Merchants Financial Advisor
On December 9, 1998, Merchants formally retained Ryan,
Beck to render a fairness opinion with respect to the acquisition
of Merchants by First Leesport. Ryan, Beck is regularly engaged
in the valuation of banks, bank holding companies, savings and
loan associations, savings banks and savings and loan holding
companies in connection with mergers, acquisitions and other
securities-related transactions. Ryan, Beck has knowledge of,
and experience with, the Mid-Atlantic banking market and banking
organizations operating within this market, and was selected by
<PAGE 40> Merchants because of its knowledge of, experience with,
and reputation in the financial services industry.
In its capacity as Merchants' financial advisor, Ryan,
Beck did not participate in the negotiations with respect to the
pricing and other terms and conditions of the merger, and the
decision as to whether to accept the First Leesport proposal and
the final pricing of the merger was ultimately made by the Board
of Directors of Merchants. Ryan, Beck rendered a formal written
opinion on January 12, 1999 and rendered an updated opinion dated
as of the date of this proxy statement/prospectus, that based on
and subject to the assumptions, factors, and limitations as set
forth in the Ryan, Beck opinion and as described below, the
exchange ratio is "fair" to Merchants' shareholders from a
financial point of view. No limitations were imposed by the
Merchants Board of Directors upon Ryan, Beck with respect to the
investigations it made or procedures it followed in arriving at
its opinion.
The full text of the Ryan, Beck opinion, which sets
forth assumptions made and matters considered, is attached as
Annex D to this joint proxy statement/prospectus. We urge
shareholders of Merchants to read the Ryan, Beck opinion in its
entirety. The Ryan, Beck opinion is directed only to the
financial fairness of the exchange ratio and does not constitute
a recommendation to any Merchants shareholder as to how the
shareholder should vote at the meeting. We qualify the summary
of the Ryan, Beck opinion set forth in this joint proxy
statement/prospectus in its entirety by reference to the full
text of the Ryan, Beck opinion. In rendering the opinion, Ryan,
Beck does not admit that it is an expert within the meaning of
the term "expert" as used within the Securities Act and the rules
and regulations promulgated thereunder, or that its opinions
constitute a report or valuation within the meaning of Section 11
of the Securities Act and the rules and regulations promulgated
thereunder.
In rendering its opinion, Ryan, Beck reviewed, among
other things:
- the merger agreement and related documents;
- the proxy statement/prospectus;
- First Leesport's Annual Reports on Form 10-KSB for the
four years ended December 31, 1998, 1997, 1996 and
1995;
- First Leesport's Quarterly Reports to Shareholders on
Form 10-QSB for the periods ended September 30, 1998,
June 30, 1998 and March 31, 1998;
- Merchant's Annual Report to Shareholders for the four
years ended December 31, 1998, 1997, 1996 and 1995;
<PAGE 41>
- Merchant's Quarterly Call Reports to the FDIC for the
periods ended September 30, 1998, June 30, 1998 and
March 31, 1998;
- certain operating and financial information provided by
the management of First Leesport and of Merchants
relating to their business and prospects;
- held discussions with members of senior management of
First Leesport and of Merchants regarding:
- past and current business operations;
- financial projections for the year ending
December 31, 1999;
- strategic plans;
- regulatory relationships;
- financial condition; and
- future prospects of the respective companies,
including potential synergies arising from the
merger;
- reviewed the historical stock prices and trading volume
of First Leesport's common stock;
- reviewed the publicly available financial data of
commercial banking organizations, which Ryan, Beck
deemed generally comparable to First Leesport;
- reviewed the publicly available financial data of
commercial banking organizations, which Ryan, Beck
deemed generally comparable to Merchants;
- reviewed the terms of recent acquisitions of commercial
banks, which Ryan, Beck deemed generally comparable to
Merchants;
- conducted other studies and analyses, inquiries and
examinations, as Ryan, Beck deemed appropriate; and
- Ryan, Beck, as part of its review of the merger, also
considered the future prospects of Merchants in the
event it remained independent.
In connection with its review, Ryan, Beck relied upon
and assumed, without independent verification, the accuracy and
completeness of the financial and other information regarding
Merchants, First Leesport, and their subsidiaries provided to
Ryan, Beck by Merchants and First Leesport and their
representatives. Ryan, Beck is not an expert in the evaluation
of allowances for loan losses. Therefore, Ryan, Beck has not
<PAGE 42> assumed any responsibility for making an independent
evaluation of the adequacy of the allowances for loan losses set
forth in the balance sheets of Merchants, First Leesport and
their subsidiaries at December 31, 1998, and Ryan, Beck assumed
these allowances were adequate and complied fully with applicable
law, regulatory policy, sound banking practice and policies of
the Securities and Exchange Commission as of the date of the
financial statements. Ryan, Beck has reviewed certain historical
financial data and financial projections (and the assumptions and
bases therefor) provided by Merchants and First Leesport. Ryan,
Beck assumed that such forecasts and projections reflected the
best currently available estimates and judgments of the
respective managements. In certain instances, for the purposes
of its analyses, Ryan, Beck made adjustments to the financial and
operating forecasts that in Ryan, Beck's judgment were
appropriate under the circumstances. Ryan, Beck was not retained
to nor did it make any independent evaluation or appraisal of the
assets or liabilities of Merchants, First Leesport or their
respective subsidiaries, Ryan, Beck did not review any loan files
of Merchants, First Leesport, or their subsidiaries. Ryan, Beck
also assumed that the merger in all respects is, and will be,
undertaken and consummated in compliance with all laws and
regulations that are applicable to Merchants and First Leesport.
The preparation of a fairness opinion on a transaction
such as the merger involves various determinations as to the most
appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and,
therefore, the opinion is not readily susceptible to summary
description. In arriving at its opinion, Ryan, Beck performed a
variety of financial analyses. Ryan, Beck believes that its
analyses must be considered as a whole and the consideration of
portions of the analyses and the factors considered therein,
without considering all factors and analyses, could create an
incomplete view of the analyses and the process underlying the
Ryan, Beck opinion. No one of the analyses was assigned a
greater significance than any other.
The projections furnished to Ryan, Beck were prepared
by the management of Merchants and First Leesport. Merchants and
First Leesport do not publicly disclose internal management
projections of the type provided to Ryan, Beck in connection with
the review of the merger. Such projections were not prepared
with a view towards public disclosure. The public disclosure of
these projections could be misleading because the projections
were based on numerous variables and assumptions that are
inherently uncertain, including, without limitation, factors
related to general economic and competitive conditions.
Accordingly, actual results could vary significantly from those
set forth in such projections.
In its analyses, Ryan, Beck made numerous assumptions
with respect to industry performance, general business and
economic conditions, and other matters, many of which are beyond
the control of Merchants or First Leesport. Any estimates
<PAGE 43> contained in Ryan, Beck's analyses are not necessarily
indicative of future results or values, which may be
significantly more or less favorable than the estimates.
Estimates of values of companies do not purport to be appraisals
nor do they necessarily reflect the prices at which companies or
their securities may actually be sold.
The following is a brief summary of the analyses and
procedures performed by Ryan, Beck in the course of arriving at
its opinion.
Analysis of Selected Publicly Traded Companies: Ryan,
Beck compared the financial data for Merchants as of
September 30, 1998 to a peer group of ten selected commercial
banks located in the Mid-Atlantic region of the United States
with assets less than $125 million for which public trading and
pricing information was available. Ryan, Beck deemed this group
to be generally comparable to Merchants. The following table
compares selected statistics of Merchants with the median and
average of the ten selected commercial banks comprising the peer
group:
Merchants Merchants
Peer Group Peer Group
Merchants Median Average
Total Equity/ Total Assets 12.51% 10.38% 11.52%
Return on Average Assets 1.00 1.06 1.06
Return on Average Equity 8.24 11.37 10.10
Net Interest Margin 4.01 4.25 4.58
Yield on Interest Earning
Assets 7.32 8.44 8.36
Cost of Interest Bearing
Liabilities 3.92 4.62 4.47
Non-Performing Loans/Total
Loans 0.49 1.08 1.58
Loan Loss Reserves/Non-
Performing Loans 265.96 106.84 198.51
Total Loans/Deposits 60.52 79.98 79.06
1-4 Family Loans/Total Loans 67.38 33.98 36.90
Commercial Loans/Total Loans 2.83 11.55 17.56
Price/Latest Twelve Months
Earnings 24.74x 14.93x 16.76x
Price/Book Value 128.79% 151.32% 151.59%
Price/Tangible Book Value 128.86 152.33 153.97
Dividend Yield 2.30 0.00 0.60
Ryan, Beck noted that the performance of the peer group
as measured by return on average assets, return on average equity
and net interest margin was superior to that of Merchants.
Merchants yield on interest earning assets was less than that of
the companies comprising the peer group reflecting the higher
level of generally lower yielding 1-4 family loans, lower level
of generally higher yielding commercial loans and lower level of
loans at Merchants. Additionally, Merchants had a lower cost of
<PAGE 44> interest bearing liabilities than that of the peer
group. Ryan, Beck also noted that Merchants has a lower level of
non-performing loans than the peer group and a higher loan loss
reserve when measured as a percent of non-performing loans.
Based on Merchants stock price of $29.00 per share as of
December 14, 1998, Merchants price to latest twelve months
earnings per share was superior to that of the peer group average
and median. Merchants price to book value and price to tangible
book value were both less than the companies comprising the peer
group.
Ryan, Beck also compared First Leesport's reported
financial data as of September 30, 1998 with that of a group of
eighteen selected commercial banks located in the Mid-Atlantic
region of the United States with assets between $100 million and
$300 million for which public trading and pricing information was
available. Ryan, Beck deemed this group to be generally
comparable to First Leesport. The following table compares
selected statistics of First Leesport with the median and average
of the eighteen selected commercial banks comprising the peer
group:
First First
Leesport Leesport
First Peer Group Peer Group
Leesport Median Average
Total Equity/Total Assets 8.63% 9.81% 9.55%
Return on Average Assets 0.60 0.92 0.89
Return on Average Equity 6.39 9.52 9.17
Net Interest Margin 4.13 4.78 4.64
Yield on Interest Earning
Assets 8.23 8.15 8.19
Cost of Interest Bearing
Liabilities 4.83 4.40 4.37
Non-Performing Loans/Total
Loans 2.49 0.81 0.90
Loan Loss Reserves/Non-
Performing Loans 46.35 125.27 203.33
Price/Latest Twelve Months
Earnings 24.74x 19.23x 19.92x
Price/Book Value 151.47% 158.49% 176.00%
Price/Tangible Book Value 151.47 166.20 183.26
Dividend Yield 2.19 1.70 1.47
Ryan, Beck noted that the performance of the peer group
as measured by return on average assets and return on average
equity was superior to that of First Leesport's. First Leesport's
yield on interest earning assets and cost of interest bearing
liabilities were both greater than that of the companies
comprising the peer group. Additionally, Ryan, Beck noted that
First Leesport has a higher percentage of non-performing loans
than the peer group and a lower loan loss reserve when measured
as a percent of non-performing loans. First Leesport's net
interest margin was less than its peers primarily due to its
<PAGE 45> relatively high cost of interest bearing liabilities.
Based on First Leesport's stock price of $23.75 per share as of
December 8, 1998, First Leesport's price to latest twelve months
earnings per share was superior to that of the peer group average
and median. First Leesport's price to book value and price to
tangible book value were both less than the companies comprising
the peer group. Ryan, Beck also noted that First Leesport's
financial performance had significantly improved in the quarter
ended September 30, 1998 as compared to that reported for the
first and second quarters of 1998.
Analysis of Selected Transactions: Ryan, Beck
compared Merchants financial data as of November 30, 1998 with
that of a group of thirteen selected commercial banking
organizations being acquired in transactions announced since
January 1, 1998 and for which pricing data pertaining to the
transactions was publicly available. The criteria for this group
was commercial banks located in the Mid Atlantic and New England
regions of the country with assets less than $100 million. Ryan,
Beck deemed this group to be generally comparable to Merchants.
The following table compares selected statistics of Merchants
with the median ratios for the thirteen selected companies
acquired in the comparable transactions:
Peer Group
Merchants Median
Total Assets $58,160 $44,490
Tangible Equity/Tangible Assets 12.18% 10.26%
Return on Average Assets 0.93 0.98
Return on Average Equity 7.48 8.58
Non-Performing Assets/Assets 0.04 0.58
Ryan, Beck also calculated certain ratios based on the
$38.35 value of First Leesport common stock that each Merchants
shareholder would have received as of December 22, 1998. Based
on Merchants November 30, 1998 financial position, this value
represented 165.44% of stated book value, 165.52% of tangible
book value, 20.55 times latest twelve months diluted earnings per
share and a core deposit premium over tangible book value of
10.45%.
The median pricing ratios for the comparable
transactions are illustrated in the chart below:
Price/ Core
Price/ Tangible Price Deposit
Peer Group Book Value Book Value LTM Earnings Premium
Median 162.83% 162.83% 29.21 x 14.95%
Ryan, Beck then adjusted the peer group statistics to
reflect the change in the NASDAQ Bank Stock Index from the day
prior to the date of announcement of each stock transaction to
the closing value of the index on December 21, 1998. The
<PAGE 46> adjusted median pricing ratios for the comparable
transactions are illustrated in the chart below:
Price/ Core
Price/ Tangible Price Deposit
Peer Group Book Value Book Value LTM Earnings Premium
Adjusted Median 149.44% 162.33% 25.25x 13.35%
The imputed value of Merchants, based on the median
ratios of the comparable transactions, as adjusted, can be seen
in the chart below:
Imputed Values
for Merchants Price/ Core
based on the Price/ Tangible Price Deposit
adjusted: Book Value Book Value LTM Earnings Premium
Median $34.64 $37.61 $42.63 $42.56
No company or transaction used in the Analysis of
Selected Publicly Traded Companies and Analysis of Selected
Transactions sections is identical to Merchants, First Leesport
or the merger. Accordingly, an analysis of the results of the
foregoing is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial
and operating characteristics of the companies involved and other
factors that could affect the trading values of the securities of
the company or companies to which they are being compared.
Impact Analysis: Ryan, Beck analyzed the impact of the
merger on First Leesport values per Merchants share based on the
exchange ratio of 1.5854 shares of First Leesport common stock
for each share of Merchants common stock using pro forma
projected 1999 fiscal year earnings per share, pro forma
projected 2000 fiscal year earnings per share, pro forma stated
book value per share, pro forma tangible book value per share and
dividends per share at December 31, 1998. That analysis found
that, based on such exchange ratio, Merchants' equivalent
projected 1999 earnings per share would increase by approximately
37.74%, projected 2000 earnings per share would increase by
approximately 47.75%, stated book value would decrease by
approximately 2.34% and tangible book value would decrease by
approximately 2.34%. Additionally, Merchants shareholders, based
on First Leesport's current dividend level, would receive annual
dividends of $0.82 per share as compared to $0.67 at the present
time. These forward-looking projections may be affected by many
factors beyond the control of First Leesport and/or Merchants,
including the future direction of interest rates, economic
conditions in the companies' market place, the actual amount and
timing of cost savings achieved through the merger, the actual
level of revenue enhancements brought about through the merger,
future regulatory changes and various other factors. The actual
results achieved may vary materially from the projected results.
<PAGE 47>
Discounted Dividend Analysis: Using a discounted
dividend analysis, Ryan, Beck estimated the present value of the
future dividend streams that Merchants could produce in
perpetuity. Projection ranges for Merchants five-year balance
sheet and income statement were provided by Merchants management.
Management's projections were based upon various factors and
assumptions, many of which are beyond the control of Merchants.
These projections are, by their nature, forward-looking and may
differ materially from the actual future values or actual future
results for the reasons discussed above. The actual future
values may be significantly more or less favorable than suggested
by such projections. In producing a range of per share Merchant
values, Ryan, Beck utilized the following assumptions: discount
rates range from 11.0% to 13.0%, terminal price/earnings
multiples range from 13.0x to 15.0x (which when applied to
terminal year estimated earnings produces a value which
approximates the net present value of the dividends in
perpetuity, given certain assumptions regarding growth rates and
discount rates) and earnings that include estimated savings in
Merchants non-interest expense equal to 10% in 1999 and 15% in
2000, with an assumed 5% growth in synergies in years thereafter.
The discounted dividend analysis produced the range of net
present values per share of Merchants common stock illustrated in
the chart below:
Discount Rate: 11.00% 12.00% 13.00%
Terminal Year 13.00 $34.86 $33.98 $33.16
Multiple 14.00 $36.12 $35.19 $34.31
Of Earnings 15.00 $37.38 $36.40 $35.47
These analyses do not purport to be indicative of
actual values or expected values or an appraisal range of the
shares of Merchants common stock. Ryan, Beck noted that the
discounted dividend analysis is a widely used valuation
methodology, but noted that it relies on numerous assumptions,
including expense savings levels, dividend payout rates, terminal
values and discount rates, the future values of which may be
significantly more or less than such alternatives. Any variation
from these assumptions would most likely produce different
results.
In connection with its written opinion updated as of
the date of this proxy statement/prospectus, Ryan, Beck confirmed
the appropriateness of its reliance on the analyses used to
render its January 12, 1999 written opinion by performing
procedures to update certain of the analyses and by reviewing the
assumptions and conclusions contained in the January 12, 1999
opinion.
The Ryan, Beck opinion was based solely upon the
information available to it and the economic, market and other
circumstances as they existed as of the date of the Ryan, Beck
opinion. Ryan, Beck did not and does not express any opinion as
to the price or range of prices at which First Leesport's Common
Stock might trade subsequent to the merger. Events occurring
<PAGE 48> after the date of the Ryan, Beck opinion could
materially affect the assumptions and conclusions contained in
the Ryan, Beck opinion. Ryan, Beck has not undertaken to
reaffirm or revise the Ryan, Beck opinion or otherwise comment
upon any events occurring after the date thereof.
The summary set forth above does not purport to be a
complete description, but is a brief summary of the material
analyses and procedures performed by Ryan, Beck in the course of
arriving at the Ryan, Beck opinion.
With regard to Ryan, Beck's services in connection with
the merger, Merchants paid Ryan, Beck a retainer fee of $7,500
plus an additional fee equal to $17,500 upon delivery of the
fairness opinion. In addition, Merchants has agreed to reimburse
Ryan, Beck for its reasonable out-of-pocket expenses, which shall
not exceed $4,000 without the prior consent of Merchants.
Merchants has also agreed to indemnify Ryan, Beck and certain
related persons against certain liabilities, including
liabilities under federal securities law, incurred in connection
with its services, including the fairness opinion. The amounts
of Ryan, Beck's fees were determined by negotiation between
Merchants and Ryan, Beck.
Ryan, Beck has not had an investment banking
relationship with Merchants in the past three years. Ryan,
Beck's research department does not follow Merchants. Ryan, Beck
is a market maker in Merchants common stock.
Ryan, Beck has not had an investment banking
relationship with First Leesport in the past three years. Ryan,
Beck's research department does not follow First Leesport. Ryan,
Beck is a market maker in First Leesport common stock.
Effective Date of the Merger
The effective date of the merger will occur within 5
business days following the satisfaction or waiver of all
conditions to the completion of the merger as specified in the
merger agreement. We presently expect that the effective date of
the merger will occur late in the second quarter or early in the
third quarter of 1999.
On or prior to the effective date of the merger, First
Leesport and Merchants will file articles of merger with the
Pennsylvania Department of State and the articles will set forth
the effective date of the merger. Either First Leesport or
Merchants can terminate the merger if, among other reasons, the
merger closing does not occur on or before September 30, 1999 and
the terminating party has not breached or failed to perform or
observe any of its agreements under the merger agreement. See
" -- Termination; Effect of Termination" on page ___.
<PAGE 49>
Exchange of Merchants Stock Certificates
As soon as possible after the merger, First Leesport
will send a transmittal form to each record owner of Merchants
common stock. The transmittal form will contain instructions
describing how to surrender certificates representing Merchants
common stock and receive new certificates representing shares of
First Leesport common stock.
First Leesport must mail certificates representing
shares of First Leesport common stock and checks for cash instead
of fractional share interests to former shareholders of Merchants
not later than twenty business days following the receipt of
certificates representing former shares of Merchants common stock
properly endorsed or accompanied by the materials.
You should not forward any Merchants stock certificates
until you have received transmittal forms from First Leesport.
You should not return stock certificates with the enclosed proxy
card.
Until you exchange your certificates representing
shares of Merchants common stock, you will not receive the First
Leesport common stock into which your Merchants shares converted.
When your Merchants certificates are surrendered, you will
receive any unpaid dividends without interest. For all other
purposes, however, each certificate which represents shares of
Merchants common stock outstanding at the effective date of the
merger will evidence ownership of the shares of First Leesport
common stock (and cash in lieu of fractional shares) into which
those shares converted as a result of the merger. Neither First
Leesport nor Merchants will be liable to any holder of shares of
Merchants common stock for any amount paid in good faith to a
public official pursuant to any applicable abandoned property,
escheat or similar law.
Conditions to the Merger
The obligations of First Leesport and Merchants to
complete the merger are subject to various conditions, which
include, among other customary provisions for transactions of
this type, the following:
-- approval of the merger agreement by both the
holders of Merchants common stock and the
holders of First Leesport common stock;
-- receipt by First Leesport of all required
approvals of regulatory authorities for the
merger, including the expiration or
termination of any notice and waiting
periods;
<PAGE 50>
-- the absence of any legal order that prohibits
completion of the merger or any transaction
contemplated by the merger agreement;
-- receipt by each of First Leesport and
Merchants of a letter from First Leesport's
independent auditors that the merger
qualifies as a pooling of interests for
financial reporting purposes;
-- receipt by each of First Leesport and
Merchants of a tax opinion from counsel; and
-- the absence of any material adverse effect on
the assets, financial condition or results of
operations on a consolidated basis of the
other party since December 31, 1997, not
including:
* any change in the value of the
investment or loan portfolios of First
Leesport or Merchants resulting from a
change in interest rates generally; and
* any change occurring after the date of
the merger agreement in any law or
regulation or in generally accepted
accounting principles affects banking
institutions generally.
In addition, the obligations of both First Leesport and
Merchants to complete the merger are conditioned on:
-- the accuracy in all material respects as of the
date of the merger agreement and as of the merger
date of the representations and warranties of the
other party, except as to any representation or
warranty which specially relates to an earlier
date and except as otherwise contemplated by the
merger agreement,
-- the other party's material performance of all of
its covenants and obligations; and
-- other conditions customary for similar
transactions, such as the receipt of officer
certificates and legal opinions.
Except for the requirements of shareholder approval,
regulatory approvals and the absence of any legal order
preventing the merger, we may waive each of the conditions
described above. First Leesport does not, however, anticipate
waiving the condition that it receive a tax opinion from its
counsel. As of the date of this proxy statement/prospectus,
<PAGE 51> First Leesport has no reason to believe that its
counsel will not deliver tax opinion at closing.
Subsidiary Banks
First Leesport has agreed to operate Merchants Bank
under the name "Merchants Bank of Pennsylvania" as a separate
operating banking subsidiary for two years after the merger.
However, if the Board of Directors of First Leesport unanimously
votes in favor of a name change or merger, First Leesport may
change the name of Merchants Bank or combine or merge Merchants
Bank with another banking subsidiary of First Leesport prior to
the end of the two-year period.
Regulatory Approvals
We must obtain the prior approval of the Federal
Reserve Board to complete the merger. An application for
approval of the merger was filed with the Federal Reserve on
April __, 1999. Under applicable regulations, the Federal
Reserve will review the financial, managerial, and competitive,
aspects of the transaction, as well as the convenience and needs
of the community.
In addition, the Federal Reserve may not approve any
proposed acquisition:
- if it would result in a monopoly or further any
combination or conspiracy to monopolize or to
attempt to monopolize the banking business in any
part of the United States; or
- which in any section of the country may have the
effect of substantially lessening competition or
tending to create a monopoly or which in any other
manner would restrain trade, unless the Federal
Reserve finds that the anticompetitive effects of
the proposed acquisition are clearly outweighed in
the public interest by the probable effect of the
proposed acquisition in meeting the convenience
and needs of the community to be served.
In addition, the Federal Reserve has the responsibility
to review the performance of all involved institutions in meeting
their responsibilities under the Community Reinvestment Act,
which includes the record of performance of the existing
institutions in meeting the credit needs of the entire community
including low- and moderate-income neighborhoods. Both the First
National Bank of Leesport and Merchants Bank received ratings of
"satisfactory" in their last Community Reinvestment Act
examinations. The Federal Reserve has not received any protest
under the Community Reinvestment Act as of the date of this joint
proxy statement/prospectus.
<PAGE 52>
We cannot assure you that the Federal Reserve will
approve the merger, and, if approved, as to the date of such
approval. We cannot complete the merger until 30 days (15 days
if the Attorney General does not object) after the date of
Federal Reserve approval, during which time the U.S. Department
of Justice may challenge the merger on antitrust grounds. The
commencement of an antitrust action by the U.S. Department of
Justice would stay the effectiveness of Federal Reserve approval
unless a court specifically orders otherwise. In reviewing the
merger, the U.S. Department of Justice could analyze the merger's
effect on competition differently than the Federal Reserve, and
thus it is possible that the U.S. Department of Justice could
reach a different conclusion than the Federal Reserve regarding
the merger's competitive effects. Failure of the U.S. 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:
- the corporate organization of First Leesport,
First National Bank of Leesport, Merchants and
Merchants Bank;
- the capital structures of First Leesport and
Merchants;
- the due authorization, execution, delivery,
performance and enforceability of the merger
agreement;
- consents or approvals of regulatory authorities or
third parties necessary to complete the merger;
- the consistency of financial statements with
generally accepted accounting principles and,
where appropriate, applicable regulatory
accounting principles;
- the filing of tax returns and payment of taxes;
- the absence of material adverse changes, since
December 31, 1997, in the consolidated assets,
business, financial condition or results of
operations of First Leesport or Merchants;
- the absence of undisclosed pending or threatened
litigation which is material;
- compliance with applicable laws and regulations;
<PAGE 53>
- retirement and other employee plans and matters
relating to the Employee Retirement Income
Security Act of 1974;
- the quality of title to assets and properties;
- the maintenance of adequate insurance;
- the absence of undisclosed brokers' or finders'
fees;
- the absence of material environmental violations,
actions or liabilities;
- the consistency of the allowance for loan losses
with generally accepted accounting principles and
all applicable regulatory criteria;
- the accuracy of information supplied by First
Leesport, First National Bank of Leesport and
Merchants in connection with the Registration
Statement filed by First Leesport with the SEC,
this joint proxy statement/prospectus and all
applications filed with regulatory authorities for
approval of the merger; and
- documents filed by First Leesport and Merchants
with the SEC and the accuracy of information
contained therein.
The merger agreement also contains other
representations and warranties by Merchants relating to:
- certain contracts relating to employment,
consulting and benefits matters;
- the validity and binding nature of loans reflected
as assets in the financial statements of
Merchants; and
- transactions with affiliates.
Business Pending the Merger
First Leesport and Merchants 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. In addition, Merchants has 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 First Leesport.
<PAGE 54>
Merchants has also agreed that neither it nor Merchants
Bank may, without the written consent of First Leesport:
- amend or change any provision of its articles of
incorporation, charter or bylaws;
- change the number of authorized or issued shares
of its capital stock;
- grant any option, warrant, or agreement of any
character relating to its authorized or issued
capital stock or any securities convertible into
its capital stock;
- split, combine or reclassify any shares of its
capital stock;
- 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" in this
section);
- redeem or otherwise acquire any shares of its
capital stock;
- grant any severance or termination pay, except in
accordance with written policies or written
agreements in effect on the date of the merger
agreement (see " -- Employee Benefits and
Severance" in this section), or enter into or
amend any existing employment agreement;
- grant any pay increase except for routine periodic
increases in accordance with past practice;
- engage in any merger, acquisition or similar
transaction;
- sell, lease or dispose of any assets other than in
the ordinary course of business;
- take any action which would result in any of the
representations and warranties of Merchants
becoming untrue;
- change any accounting practices, except as may be
required by generally accepted accounting
principles (without regard to any optional early
adoption date) or any regulatory authority
responsible for regulating Merchants or Merchants
Bank;
- waive, release, grant or transfer any rights of
value or modify or change in any material respect
<PAGE 55> any existing material agreement to which
Merchants or any subsidiary is a party, other than
in the ordinary causes of business, consistent
with past practices;
- 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;
- purchase any security for its investment portfolio
not rated "A" or higher by either Standard &
Poor's Corporation or Moody's Investor Services,
Inc.;
- enter into, renew, extend, or modify any
transaction (including loans and commitments to
lend) with any affiliate of Merchants, except as
otherwise specified in the merger agreement;
- enter into any interest rate swap or similar
arrangement;
- make any loan or other credit facility commitment
to any borrower or group of affiliated borrowers
in excess of $250,000, or increase, compromise,
extend, renew or modify any existing loan or
commitment outstanding in excess of $250,000,
except as otherwise specified in the merger
agreement;
- intentionally or knowingly take any action that
would preclude the treatment of the merger as a
pooling of interests for financial accounting
purposes;
- waive, release, grant or transfer any rights of
value, or modify or change in any material respect
any existing agreement to which Merchants or any
Merchants subsidiary is a party, other than in the
ordinary course of business, consistent with past
practice.
First Leesport and Merchants have jointly agreed:
- to prepare all applications for, and use their
best efforts to obtain, all required regulatory
consents;
- to take all actions necessary to complete the
transactions contemplated by the merger agreement;
- to maintain adequate insurance;
<PAGE 56>
- to maintain accurate books and records;
- to file all tax returns and pay all taxes when
due;
- to cooperate with each other and use their best
efforts to identify those persons who may be
deemed to be affiliates of Merchants;
- 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
- to deliver to the other copies of all securities
documents when filed.
Dividends
The merger agreement permits Merchants to pay a regular
semi-annual cash dividend not to exceed $.35 per share of
Merchants common stock outstanding. However, if the merger
occurs prior to the record date for the payment by Merchants of
its semi-annual dividend payable in July 1999, Merchants is
permitted to pay, immediately prior to the merger, a pro-rated
cash dividend for the first and second quarters of 1999. This
pro-rated cash dividend may be paid only if the payment is
consistent with pooling of interests accounting requirements.
The amount of pro-rated cash dividend that Merchants may pay for
each share of Merchants common stock held is calculated as
follows:
-- multiplying $0.35 by the number of days
elapsed from January 1, 1999 through the
merger date, dividing this result by 180, and
then
-- subtracting the amount of quarterly cash
dividend received or to be received by
shareholders of Merchants from First
Leesport.
For example, assume that a shareholder of Merchants owns 100
shares of Merchants common stock, that the merger is completed on
June 1, 1999 and that this date precedes the record date for a
second quarter dividend by First Leesport in the amount of $.13
per share of First Leesport common stock. In the absence of the
merger, the Merchants shareholder would have received a dividend
in the aggregate amount of $35.00, determined by multiplying 100
shares by $.35 per share. If the exchange ratio is 1.5854
shares of First Leesport common stock for each share of Merchants
common stock, this same shareholder would be entitled to receive
a dividend from First Leesport for the second quarter in the
amount of $20.54 (determined by multiplying his First Leesport
shares after the merger of 158 by $.13 per share). In this
example the shareholder would lose a total of $14.46 ($35.00 less
<PAGE 57> $20.54) because the merger was not completed at the
time of First Leesport's cash dividend for the first quarter of
1999, but was completed prior to Merchants' semi-annual dividend
in July 1999. To address this situation, the merger agreement
would permit Merchants to pay a pro-rated cash dividend.
In this example, pro-rating the Merchants cash dividend per
share by the number of days elapsed in 1999 prior to the merger
would result in the Merchants shareholder receiving $.2936 per
share in cash dividends from Merchants. This amount is
determined by multiplying $.35 by 151 (the number of days elapsed
from January 1, 1999 to the completion of the merger on June 1,
1999) and then dividing by 180. The total amount of cash
dividends this shareholder would have received for his 100 shares
of Merchants prior to the merger on this basis would have been
$29.36. The Merchants shareholder in this example actually
would receive only $20.54 in First Leesport dividends if no
adjustment were made. The merger agreement would permit
Merchants to pay a pro-rated cash dividend in the amount of
$.0882 per Merchants share (or $8.82 for 100 shares) so that the
total amount of dividends received by the Merchants shareholder
in the example would be $29.36 for 100 shares of Merchants common
stock.
Subject to applicable regulatory restrictions,
Merchants Bank may pay cash dividends sufficient to permit
payment of the dividends by Merchants. Neither Merchants nor
Merchants Bank may pay any other dividends without the prior
written consent of First Leesport.
No Solicitation of Transactions
The merger agreement prohibits Merchants or any of its
affiliates or representatives from:
- responding to, soliciting, initiating or
encouraging any inquiries relating to an
acquisition of Merchants by a party other than
First Leesport;
- recommending or endorsing an acquisition of
Merchants by a party other than First Leesport to
do so;
- participating in any discussions or negotiations
regarding an acquisition of Merchants by a party
other than First Leesport;
- providing anyone other than First Leesport with
any nonpublic information relating to an
acquisition of Merchants by a party other than
First Leesport; or
<PAGE 58>
- entering into an agreement with any party other
than First Leesport relating to an acquisition of
Merchants by a party other than First Leesport.
Merchants must notify First Leesport if it receives any
inquiries or proposals relating to an acquisition of Merchants by
a party other than First Leesport.
The directors and executive officers of Merchants have
executed a letter agreement containing provisions similar to
those described above relating to Merchants. A copy of the form
of letter agreement executed by the directors and executive
officers of Merchants is included as an exhibit to the merger
agreement which is attached to this joint proxy statement/
prospectus as Annex A.
Amendment; Waivers
Subject to applicable law, at any time prior to
completion of the merger, First Leesport and Merchants may:
- amend the merger agreement;
- extend the time for the performance of any of the
obligations or other acts of First Leesport and
Merchants required in the merger agreement;
- waive any inaccuracies in the representations and
warranties contained in the merger agreement; or
- waive compliance with any of the agreements or
conditions contained in the merger agreement,
except for the requirements of stockholder
approval, regulatory approvals and the absence of
any order, decree, or injunction presenting the
transactions contemplated by the merger agreement.
After you have approved the merger agreement however,
we cannot modify either the amount or the form of consideration
you will receive as Merchants shareholders or otherwise
materially adversely affect you without shareholder approval.
Termination; Effect of Termination
We may terminate the merger agreement at any time prior
to completion of the merger by our mutual written consent.
Either First Leesport or Merchants alone may terminate
the merger agreement at any time prior to completion of the
merger:
- if the closing date of the merger does not occur
on or before September, 30, 1999, unless the
failure to complete the merger by that date
results from the failure of the party seeking to
<PAGE 59> terminate the merger agreement to
materially perform any of its obligations; or
- if either party receives a final nonappealable
order from a regulatory authority denying a
required approval or consent, unless the denial
results from the failure of the party seeking to
terminate the merger agreement to materially
perform any of its obligations; or
- if we do not obtain any shareholder vote
contemplated by the merger agreement.
Merchants alone may terminate the merger agreement at
any time prior to completion of the merger:
- if First Leesport has materially breached any
material covenant or representation contained in
the merger agreement which would have a material
adverse effect on the assets, financial condition
or results of operations of First Leesport on a
consolidated basis, but only if the breach remains
uncured;
- if, prior to the merger, First Leesport enters
into a written agreement to acquire a party other
than Merchants either involving the issuance of
more than 500,000 shares of First Leesport common
stock or rights to acquire more than 500,000
shares of First Leesport common stock; or
- if, prior to the merger, First Leesport enters
into a written agreement to acquire a party other
than Merchants and the acquisition results in pro
forma earnings per share dilution which exceeds
1%.
First Leesport alone may terminate the merger agreement
at any time prior to completion of the merger if Merchants has
materially breached any material covenant or any representation
contained in the merger agreement which would have a material
adverse effect on the assets, financial condition or results of
operations of Merchants on a consolidated basis, but only if the
breach remains uncured.
If either First Leesport or Merchants terminates the
merger for any of the reasons listed above, neither First
Leesport nor Merchants will have any continuing liability or
obligation other than the obligation dealing with confidentiality
and any liabilities resulting from willful breach. If
shareholders of Merchants fail to approve the merger agreement if
after public disclosure of an "acquisition transaction" by a
party other than First Leesport and within twelve months
following termination of the merger agreement a third party
agrees to merge with or acquire substantially all of the assets
<PAGE 60> of Merchants, then Merchants must immediately pay First
Leesport a fee in the amount of $250,000.
Management and Operations after the Merger
Following the merger, First Leesport will add Andrew J.
Kuzneski, Jr., Roland C. Moyer and Anthony R. Cali to its Board
of Directors. These persons all presently serve as directors of
Merchants and Merchants Bank. First Leesport will appoint
Mr. Cali to Class I of its Board of Directors, the current three-
year term for which expires in 2001. First Leesport will appoint
Mr. Moyer to Class II of its Board of Directors, the current
three-year term for which expires in 2002. First Leesport will
appoint Mr. Kuzneski to Class III of its Board of Directors, the
current term for which expires in 2003. First Leesport has
agreed to nominate and recommend Mr. Cali and Mr. Moyer for
election to one additional three-year term as directors and Mr.
Kuzneski to two additional three-year terms as a director.
The officers of First Leesport will not change after
the merger except that Mr. Cali, the President and Chief
Executive Officer of Merchants, will become an Executive Vice
President of First Leesport. Mr. Cali will also remain President
of Merchants Bank. Mr. Cali has signed a three-year employment
agreement which becomes effective when we complete the merger.
Following the merger, The First National Bank of
Leesport will add Frank C. Milewski to its Board of Directors.
Mr. Milewski is presently serving as a director of Merchants and
Merchants Bank. Directors of The First National Bank of Leesport
are elected annually, and First Leesport has agreed to elect
Mr. Milewski to the Board of Directors of The First National Bank
of Leesport for a period of three years following the merger. In
addition, if Merchants Bank combines with the First National Bank
of Leesport within two years following the merger, First Leesport
has agreed to elect two additional directors of Merchants to the
Board of Directors of The First National Bank of Leesport until
three years have elapsed from the merger date.
The Board of Directors of Merchants Bank following the
merger will initially consist of all of the directors serving on
the Board immediately prior to the merger and Raymond H.
Melcher, Jr., the President and Chief Executive Officer of First
Leesport and The First National Bank of Leesport. If Merchants
Bank merges into The First National Bank of Leesport prior to two
years after the merger, First Leesport has agreed to maintain the
Merchants Bank Board as an Advisory Board for the remainder of
the two-year period. Members of the Merchants Bank Board of
Directors or the Advisory Board will continue to receive a fee of
$221 for each Board meeting they attend through the annual
meeting of shareholders of Merchants Bank in the spring of 2000.
First Leesport's mandatory retirement policy will not apply to
directors of Merchants Bank who have achieved age 70 on the
merger date until the annual meeting of shareholders of Merchants
Bank in the spring of 2000. <PAGE 61>
Employee Benefits and Severance Benefits
First Leesport will provide employee benefits to former
employees of Merchants or Merchants Bank after the merger that
are substantially similar in the aggregate to those provided by
First Leesport to its similarly situated employees. Employees of
Merchants or Merchants Bank who become employees of First
Leesport or any First Leesport subsidiary will receive full
credit for each year of service they had with Merchants or
Merchants Bank for purposes of determining eligibility for
participation and vesting, but not for benefit accrual, in First
Leesport's employee benefit plans. Subject to these and any
other applicable legal requirements, First Leesport may
discontinue, amend or convert to a First Leesport plan any
particular employee benefit plan of Merchants or Merchants Bank.
First Leesport will provide severance pay to any
employee of Merchants or Merchants Bank whose employment is
involuntarily terminated other than for cause within one year
after the effective date of the merger or who, within such one
year period, is offered but declines to accept employment at a
location more than 35 miles from the employee's work location
prior to the merger.
The following summarizes severance benefits that First
Leesport will provide to employees of Merchants whose employment
terminates involuntarily after the merger or who decline to
accept employment at a location more than 35 miles from their
location prior to the merger:
- senior officers with a title of vice president or
higher will receive full base salary continuation
for a period of time beginning with the first full
pay period after termination and continuing for a
term equal to three weeks for each full year of
service with a maximum salary continuation period
of twenty-six weeks in addition to full benefit
continuation (including medical coverage and basic
life insurance coverage) during the salary
continuation period;
- other officers will receive two weeks for each
full year of service with a maximum salary
continuation period of 13 weeks;
- regular full-time employees and part-time
employees working 20 hours or more per week who
are exempt employees under the federal Fair Labor
Standards Act will receive full base salary
continuation for a period of time beginning with
the first full pay period after termination and
continuing for a term equal to one week for each
full year of service with a minimum of two weeks
and a maximum of thirteen weeks;
<PAGE 62>
- regular full-time employees and part-time
employees working 20 hours or more per week who
are non-exempt employees under the federal Fair
Labor Standards Act will receive full base salary
continuation for a period of time beginning with
the first full pay period after termination and
continuing for a term equal to one week for each
full year of continuous service with a minimum
salary continuation period of two weeks and a
maximum salary continuation period of six weeks.
Severance benefits cannot exceed the base compensation
paid to an employee during the 12 months immediately preceding
termination of employment.
First Leesport will not provide severance benefits to
any employee who enters into a written employment agreement with
First Leesport or First Leesport Bank or who fails to execute
First Leesport's customary form of severance documentation,
including a release.
Accounting Treatment
First Leesport will use the pooling of interests method
of accounting to account for the merger. This accounting
treatment is different from purchase accounting. Under pooling
of interests accounting, the assets and liabilities of Merchants
will be carried forward to First Leesport at their historical
recorded amounts. Results of operations of First Leesport will
include the results of both companies for the entire fiscal year
in which the merger occurs. The reported balance sheet amounts
and results of operations of the separate corporations for prior
periods will be combined, reclassified and conformed, as
appropriate, to reflect the combined financial position and
results of operations for First Leesport.
If First Leesport must purchase more than 10% of the
outstanding shares of Merchants common stock for cash, due to the
purchase of fractional shares and the exercise of dissenters
rights by Merchants shareholders, or if other conditions arise
that would prevent the merger from being treated as a pooling of
interests for financial accounting purposes, First Leesport and
Merchants each have the right to terminate the agreement and to
cancel the merger.
Material Federal Income Tax Consequences
To complete the merger, First Leesport and Merchants
must receive, at the closing, an opinion of Stevens & Lee, P.C.,
counsel to First Leesport, that the merger will qualify as a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, and that First Leesport and Merchants will
each be a party to the reorganization within the meaning of
Section 368(b) of the Code.
<PAGE 63>
In the opinion of Stevens & Lee, P.C., the material
federal income tax consequences of the merger will be as follows:
- First Leesport and Merchants will not recognize
gain or loss in the merger;
- Shareholders of Merchants will not recognize any
gain or loss upon receipt of First Leesport common
stock in exchange for their Merchants common
stock, except shareholders who receive cash
proceeds for fractional interests 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
Merchants common stock is held as a capital asset
at the effective date of the merger;
- the tax basis of shares of First Leesport common
stock (including fractional share interests) that
shareholders of Merchants receive in the merger
will be the same as the tax basis of their shares
of Merchants common stock; and
- the holding period of the First Leesport common
stock that shareholders of Merchants receive in
the merger will include the holding period of
their shares of Merchants common stock, provided
their Merchants common stock is held as a capital
asset at the time of the merger.
Under the merger agreement, First Leesport and
Merchants can waive the condition that Stevens & Lee, P.C.
deliver, at closing, the opinion described above. However, in
the event that the parties waive delivery of the opinion of
counsel, or the opinion would otherwise set forth tax
consequences materially different to a stockholder than those
described above, First Leesport and Merchants intend to resolicit
proxies as required in accordance with the rules and regulations
of the SEC.
This 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 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 stockholder. In addition, no
information is provided herein with respect to the tax
consequences of the merger under applicable state, local, or
foreign laws. Accordingly, we advise you to consult a tax
advisor as to the specific tax consequences of the merger to you.
<PAGE 64>
Expenses
First Leesport and Merchants will each pay all their
own costs and expenses, including fees and expenses of financial
consultants, accountants and legal counsel. First Leesport and
Merchants will share equally the cost of printing and mailing
this proxy statement/prospectus.
Resale of First Leesport Common Stock
The First Leesport common stock issued in the merger
will be freely transferable under the Securities Act of 1933
except for shares issued to any Merchants shareholder who is an
"affiliate" for purposes of SEC Rule 145. Each director and
executive officer of Merchants has entered into an agreement with
First Leesport providing that, as an affiliate, he or she will
not transfer any First Leesport common stock received in the
merger except in compliance with the securities laws. Such
persons have also agreed not to dispose of any First Leesport
common stock or Merchants common stock either prior to or after
the merger during periods prohibited under pooling of interests
accounting methods. This proxy statement/prospectus does not
cover resales of First Leesport common stock received by any
affiliate of Merchants or First Leesport.
Dissenters Rights of Appraisal
General
Under Pennsylvania law, shareholders of Merchants have the
right to dissent from the merger and to obtain payment of the
"fair value" of their shares in the event we complete the merger.
If you are a Merchants shareholder and are contemplating
exercising your right to dissent, we urge you to read carefully
the provisions of Subchapter D of Chapter 15 of the Pennsylvania
Business Corporation Law of 1988, which is attached to this proxy
statement/prospectus as Annex D. A discussion of the provisions
of the statute is included here. The discussion describes the
steps that you must take if you want to exercise your right to
dissent. You should read this summary and the full text of the
law.
Before the day of the merger, send any written notice or
demand, required concerning your exercise of dissenters rights to
Jane A. Mallick, Secretary, Merchants of Shenandoah Ban-Corp,
101 North Main Street, Shenandoah, Pennsylvania 17976. After the
day of the merger, send correspondence to Daniel W. Weist,
Corporate Secretary, First Leesport Bancorp, Inc., 133 North
Centre Avenue, First Leesport, Pennsylvania 19533.
The term "fair value" means the value of a share of
Merchants common stock immediately before the day of the merger
taking into account all relevant factors, but excluding any
appreciation or depreciation in anticipation of the merger.
<PAGE 65>
Notice of Intention to Dissent
If you wish to dissent, you must:
-- prior to the vote of stockholders on the merger at the
special meeting, file a written notice of intention to
demand payment of the fair value of your shares of
Merchants common stock if the merger is effected with
First Leesport;
-- make no change in your beneficial ownership of
Merchants common stock from the date you give notice
through the day of the merger; and
-- not vote your Merchants common stock for approval of
the agreement.
Neither a proxy nor a vote against approval of the merger is the
necessary written notice of intention to dissent.
Notice to Demand Payment
If the merger is approved by the required vote of
shareholders, Merchants or First Leesport, as the case may be,
will mail a notice to all dissenters who gave due notice of
intention to demand payment and who did not vote for approval of
the merger agreement. The notice will state where and when you
must deliver a written demand for payment and where you must
deposit certificates for Merchant common stock in order to obtain
payment. The notice will include a form for demanding payment
and a copy of the law. The time set for receipt of the demand
for payment and deposit of stock certificates will be not less
than 30 days from the date of mailing of the notice.
Failure to Comply with Notice to Demand Payment, etc.
You must take each step in the indicated order and in strict
compliance with the statute to keep your dissenters rights. If
you fail to follow the steps, you will lose the right to dissent
and you will receive the same number of shares of First Leesport
common stock per share of Merchant stock that you hold as the
non-dissenting stockholders.
Payment of Fair Value of Shares
Promptly after the merger, or upon timely receipt of demand
for payment if the merger already has taken place, First Leesport
will send dissenting shareholders, who have deposited their stock
certificates, the amount that First Leesport estimates to be the
fair value of the Merchants common stock. The remittance or
notice will be accompanied by:
<PAGE 66>
-- a closing balance sheet and statement of income of
Merchants 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;
-- a statement of First Leesport's estimate of the fair
value of Merchants common stock; and
-- a notice of the right of the dissenting shareholder to
demand supplemental payment, accompanied by a copy of
the law.
Estimate by Dissenting Shareholder of Fair Value of Shares
If a dissenting shareholder believes that the amount stated
or remitted by First Leesport is less than the fair value of the
First Leesport common stock, the dissenting shareholder may send
an estimate of the fair value of the Merchants common stock to
First Leesport. If First Leesport remits payment of estimated
value of a dissenting shareholder's Merchants common stock and
the dissenting shareholder does not file his or her own estimate
within 30 days after the mailing by First Leesport of its
remittance, the dissenting shareholder will be entitled to no
more than the amount remitted by First Leesport.
Valuation Proceedings
If any demands for payment remain unsettled within 60 days
after the latest to occur of:
- the merger;
- timely receipt by Merchants or First Leesport, as the
case may be, of any demands for payment; or
- timely receipt by Merchants or First Leesport, as the
case may be, of any estimates by dissenters of the fair
value,
then, First Leesport may file an application, in the Court of
Common Pleas of Berks County, requesting that the court determine
the fair value of the Merchants common stock. If this happens,
all dissenting shareholders, no matter where they reside, whose
demands have not been settled, will become parties to the
proceeding. In addition, a copy of the application will be
delivered to each dissenting shareholder.
If First Leesport were to fail to file the application, then
any dissenting shareholder, on behalf of all dissenting
shareholders who have made a demand and who have not settled
their claim against First Leesport, may file an application in
the name of First Leesport at any time within the 30-day period
after the expiration of the 60-day period and request that the
Berks County Court determine the fair value of the shares.
<PAGE 67>
The fair value determined by the Berks County Court may, but
need not, equal the dissenting shareholder's estimates of fair
value. If no dissenter files an application, then each
dissenting shareholder entitled to do so shall be paid First
Leesport's estimates of the fair value of the Merchants common
stock and no more, and may bring an action to recover any amount
not previously remitted, plus interest at a rate the Berks County
Court finds fair and equitable.
First Leesport intends to negotiate in good faith with any
dissenting shareholders. If, after negotiation, a claim cannot
be settled, then First Leesport intends to file an application
requesting that the fair value of the Merchants common stock be
determined by the Berks County Court.
Costs and Expenses
The costs and expenses of any valuation proceedings in the
Berks County Court, including the reasonable compensation and
expenses of any appraiser appointed by the Court to recommend a
decision on the issue of fair value, will be determined by the
Court and assessed against First Leesport except that any part of
the costs and expenses may be apportioned and assessed by the
Court against all or any of the dissenting shareholders who are
parties and whose action in demanding supplemental payment the
Court finds to be dilatory, obdurate, arbitrary, vexatious or in
bad faith.
FINANCIAL INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS
Certain members of management of Merchants and
Merchants Bank, and their Boards of Directors, have interests in
the merger in addition to their interests as shareholders of
Merchants. The Merchants Board of Directors was aware of these
factors and considered them in approving the merger agreement.
Indemnification; Directors and Officers Insurance
First Leesport has agreed to indemnify, defend and hold
harmless all prior and then-existing directors and officers of
Merchants and Merchants Bank against:
- all liabilities and expenses relating to claims,
proceedings or investigations resulting from the
status of a person as a director, officer or
employee of Merchants or any Merchants subsidiary,
whether pertaining to matters existing prior to
the merger and whether asserted prior to or after
the merger; and
- all liabilities and expenses relating to claims,
proceedings or investigations arising out of the
<PAGE 68> merger agreement or the merger to the
same extent as the officers, directors and
employees could be indemnified by Merchants or
Merchants Bank.
First Leesport has agreed to maintain Merchants'
existing directors' and officers' liability insurance policy, or
a policy providing comparable coverage, covering persons
currently covered by such insurance for a period of six years
after the effective date, subject to certain maximum cost limits.
Anthony R. Cali Employment Agreement
First Leesport and Merchants Bank have entered into an
employment agreement with Mr. Anthony R. Cali, President and
Chief Executive Officer of Merchants and Merchants Bank. The
employment agreement will become effective when we complete the
merger. Mr. Cali's new employment agreement provides for:
- a term of three years from the merger date and
then automatic annual renewals absent notice of
nonrenewal by any party;
- a base salary of $115,000 per year which will
increase to $125,000 per year on January 1, 2000
if Mr. Cali meets or exceeds performance
objectives;
- continuation of base salary payments for up to 26
weeks if First Leesport or Merchants Bank
terminates Mr. Cali's employment without cause in
the absence of a change in control of First
Leesport;
- a lump-sum severance payment equal to two years
base salary if Mr. Cali's employment is terminated
without cause or he resigns for specified events
of good reason following a change in control of
First Leesport; and
- the receipt of a total of 5,000 nonqualified stock
options under First Leesport's stock option plan.
Director Fees
Andrew J. Kuzneski, Jr., Roland C. Moyer and Anthony R. Cali
will become directors of First Leesport and as such will receive
directors' fees in accordance with First Leesport's policy on
fees for directors. Frank C. Milewski will become a director of
The First National Bank of Leesport and as such will receive
directors' fees in accordance with The First National Bank of
Leesport's policy on fees for directors. Other directors of
Merchants and Merchants Bank will continue to receive fees at
their current levels as either continuing directors of Merchants
Bank or as members of the Merchants Bank Advisory Board for a
<PAGE 69> period at least through the annual meeting of
shareholders of Merchants Bank in the spring of 2000.
PAGE 70
<PAGE>
INFORMATION WITH RESPECT TO FIRST LEESPORT
General
Financial and other information relating to First
Leesport, including information relating to First Leesport's
directors and executive officers, is incorporated in this proxy
statement/prospectus by reference. See "WHERE YOU CAN FIND MORE
INFORMATION" on page ____.
Market Price of and Dividends on First Leesport Common Stock and
Related Shareholder Matters
The First Leesport common stock trades on the Nasdaq
Small Cap Market under the symbol "FLPB." As of March 31, 1999,
First Leesport had approximately 600 shareholders of record. The
table below shows for the periods indicated the amount of
dividends paid per share and the quarterly ranges of high and low
bid and asked prices for First Leesport common stock as reported
by Nasdaq and does not necessarily reflect mark-ups, mark-downs
or commissions.
Bid Asked
Quarter Ended Dividend High Low High Low
June 30, 1999 (1)..... $______ $_____ $_____ $_____ $_____
March 31, 1999........ .13 23.00 19.00 24.50 20.50
December 31, 1998..... .13 24.75 23.00 25.75 24.00
September 30, 1998.... .13 27.75 24.00 29.25 25.25
June 30, 1998......... .13 28.12 25.00 28.50 25.75
March 31, 1998........ .13 24.88 23.00 26.00 24.00
December 31, 1997..... .13 23.00 20.75 24.75 22.00
September 30, 1997.... .13 20.75 19.00 22.25 20.50
June 30, 1997......... .13 19.25 19.00 21.25 20.75
March 31, 1997........ .13 19.25 16.75 21.25 18.50
__________________
(1) Through May __, 1999.
On January 11, 1999, the last business day preceding
public announcement of the merger, the last sale price for First
Leesport common stock was $_______ per share. On May __, 1999,
the last sale price for the First Leesport common stock was
$__________ per share.
PAGE 71
<PAGE>
INFORMATION WITH RESPECT TO MERCHANTS
Description of Business
Merchants is a Pennsylvania business corporation
headquartered in Shenandoah, Pennsylvania. Merchant's was
organized as a bank holding company on October 15, 1984, with
Merchants Bank as a wholly-owned subsidiary. Presently,
Merchants functions primarily as the holder of all the
outstanding common stock of Merchants Bank.
Since its inception, Merchants Bank has operated as a
banking institution doing business in Schuylkill County,
Pennsylvania. The bank currently has 23 full-time and 7 part-
time employees.
Merchants Bank engages in a full service commercial and
consumer banking business, including such services as accepting
deposits in the form of time, demand and savings accounts. In
addition to accepting deposits, the bank makes both secured and
unsecured commercial and consumer loans, finances commercial
transactions and makes construction and mortgage loans, including
home equity loans and business loans.
Supervision and Regulation
Merchants is registered as a bank holding company and is
subject to supervision and regulation by the Board of Governors
of the Federal Reserve System under the Bank Holding Act of 1956.
As a bank holding company, Merchants' activities and those of its
bank subsidiary are limited to the business of banking and
activities closely related or incidental to banking. Bank
holding companies are required to file periodic reports with and
are subject to examination by the Federal Reserve Board. The
Federal Reserve Board has issued regulations that require a bank
holding company to serve as a source of financial and managerial
strength to its subsidiary banks. As a result, the Federal
Reserve Board regulations may require Merchants to stand ready to
use its resources to provide adequate capital funds to its bank
subsidiary during periods of financial stress or adversity.
The Bank Holding Company Act prohibits Merchants from
acquiring direct or indirect control of more than 5% of the
outstanding shares of any class of voting stock, or substantially
all of the assets of, any bank, or from merging or consolidating
with another bank holding company, without prior approval of the
Federal Reserve Board. In addition, the Act prohibits Merchants
from engaging in or acquiring ownership or control of 5% of the
outstanding shares of any class of voting stock of any company
engaged in a non-banking business, unless the Federal Reserve
Board determines that the business is so closely related to
banking as to be a proper incident to the business of banking.
<PAGE 72>
As a Pennsylvania bank holding company for purposes of the
Pennsylvania Banking Code, Merchants is also subject to
regulation and examination by the Pennsylvania Department of
Banking.
Merchants Bank is a Pennsylvania-chartered bank. Its
deposits are insured, up to applicable limits, by the Federal
Deposit Insurance Corporation. Merchants Bank is subject to
regulation and examination by the Federal Deposit Insurance
Corporation, and to a much lesser extent, the Federal Reserve
Board. Merchants Bank is also subject to requirements and
restrictions under federal and state law, including:
- requirements to maintain reserves against deposits,
- restrictions on the types and amounts of loans that the
bank may grant and the interest that the bank may
charge on those loans, and
- limitations on the types of investments that the bank
may make and the types of services that the bank may
offer.
Consumer protection laws and regulations also affect the
operations of Merchants Bank. In addition to the impact of
regulation, commercial banks are affected significantly by the
actions by the Federal Reserve Board as it attempts to control
the money supply and credit availability in order to influence
the economy.
Bank holding companies are required to comply with the
Federal Reserve Board's risk based capital guidelines. The
required minimum ratio of total capital to risk-weighted assets,
including certain off-balance sheet activities, such as standby
letters of credit, is 8%. At least half of the total capital is
required to be "Tier I Capital," consisting principally of common
stockholders' equity, less certain intangible assets. The
remainder, "Tier II Capital," may consist of certain preferred
stock, a limited amount of subordinated debt, certain hybrid
capital instruments and other debt securities, and a limited
amount of the general loan loss allowance. The risk-based
capital guidelines are required to take adequate account of
interest rate risk, concentration of credit risk, and risks of
nontraditional activities.
In addition to the risk-based capital guidelines, the
Federal Reserve Board requires a banking holding company to
maintain a leverage ratio of a minimum level of Tier I capital
(as determined under the risk-based capital guidelines) equal to
3% of average total consolidated assets for those bank holding
companies which have the highest regulatory examination rating
and are not contemplating or experiencing significant growth or
expansion. All other bank holding companies are required to
maintain a ratio of at least 1% to 2% above the stated minimum.
<PAGE 73> Merchants Bank is subject to almost identical capital
requirements adopted by the FDIC.
Prompt Corrective Action Rules
The Federal banking agencies have regulations defining the
levels at which an insured institution would be considered:
- well capitalized;
- adequately capitalized;
- undercapitalized;
- significantly undercapitalized; and
- critically undercapitalized.
The applicable Federal bank regulator for a depository
institution could, under certain circumstances, reclassify a
"well-capitalized" institution as "adequately capitalized" or
require an "adequately capitalized" or "undercapitalized"
institution to comply with supervisory actions as if it were in
the next lower category. A reclassification could be made if the
regulatory agency determines that the institution is in an unsafe
or unsound condition (which could include unsatisfactory
examination ratings). Merchants and Merchants Bank each satisfy
the criteria to be classified as "well capitalized" within the
meaning of applicable regulations.
Regulatory Restrictions on Dividends
Merchants Bank dividend payments are subject to the
Pennsylvania Banking Code of 1965 and the Federal Deposit
Insurance Act.
Under the Pennsylvania Banking Code, Merchants Bank may only pay
dividends from accumulated net earnings. In addition, the Bank
may not pay dividends if it is in arrears in the payment of any
insurance assessment due to the FDIC. The Federal Reserve Board
and the FDIC have formal and informal policies that provide that
insured banks and bank holding companies should generally pay
dividends only out of current operating earnings, with some
exceptions. The Prompt Corrective Action Rules, described above,
further limit the ability of banks to pay dividends, because
banks which are not classified as well capitalized or adequately
capitalized may not pay dividends.
FDIC Insurance Assessments
The FDIC has implemented a risk-related premium schedule for
all insured depository institutions that results in the
assessment of premiums based on capital and supervisory measures.
Under the risk-rated premium schedule, the FDIC assigns, on
a semiannual basis, each depository institution to one of three
capital groups (well-capitalized, adequately capitalized or
undercapitalized) and further assigns such institutions to one of
<PAGE 74> three subgroups within a capital group. The
institution's subgroup assignment is based upon the FDIC's
judgment of the institution's strength in light of supervisory
evaluations, including examination reports, statistical analyses
and other information relevant to measuring the risk posed by the
institution. Only institutions with a total capital to risk-
adjusted assets ratio of 10% or greater, a Tier I capital to
risk-based assets ratio of 6% or greater, and a Tier I leverage
ratio of 5% or greater, are assigned to the well-capitalized
group. As December 31, 1998, Merchants Bank was well
capitalized for purposes of calculating insurance assessments.
The Bank Insurance Fund is presently fully funded at more
than the minimum amount required by law. Accordingly, the 1999
BIF assessment rates range from zero for those institutions with
the least risk, to $0.27 for every $100 of insured deposits for
institutions deemed to have the highest risk. Merchants Bank is
in the category of institutions that presently pay nothing for
deposit insurance. The FDIC adjusts the rates every six months.
While the bank presently pays no premiums for deposit
insurance, it is subject to assessments to pay the interest on
Financing Corporation bonds. FICO was created by Congress to
issue bonds to finance the resolution of failed thrift
institutions. Prior to 1997, only thrift institutions were
subject to assessments to raise funds to pay the FICO bonds.
On September 30, 1996, as part of the omnibus budget act,
Congress enacted the Deposit Insurance Funds Act of 1996, which
recapitalized the Savings Association Insurance Fund and
provided that commercial banks would be subject to 1/5 of the
assessment to which thrifts are subject for FICO bond payments
through 1999. Beginning in 2000, commercial banks and thrifts
will be subject to the same assessment for FICO bonds. The FICO
assessment for Merchants Bank (and all commercial banks) for the
first six months of 1999 is $.0063 for each $100 of deposits.
New Legislation
Proposed legislation is introduced in almost every
legislative session that would dramatically affect the regulation
of the banking industry. We cannot determine whether or not the
legislation will ever be enacted and what effect it may have on
Merchants and on Merchants Bank.
Interstate Banking
Prior to the passage of the Reigle-Neal Interstate Banking
and Branching Efficiency Act of 1994, the Bank Holding Company
Act prohibited a bank holding company located in one state from
acquiring a bank located in another state, unless the
acquisition by an out-of-state bank holding company was
specifically authorized by the law of the state where the bank to
be acquired was located. Similarly, interstate branching by a
single bank was generally prohibited by the McFadden Act. The
<PAGE 75> Interstate Banking Act permits an adequately
capitalized and adequately managed bank holding company to
acquire a bank in another state whether or not the law of that
other state permits the acquisition, subject to certain deposit
concentration caps and approval by the Federal Reserve Board. In
addition, under the Interstate Banking Act, a bank can engage in
interstate expansion by merging with a bank in another state,
unless the other state affirmatively opted out of the legislation
before June 1, 1997. The Interstate banking Act also permits de
novo interstate branching, but only if a state affirmatively opts
in by adopting appropriate legislation. Pennsylvania, Delaware,
Maryland and New Jersey, as well as other states, have adopted
"opt in" legislation which allows such transactions.
Legal Proceedings
A certain amount of litigation arises in the ordinary course
of business of Merchants and Merchants Bank. In the opinion of
the management of Merchants and Merchants Bank, there are no
proceedings pending to which the company or the bank is a party
or to which its property is subject that, if determined adversely
to Merchants or Merchants Bank, would be material in relation to
Merchants' shareholders' equity or financial condition, nor are
there any proceedings pending other than ordinary routine
litigation incident to Merchants business and the banks business.
In addition, no material proceedings are pending or are known to
be threatened or contemplated against Merchants or Merchants Bank
by governmental authorities.
Management's Discussion and Analysis of Financial Condition and
Results of Operation
On the following pages of this proxy
statement/prospectus we present management's discussion and
analysis of the consolidated financial condition and results of
operations of Merchants, and its wholly-owned subsidiary,
Merchants Bank. Management's discussion and analysis discusses
the significant changes in the results of operations, capital
resources and liquidity presented in its accompanying
consolidated financial statements for Merchants. Merchants
consolidated financial condition and results of operations
consist almost entirely of Merchants Bank's financial condition
and results of operations. Current performance does not
guarantee, assure, or may not be indicative of similar
performance in the future.
The following discussion focuses on and highlights certain
information regarding Merchants. We recommend that you read this
discussion in conjunction with the consolidated financial
statements and related notes of Merchants appearing elsewhere in
this proxy statement/prospectus.
We caution you not to place undue reliance on
forward-looking statements in this section, they reflect
management's analysis only as of the date of this proxy
<PAGE 76> statement/prospectus. Merchants undertakes no
obligation to publicly revise or update these forward-looking
statements to reflect subsequent events or circumstances.
Summary of Results of Operations and Financial Condition
At December 31, 1998, Merchants' total assets amounted to
$58.4 million as compared to $55.3 million at December 31, 1997.
The $3.1 million or 5.6% increase was primarily due to an
increase of $3.1 million in net loans receivable.
Net earnings were $486,000 for the year ended December 31,
1998, as compared to $558,000 for the year ended December 31,
1997. The $72,000 decrease in net earnings resulted primarily
from a decrease in net interest income of $139,000, an increase
in noninterest expense of $19,000, offset by a decrease in
provision for loan losses of $13,000, an increase in noninterest
income of $19,000 and a decrease in the provision for income
taxes of $54,000.
The Year 2000 Issue
Merchants is aware of the issues associated with the
programming code in existing computer systems as the year 2000
approaches. The year 2000 issue is the result of computer
programs being written using two digits rather than four digits
to define the applicable year. Computer programs that have
time-sensitive coding may recognize a date using "00" as the year
1900 rather than the year 2000. Systems that do not properly
recognize such information could generate erroneous data or cause
a system to fail.
Merchants has conducted a review of its computer systems to
identify the systems that could be affected by the year 2000
issue and has developed an implementation plan to resolve the
issue. Merchants is primarily dependent upon systems that have
been developed by third parties and, therefore, is dependent upon
vendor compliance. Merchants will have contingency plans in
place for all systems according to the regulatory schedule.
These plans involve automated as well as manual actions and may
require additional staffing requirements. Merchants believes
that the year 2000 will not pose significant operational problems
for its computer operations.
Merchants could be adversely affected by year 2000 problems
experienced by others (including its customers, service
providers, vendors, customers' vendors, correspondent banks,
government agencies, and the financial services industry in
general) over which it has no control. If, for example, one of
Merchants customers failed to adequately prepare for the Year
2000, Merchants could be adversely affected and, in turn, this
could affect Merchants' ability to collect outstanding loans and
retain deposit balances. Consequently, if Merchants or any of
its service providers, correspondents, vendors or customers
experiences a disruption of business resulting from the year
<PAGE 77> 2000, the financial condition, results of operations
and liquidity of Merchants could be materially adversely
affected.
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share data)
December 31,
1998 1997
<S> <C> <C>
Income & Expense:
Interest income $ 3,824 $ 4,022
Interest expense 1,751 1,810
Net interest income 2,073 2,212
Loan loss provision 30 42
Net interest income after loan loss provision 2,043 2,170
Noninterest income 174 155
Noninterest expense 1,609 1,591
Income before income taxes 608 734
Income taxes 121 175
Net income $ 487 $ 559
Per share:
Basic $ 1.59 $ 1.83
Cash dividends paid .70 .58
Weighted average number of common shares:
Basic 305,721 305,721
Book value $ 23.67 $ 22.82
Average Balance Sheet:
Total Assets $ 55,977 $ 56,742
Investments & money market investments 23,682 24,927
Loans (net of unearned income) 29,915 29,350
Deposits 47,131 48,819
Borrowings 1,018 738
Shareholders' equity 7,243 6,640
Balance Sheet at Period End:
Total assets $ 58,370 $ 55,302
Investments & money market investments 22,996 23,044
Loans (net of unearned income) 32,754 29,666
Deposits 46,169 47,809
Borrowings 4,500 -
Shareholders' equity 7,236 6,976
Selected Operating Ratios:
Return on average assets .87% .99%
Return on average shareholders' equity 6.72% 8.42%
Leverage (assets divided by shareholders' equity) 8.07X 7.93X
Average total loans as a percentage of average deposits 63.47% 60.12%
Interest income/average earning assets* 7.41% 7.65%
Interest expense/average deposits & borrowings 3.64% 3.65%
Net interest income/average earning assets* 4.12% 4.31%
<FN>
* Tax equivalent basis
</TABLE>
<PAGE 78>
Balance Sheet Analysis
The table below presents the major asset and liability
categories on an average daily basis for the periods presented,
along with interest income and expense, and key rates and yields.
During 1998, the assets showing the greatest increase were loans.
On the liability side, the most significant source of new funds
was in the form of Federal Home Loan Bank borrowings.
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS EQUITY, INTEREST
RATES AND INTEREST DIFFERENTIAL:
(Dollars in thousands)
Year ended December 31,
1998 1997
AverageAverage AverageAverage
Assets Balance RateInterest Balance Rate Interest
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Taxable investments $17,6106.12% $1,077 $19,3116.48% $1,252
Nontaxable investments (1) 4,8778.28 404 4,3618.64 377
Total investment securities 22,4876.59 1,481 23,6726.88 1,629
Loans (1)(2) 29,9158.11 2,426 29,3508.36 2,453
Other rate-sensitive assets 1,1955.61 67 1,2555.50 69
Total earning assets 53,5977.41 3,974 54,2777.65 4,151
Noninterest-earning assets 2,380 - - 2,465 - -
Total assets $55,9777.10% $3,974 $ 56,7427.32% $4,151
===================================
Liabilities and Shareholders' Equity
Deposits:
Demand $ 5,3781.75% $ 94 $ 5,5461.80% $ 100
Savings 11,5572.08 240 12,0982.09 253
Time 26,6225.13 1,366 27,9225.06 1,413
Total 43,5573.90 1,700 45,5663.88 1,766
Borrowings and other
interest- bearing liabilities 1,0185.01 51 7385.96 44
Non-interest bearing deposits 3,574 - - 3,253 - -
Other liabilities 585 - - 545 - -
Total liabilities 48,7343.60 1,751 50,1023.61 1,810
Shareholders' equity 7,243 - - 6,640 - -
Total liabilities and
shareholders' equity $55,9773.13% $1,751 $ 56,7423.19% $1,810
=========== ====== ============ ======
Average effective rate on
interest-bearing liabilities$38,1794.21% $1,606 $40,0204.16% $1,666
=========== ====== =========== ======
Interest income/earning assets$53,5977.41% $3,974 $54,2777.65% $4,151
Interest expense/earning assets$53,5973.27 $1,751 $54,2773.33 $1,810
Effective interest differential 4.14% 4.32%
==== ==== <PAGE 79>
</TABLE>
(1) The interest earned on nontaxable investment securities and
loans is shown on a tax equivalent basis.
(2) Nonaccrual loans have been included in the appropriate
average loan balance category, but interest on
nonaccrual loans has not been included for purposes of
determining interest income.
PAGE 80
<PAGE>
Investment Securities
Total securities of $21,872,000 decreased $722,000 from
December 31, 1997 to December 31, 1998. This decrease is a net
result of a decrease in the securities held to maturity portfolio
of $588,000 and reduction in the securities available for sale
portfolio by $134,000. The held to maturity portfolio decreased
primarily due to calls and maturities on higher yielding debt
securities.
The December 31, 1998 federal funds sold balance of $650,000
was $318,000 higher than the December 31, 1997 balance of
$332,000.
There are no significant concentrations of securities
(greater than 10% of shareholders' equity) in any individual
security issuer. The maturity analysis of investment securities
available for sale, including the weighted average yield for each
category as of December 31, 1998, is as follows:
<TABLE>
<CAPTION>
Under 1 - 5 5 - 10 Over
1 year years years 10 years Total
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
U.S. Treasury securities
Carrying value $1,006 $ 808 $ - $ - $1,814
Weighted average yield 5.70% 5.54% 0.00% 0.00% 5.63%
Weighted average maturity 0 yrs. 5 mos.
Obligations of U.S. Government
corporations and agencies
Carrying value $ - $ 752 $2,529 $ 300 $3,581
Weighted average yield 0.00% 6.51% 6.80% 7.00% 6.75%
Weighted average maturity 7 yrs. 1 mo.
Obligations of states and
political subdivisions
Carrying value $ 135 $ - $ 423 $5,425 $5,983
Weighted average yield 6.21% 0.00% 8.02% 7.64% 7.63%
Weighted average maturity 15 yrs. 9 mos.
Corporate securities
Carrying value $ 597 $ 200 $ - $ 200 $ 997
Weighted average yield 4.57% 5.75% 0.00% 6.17% 5.13%
Weighted average maturity 2 yrs. 8 mos.
Mortgage-backed securities
Carrying value $8,385 $ - $ - $ - $8,385
Weighted average yield 6.83% 0.00% 0.00% 0.00% 6.83%
Weighted average maturity 3 yrs. 5 mos.
Equity securities
Carrying value $ - $ - $ 689 $ - $ 689
Weighted average yield 0.00% 0.00% 0.00% 0.00% 0.00%
Weighted average maturity N/A
</TABLE>
The maturity analysis of securities held to maturity,
including the weighted average yield for each category, as of
December 31, 1998 is as follows: <PAGE 81>
<TABLE>
<CAPTION>
Under 1 - 5 5 - 10 Over
1 year years years 10 years Total
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Obligations of states and
political subdivisions
Carrying value $ - $ 150 $ 100 $ 173 $ 423
Weighted average yield 0.00% 9.39% 8.18% 8.16% 8.64%
Weighted average maturity 9 yrs. 0 mos.
</TABLE>
Weighted average yield is computed by dividing the
annualized interest income, including the accretion of discounts
and the amortization of premiums, by the carrying value.
Tax-exempt securities were adjusted to a tax-equivalent basis and
are based on the federal statutory tax rate of 34%.
The amortized cost and fair value of investment securities are as
follows:
<TABLE>
<CAPTION>
December 31, 1998
(Dollars in thousands)
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale Cost Gains (Losses) Value
<S> <C> <C> <C> <C>
US Treasury securities $ 1,800 $ 14 $ - $ 1,814
Obligations of other U.S.
Government agencies and corporations 3,575 7 (1) 3,581
Obligations of states and political
subdivisions 5,891 140 (48) 5,983
Corporate securities 997 4 (4) 997
Mortgage backed securities 8,438 4 (57) 8,385
Equity securities 618 76 (5) 689
Totals $21,319 $ 245 $(115) $21,449
<CAPTION>
December 31, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Held to Maturity Cost Gains (Losses) Value
<S> <C> <C> <C> <C>
Obligations of states
and political subdivisions $ 423 $ 7 $ - $ 430
Totals $ 423 $ 7 $ - $ 430
PAGE 82
<PAGE>
<CAPTION>
December 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale Cost Gains (Losses) Value
<S> <C> <C> <C> <C>
U.S. Treasury Notes $ 1,693 $ 4 $ (1) $ 1,696
Obligations of other U.S.
Government agencies and corporations 3,843 14 (14) 3,843
Obligations of states and political
subdivisions 3,597 117 - 3,714
Equity securities 502 46 - 548
Corporate securities 600 1 - 601
Mortgage backed securities 11,192 44 (55) 11,181
Totals $21,427 $ 226 $ (70) $21,583
<CAPTION>
December 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Held to Maturity Cost Gains (Losses) Value
<S> <C> <C> <C> <C>
Obligations of other U.S.
Government agencies and corporations $ 300 $ 1 $ - $ 301
Obligations of states
and political subdivisions 710 11 - 721
Totals $ 1,010 $ 12 $ - $ 1,022
</TABLE>
PAGE 83
<PAGE>
Loans
Merchant's Bank of Pennsylvania grants commercial loans,
residential mortgages, and consumer loans to customers located
primarily in and around the areas of Shenandoah and Drums,
Pennsylvania. The Merchant's Bank of Pennsylvania has a
concentration of credit in Schuylkill County and exposure to
credit loss can be adversely impacted by downturns in local
economic and employment conditions.
Net loans receivable grew by $3,069,000 to $32,381,000 at
December 31, 1998, from $29,311,000 at December 31, 1997. This
growth was primarily composed of an increase in commercial and
industrial loans of $1,956,000 and an increase in real estate
loans of $1,391,000.
Major classifications of loans are summarized as follows:
December 31,
(in thousands)
1998 1997
Real estate loans $21,680 $20,289
Commercial & industrial loans 7,613 5,657
Installment loans 1,859 1,966
Municipal loans 358 375
All other loans 1,504 1,645
Total $33,014 $29,932
Less:
Unearned discount 260 266
Allowance for possible loan losses 373 354
Loans, Net $32,381 $29,312
A loan is generally classified as nonaccrual when principal
or interest has consistently been in default for a period of 90
days, there has been a deterioration in the financial condition
of the borrower, or payment in full of principal or interest is
not expected. Delinquent loans past due 90 days or more and still
accruing interest are generally well-secured and expected to be
restored to a current status in the near future. The following
table details those loans that were placed on nonaccrual status,
were accounted for as troubled debt restructurings or were
delinquent 90 days or more and still accruing interest:
<PAGE 84>
December 31,
(Dollars in thousands) 1998 1997
Nonaccrual loans $ 61 $ 78
Trouble debt restructurings - -
Delinquent loans 245 166
Total $ 306 $ 244
Allowance for Loan Losses
A summary of the allowance for loan losses follows:
December 31,
(Dollars in thousands) 1998 1997
Average loans $30,167 $29,633
Allowance, beginning of period 354 314
Loans charged off:
Commercial and industrial 0 11
Installment and other 9 7
Real estate 21 15
Lease financing 0 0
Total loans charged off 30 33
Recoveries:
Commercial and industrial 3 7
Installment and other 3 4
Real estate 13 19
Lease financing 0 0
Total recoveries 19 30
Net loans charged off 11 3
Provision for loan losses 30 43
Allowance, end of period $ 373 $ 354
Ratio of net charge offs to
average loans outstanding .04% .01%
The provision for loan losses is based upon a credit review of
the loan portfolio, past loan loss experience, current economic
conditions and other pertinent factors which form a basis for
determining the adequacy of the allowance for loan losses. In the
opinion of management, the aggregate amount reserved is deemed to
be adequate to absorb future loan losses.
<PAGE 85>
The allowance for loan losses of $373,000 at December 31,
1998 was 1.24% of loans as compared to 1.19% of loans at
December 31, 1997. This increase is due to the Merchants Bank of
Pennsylvania adding $30,000 to the allowance and recovering
$19,000 of loans previously charged off, during the year ended
1998.
PAGE 86
<PAGE>
Deposits
The following table is a distribution of average balances
and average rates paid on the deposit categories:
December 31, 1998 December 31, 1997
(Dollars in thousands) Amount Rate Amount Rate
Noninterest-bearing $ 3,574 0.00% $ 3,253 0.00%
Interest-bearing
checking accounts 1,898 1.34 1,738 1.39
Money market accounts 3,480 1.97 3,808 1.99
Savings 11,557 2.08 12,098 2.10
Time-under $100,000 24,662 5.14 25,536 5.07
Time-over $100,000 1,960 8.30 2,386 5.27
Total $47,131 3.90% $48,819 3.88%
A maturity distribution of certificates of deposit of
$100,000 and over is as follows:
December 31,
1998 1997
Three months or less $ 217 $ 891
Over three months to six months 102 100
Over six months to twelve months 616 1,137
Over twelve months 541 207
Total $ 1,476 $ 2,335
Total deposits decreased by 3.4% to $46,169,000 at
December 31, 1998, as compared to $47,809,000 at December 31,
1997. This decrease was principally due to decreases in savings
and certificates of deposit of approximately $1,891,000 and
partially offset by an increase in non-interest bearing deposits.
Deposits are summarized as follows at December 31, 1998 and
1997:
December 31,
(Dollars in thousands) 1998 1997
Noninterest-bearing $ 4,164 $ 3,402
Interest-bearing checking accounts 1,792 1,965
Money market accounts 3,050 3,381
Savings 10,855 11,282
Time, under $100,000 24,832 25,444
Time, over $100,000 1,476 2,335
Total Deposits $ 46,169 $ 47,809
<PAGE 87>
Capital
Quantitative measures established by regulation to ensure
capital adequacy require the maintenance of minimum amounts
and ratios of total and Tier 1 capital to risk-weighted assets.
Management believes, as of December 31, 1998 that Merchants of
Shenandoah Ban-Corp and Merchants Bank of Pennsylvania meet all
capital adequacy requirements to which they are subject.
The minimum for the Tier 1 ratio is 4.0%, and the total
capital ratio (Tier 1 plus Tier 2 capital divided by
risk-adjusted assets) minimum is 8.0%. At December 31, 1998,
Merchants of Shenandoah Ban-Corp's Tier 1 risk-adjusted capital
ratio was 23.4%, and the total risk-adjusted capital ratio was
24.6%, both well above the regulatory requirements. The
risk-based capital ratio of Merchants Bank of Pennsylvania also
exceeded regulatory requirements at December 31, 1998.
December 31,
1998 1997
Tier 1 Capital Ratio 22.80% 25.24%
Total Capital Ratio 24.00% 26.49%
Leverage Ratio 12.00% 12.08%
Results of Operations
Consolidated net income for the year ended December 31, 1998
was $486,656, or 12.9% below the year ended December 31, 1997.
Basic earnings per share for the years ended December 31, 1998
and 1997 were $1.59 and $1.83, respectively. The decrease in net
income is primarily the result of lower interest income earned on
securities during 1998.
On January 1, 1998, Merchants of Shenandoah Ban-Corp adopted
the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." Comprehensive income is the change in
equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. Other
comprehensive income consists of net unrealized gains on
investment securities available for sale. Subsequent to the
adoption date, all prior-period amounts are required to be
restated to 1998 was $809,000, compared to $470,000 for year
ended December 31, 1997.
<PAGE 88>
Net Interest Income
Net interest income is the major component of Merchants'
income and represents the amount by which interest and fees
generated by earning assets exceeds the total cost of funds used
to support the earning assets. Interest income for the year
ended December 31, 1998 was $3,824,000, a decrease of
approximately $198,000 over the amount reported for the year
ended December 31, 1997. The decrease in interest income was
attributable to loans repricing at lower yielding rates during
1998. Interest expense decreased $58,000 from $1,809,000 for
1997 to $1,751,000 in 1998. The decrease was primarily due to
decreases in interest-bearing deposits for 1998 as compared to
1997. Net interest income at December 31, 1998 of $2,073,000 was
6.3% lower than the December 31, 1997 net interest income of
$2,212,000.
For analytical purposes, the following table reflects
tax-equivalent net interest income in recognition of the income
tax savings on tax-exempt items such as interest on municipal
securities and tax-exempt loans. Adjustments are made using a
statutory federal tax rate of 34%.
December 31,
(Dollars in thousands) 1998 1997
Interest income $3,824 $4,022
Interest expense 1,751 1,810
Net interest income 2,073 2,212
Tax equivalent adjustment 150 129
Net interest income (fully taxable equivalent) $ 2,223 $2,341
<PAGE 89>
Net Interest Income
<TABLE>
<CAPTION>
1998 Over (under) 1997
due to changes in
(Dollars in thousands) Net
Change Rate Volume
<S> <C> <C> <C>
Interest Income:
Investment securities (1) $ (148) $ (66) $ (82)
Loans (1) (27) (75) 48
Other Assets (2) 1 (3)
Total (177) (140) (37)
Interest Expense:
Savings deposits (19) (4) (15)
Time deposits (47) 19 (66)
Borrowings and other
interest-bearing liabilities 7 (10) 17
Total (59) 5 (64)
Changes in net interest income $ (118) $ (145) $ 27
</TABLE>
(1) The interest earned on nontaxable investment securities and
loans is shown on a tax equivalent basis.
Provision for Loan Losses
The provision for loan losses for the year ended
December 31, 1998 was $30,000, compared to $43,000 for the same
period in 1997. The Merchants Bank of Pennsylvania experienced a
$11,000 net charge-off of loans during the year ended
December 31, 1998, compared to a net charge-off of $3,000 during
the same period in 1997.
Other income grew 12.4% to $174,000 for the year ended
December 31, 1998 from $155,000 during the year ended
December 31, 1997. The increase was primarily due to an increase
in net security gains of $27,000. The increase in other income
was offset partially by a decrease in service charges and fees of
$8,000 from year ended December 31, 1997 to 1998.
Other Operating Expenses
Other operating expenses of $1,610,000 for the year ended
December 31, 1998, was $19,000 higher than for the same period in
1997. This increase was the result of higher salaries, wages and
employee benefits and other expenses.
<PAGE 90>
Income Taxes
Income tax expense totaled $608,000 and $734,000 for the
years ended December 31, 1998 and 1997, respectively. These
amounts represent effective tax rates of 19.9% and 23.9%,
respectively. The principal reason for the decrease in the
effective tax rate is that tax-exempt income, net of
nondeductible interest expense, along with other difference
items, reduced Merchants' tax liability to a slightly greater
extent in 1998 than in 1997.
Market Price of and Dividends on Merchants Common Stock and
Related Stockholder Matters
Merchants common stock is not listed or traded on a
recognized securities exchange or Nasdaq. It trades
infrequently. As of March 31, 1999, there were approximately 235
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 shares of
Merchants common stock. The range of sales prices is based on
[reports from purchasers and sellers for sales of 100 shares or
more and information otherwise known by management.] Such prices
do not necessarily reflect mark-ups, mark-downs or commissions
and have been adjusted for the 5% stock dividend paid on July 5,
1998.
Quarterly
Quarter Ended Dividend(2) High Low
June 30, 1999(1) $ N/A $______ $______
March 31, 1999 0.35 ______ ______
December 31, 1998 N/A ______ ______
September 30, 1998 0.35 ______ ______
June 30, 1998 N/A ______ ______
March 31, 1998 0.30 ______ ______
December 31, 1997 N/A ______ ______
September 30, 1997 0.28 ______ ______
June 30, 1997 N/A ______ ______
March 31, 1997 0.25 ______ ______
__________________
(1) Through April __, 1999
(2) Merchants has historically paid dividends semi-annually.
On January 11, 1999, the last business day preceding
public announcement of the merger, the last known prior sale
price for Merchants common stock was $27.50 per share. On
May __, 1999, the last sale price for Merchants common stock was
$[27.50] per share.
The merger agreement permits Merchants to pay a regular
semi-annual cash dividend not to exceed $.035 per share of
<PAGE 91> Merchants common stock outstanding and subject to
certain limitations. See "The Merger -- Dividends" on page ____.
PAGE 92
<PAGE>
DESCRIPTION OF FIRST LEESPORT CAPITAL SECURITIES
The authorized capital stock of First Leesport consists
of 10,000,000 shares of common stock, $5.00 par value. As of
May 15, 1999, there were 1,264,655 shares of First Leesport
common stock outstanding. There are no other shares of capital
stock of First Leesport authorized, issued or outstanding. First
Leesport has no options, warrants, or other rights authorized,
issued or outstanding, other than options granted under First
Leesport's stock option and other employee benefit plans.
Common Stock
The holders of First Leesport common stock share
ratably in dividends when and if declared by the First Leesport
Board of Directors from funds legally available from First
Leesport. Declaration and payment of cash dividends by First
Leesport depend upon dividend payments by First Leesport Bank,
which are First Leesport's primary source of revenue and cash
flow. First Leesport is a legal entity separate and distinct
from its subsidiaries. Accordingly, the right of First Leesport,
and consequently the right of creditors and shareholders of First
Leesport, 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 Leesport in its capacity as a creditor may be
recognized.
For certain limitations on the ability of First
Leesport Bank to pay dividends to First Leesport, see First
Leesport's Annual Report on Form 10-KSB for the year ended
December 31, 1998, which is delivered with this proxy statement/
prospectus.
Each holder of shares of First Leesport common stock
has one vote for each share held on matters upon which
shareholders have the right to vote. First Leesport shareholders
cannot cumulate votes in the election of directors.
Holders of First Leesport common stock have no
preemptive rights to acquire any additional shares of First
Leesport. In addition, First Leesport common stock is not
subject to redemption.
First Leesport's Articles of Incorporation authorize
the First Leesport Board of Directors to issue authorized shares
of First Leesport common stock without shareholder approval.
First Leesport common stock is included for quotation on the
Nasdaq Small Cap Market. To maintain Nasdaq inclusion, First
Leesport's shareholders must approve the issuance of additional
shares of First Leesport common stock or securities convertible
into First Leesport common stock if the issuance of such
securities
<PAGE 93>
- relates to acquisition of a company and the
securities will have 20% or more of the voting
power outstanding before the issuance;
- relates to acquisition of a company in which a
director, officer or substantial shareholder of
First Leesport has a 5% or greater interest and
the issuance of the securities could result in an
increase in outstanding common stock or voting
power of 5% or more;
- relates to a transaction, other than a public
offering, at a price less than the greater of book
or market value in which the shares issued will
equal 20% or more of the shares of First Leesport
common stock or 20% or more of the voting power
outstanding before issuance; or
- would result in a change in control of First
Leesport.
Under Nasdaq rules, shareholders must also approve a
stock option or purchase plan applicable to officers and
directors other than a broadly-based plan in which other security
holders of First Leesport or employees of First Leesport
participate.
In the event of liquidation, dissolution or winding-up
of First Leesport, whether voluntary or involuntary, holders of
First Leesport common stock 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 for the satisfaction of its liabilities).
Special Charter and Pennsylvania Corporate Law Provisions
First Leesport's Articles of Incorporation and Bylaws
contain provisions which may have the effect of deterring or
discouraging an attempt to acquire control of First Leesport.
These provisions:
- divide the First Leesport Board of Directors into
three classes serving staggered three-year terms;
- require that shares with at least 70% of total
voting power approve mergers and other similar
transactions in which First Leesport would not be
the surviving or controlling entity;
- require that shares with at least a majority, or
in certain instances 70%, of total voting power
approve the repeal or amendment of First
Leesport's Articles of Incorporation;
<PAGE 94>
- require any person who acquires stock of First
Leesport with voting power of 30% or more offer to
purchase for cash all remaining shares of First
Leesport voting stock at the highest price paid
for shares of First Leesport during the preceding
year, unless 80% or more of the directors approve
the acquisition of First Leesport by such person;
- eliminate cumulative voting in elections of
directors;
- allow the Board of Directors to consider any
pertinent issues when considering whether to
oppose an offer to acquire First Leesport and
allow it to take any lawful action to accomplish
rejection of an offer;
- require advance notice of nominations for the
election of directors at meetings of shareholders;
and
- require shareholders entitled to cast at least 20%
of the vote which all shareholders are entitled to
cast to call a special meeting.
The Pennsylvania Business Corporation Law also contains
certain provisions applicable to First Leesport which may have
the effect of impeding a change in control of First Leesport.
These provisions:
- require that, following any acquisition by a
shareholder of 20% of a public corporation's
voting power, the remaining shareholders have the
right to receive payment for their shares, in
cash, in an amount equal to the "fair value" of
the shares, including an increment representing a
proportion of any value payable for control of the
corporation;
- 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;
- prevent a shareholder acquiring different levels
of voting power (20%, 33-1/3% and 50%) from voting
any shares in excess of the applicable threshold
unless "disinterested shareholders" approve such
voting rights; and
- require any person or group that publicly
announces that it may acquire control of the
<PAGE 95> corporation, or that acquires or
publicly discloses an intent to acquire 20% or
more of the voting power of the corporation, to
disgorge to the corporation any profits it
receives form sales of the corporation's equity
securities purchased over the prior 18 months.
In 1990, Pennsylvania adopted legislation further
amending the Pennsylvania Business Corporation Law. To the
extent applicable to First Leesport at the present time, this
legislation generally:
- expands the factors and groups (including
shareholders) which the First Leesport Board of
Directors can consider in determining whether a
certain action is in the best interests of the
corporation;
- provides that the First Leesport Board of
Directors need not consider the interests of any
particular group as dominant or controlling;
- provides that First Leesport'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 for actions relating to an acquisition or
potential acquisition of control;
- 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 proven by clear
and convincing evidence that the directors did not
assent to such action in good faith after
reasonable investigation; and
- provides that the fiduciary duty of First
Leesport'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 Business
Corporation Law of 1988 explicitly provide that the fiduciary
duty of directors shall not be deemed to require directors:
- to redeem any rights under, or to modify or render
inapplicable, any shareholder rights plan;
- to render inapplicable, or make determinations
under, provisions of the Pennsylvania Business
Corporation Law of 1988, relating to control
transactions, business combinations, control-share
acquisitions or disgorgement by certain <PAGE 96>
controlling shareholders following attempts to
acquire control; or
- 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 Leesport 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 Business
Corporation Law of 1988 grants directors the statutory authority
to reject or refuse to consider any potential or proposed
acquisition of the corporation.
COMPARISON OF SHAREHOLDER RIGHTS
If the merger is completed, shareholders of Merchants
automatically will become shareholders of First Leesport, and
their rights as shareholders will be determined by the
Pennsylvania Business Corporation Law of 1988, as amended, and by
First Leesport's Articles of Incorporation and Bylaws. The
following is a summary of material differences between the rights
of holders of First Leesport common stock and the rights of
holders of Merchants common stock.
Directors
Removal
Pursuant to Pennsylvania law, First Leesport directors
may be removed from office without cause by the affirmative vote
of a majority of the votes cast by all shareholders entitled to
vote thereon. Pursuant to Pennsylvania law and Merchants'
bylaws, Merchants directors may be removed from office without
cause by the affirmative vote of a majority of outstanding voting
shares.
Nomination
Shareholders of both First Leesport and Merchants are
required to submit to their respective companies, in writing and
in advance, any nomination of a candidate for election as a
director. First Leesport's bylaws provide that such nominations
must be submitted not less than 20 days prior to the date of the
meeting for the election of directors. Merchants' bylaws provide
that its shareholders must submit written nominations not less
than 45 days prior to the date of the meeting for the election of
directors. <PAGE 97>
Limited Liability
The bylaws of First Leesport provide that a director of
First Leesport is not personally liable to First Leesport or its
shareholders for monetary damages as a director unless:
- the director has breached or failed to perform his
duties as required under Pennsylvania law, and
- the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
There is no such elimination of liability arising under
any criminal statute or further with respect to the payment of
taxes.
Neither Merchants' articles of incorporation nor bylaws
contain similar provisions.
Indemnification
The bylaws of Merchants and the bylaws of First
Leesport each provide for indemnification of directors, officers
and employees for certain litigation-related liabilities and
expenses. Directors, officers and employees of Merchants are
entitled to indemnification:
- in third party actions, if the person acted in
good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of
Merchants, and, as to any criminal action or
proceeding, had no reasonable cause to believe his
conduct was unlawful; and
- in derivative actions, if the person acted in good
faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of
Merchants, provided the person has not been
adjudged to be liable to Merchants for misconduct
in the performance of such person's duty to
Merchants.
Indemnification in both third party actions and
derivative actions can be made only in a specific case upon a
finding by:
- a majority vote of disinterested directors or a
committee thereof, even though less than a quorum;
- independent legal counsel in a written opinion, or
- by shareholders, that the appropriate standard for
indemnification has been met. <PAGE 98>
In comparison, directors, officers and employees of
First Leesport 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 person entitled to indemnification acted
in good faith and in a manner he reasonably believed to be in or
not opposed to, the best interests of First Leesport, and, as to
any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
Shareholders' Meetings
Special Meetings
Special meetings of First Leesport shareholders may be
called at any time by any of the following:
- the Board of Directors, or
- shareholders entitled to cast at least 20% of the
votes which all shareholders are entitled to cast.
Special meetings of Merchants shareholders may be
called at any time by the Chairman of the Board, the President,
the Executive Vice President, a majority of the Board of
Directors, or its Executive Committee, or by shareholders
entitled to cast at least one-fourth of the votes which all
shareholders are entitled to cast at the particular meeting.
Annual Meetings
First Leesport's bylaws provide that shareholders may
transact any business which is a proper subject for shareholder
action at the annual meeting of First Leesport shareholders
irrespective of whether the notice of such meeting contains any
reference to such business. Neither Merchants' articles of
incorporation nor bylaws address the rights of shareholders to
submit matters for action at the annual meetings of Merchants.
Required Shareholder Votes
General
The holders of First Leesport common stock possess
exclusive voting rights of First Leesport. Each holder of First
Leesport common stock is entitled to one vote for each share
owned of record. There are no cumulative voting rights in the
election of directors. For general corporate action of the
shareholders of First Leesport, the affirmative vote of a
majority of the votes cast at a shareholders' meeting is required
for approval.
<PAGE 99>
The holders of Merchants common stock possess exclusive
voting rights of Merchants. Each holder of Merchants common
stock is entitled to one vote for each share owned of record;
provided, however, that shareholders of Merchants are entitled to
cumulate votes in the election of directors. For general
corporate action of the shareholders of Merchants, the
affirmative vote of a majority of outstanding voting shares at a
shareholders' meeting is required for approval.
Fundamental Changes
First Leesport's articles of incorporation require that
any merger, consolidation, liquidation or dissolution of the
corporation or any action that would result in the sale or other
disposition of all or substantially all of the assets of First
Leesport must be approved by the affirmative vote of shareholders
entitled to cast at least 70% of the votes which all shareholders
are entitled to cast.
Under Pennsylvania law, Merchants requires the
affirmative vote of a majority of all votes cast by shareholders
entitled to vote thereon to approve any merger, consolidation,
share exchange, asset transfer (in respect of a sale, lease,
exchange or other disposition of all, or substantially all, the
assets of Merchants) or similar transaction.
Amendment of Articles of Incorporation
Under Pennsylvania law, First Leesport's and Merchants'
articles of incorporation may be amended upon the affirmative
vote of a majority of all votes cast by shareholders entitled to
vote thereon. Amendment or repeal of the provision of First
Leesport's articles of incorporation relating to shareholder
action with respect to fundamental transactions requires the
affirmative vote of 70% Of the shares entitled to vote.
Amendment of Bylaws
The authority to amend or repeal First Leesport's
bylaws is vested in First Leesport's Board of Directors, subject
always to the power of the shareholders of First Leesport to
change such action by the affirmative vote of a majority of all
votes cast by shareholders entitled to vote thereon (except that
any amendment to the indemnification provisions set forth in the
Bylaws shall require the affirmative vote of 75% of the Board of
Directors or shareholders holding 75% of the votes that all
shareholders are entitled to cast). Similarly, the authority to
amend or repeal Merchants' bylaws is vested in Merchants' Board
of Directors. By contrast, however, although Merchants'
stockholders may amend or repeal the Bylaws, a shareholder
amendment to or repeal of any Bylaw provision requires the
affirmative vote of Merchants shareholders holding at least two-
thirds of the voting power.
<PAGE 100>
Mandatory Tender Offer Provision
First Leesport's articles of incorporation provide that
any person or entity acquiring First Leesport capital stock with
30% or more of First Leesport's total voting power is required to
offer to purchase, for cash, all shares of First Leesport's
voting stock, at a price per share equal to the highest price
paid by such person for each respective class of First Leesport's
voting stock within the preceding twelve months. The
Pennsylvania Business Corporation Law of 1988, as amended, also
provides that following any acquisition by a person or group of
more than 20% of a publicly-held corporation's voting stock, the
remaining shareholders have the right to receive payment, in
cash, for their shares from such person or group of an amount
equal to the "fair value" of their shares, including a
proportionate amount for any control premium.
Except as provided under the Pennsylvania Business
Corporation law of 1988, as amended, neither Merchants' articles
of incorporation nor its bylaws provide Merchants' shareholders
with similar rights.
ADJOURNMENT
In the event that we do not have a quorum or sufficient
votes to approve the merger agreement at either special meeting,
we intend to adjourn the meeting to further solicit proxies. We
can only use proxies we have received at the time of the special
meetings to vote for adjournment, if necessary, by submitting the
question of adjournment to you as a separate matter for your
consideration.
The Boards of Directors of both Merchants and First
Leesport recommend that shareholders vote their proxies in favor
of the adjournment proposal so that their proxies may be used to
vote for adjournment if it becomes necessary. Properly executed
proxies will be voted in favor of the adjournment proposal unless
the proxies indicate otherwise. If it is necessary to adjourn
either of the special meetings, we will not give notice of the
time and place of the adjourned meeting to shareholders other
than an announcement at the special meeting.
EXPERTS
The consolidated financial statements of First
Leesport, as of December 31, 1998 and for each of the three years
then ended, included in First Leesport's Annual Report on
Form 10-KSB for the year ended December 31, 1998, have been
audited by Beard & Company, Inc., independent auditors, as set
forth in their report in First Leesport's Annual Report which we
deliver with this proxy statement/prospectus. Such consolidated
financial statements are included in reliance upon such reports
given upon the authority of Beard & Company, Inc. as experts in
accounting and auditing.
<PAGE 101>
The consolidated financial statements of Merchants as
of December 31, 1998 and 1997 and for each of the years then
ended, appearing elsewhere in this proxy statement/prospectus,
have been included in reliance upon the report of Stokes Kelly &
Hinds, LLC, independent public accountants. Such consolidated
financial statements are included in reliance upon such reports
given upon the authority of Stokes Kelly & Hinds, LLC as experts
in accounting and auditing.
LEGAL MATTERS
The law firm of Stevens & Lee, P.C., will pass on the
validity of the First Leesport common stock issued in the merger,
the federal income tax consequences of the merger, and certain
other legal matters relating to the merger for First Leesport.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the
Boards of Directors of First Leesport and Merchants know of no
matters shareholders may present for consideration at the special
meetings other than as set forth in this proxy statement/
prospectus. However, if a shareholder presents any other matter
at either of the special meetings, the forms of proxy confer
discretionary authority to the individuals named as proxy holders
to vote the shares represented by the proxy on these matters.
SHAREHOLDER PROPOSALS
First Leesport's 2000 Annual Meeting of Stockholders
will be held on or about April __, 2000.
First Leesport must receive any shareholder proposal
for the 2000 Annual Meeting of Shareholders at its principal
offices not later than November 10, 1999, for it to be considered
for inclusion in First Leesport's proxy materials for that annual
meeting. First Leesport will not include in its proxy materials
a shareholder proposal submitted after November 10, 1999, or
which does not otherwise meet the requirements of the applicable
regulations relating to shareholder proposals, but the
shareholder may nonetheless present the proposal at the annual
meeting of shareholders in 2000. If the shareholder intending to
present a proposal has not provided First Leesport notice of the
matter on or before February 7, 2000, the proxyholders of the
Board of Directors would have discretionary authority to vote on
the proposal at the Meeting.
WHERE YOU CAN FIND MORE INFORMATION
First Leesport is subject to the informational
requirements of the Securities Exchange Act of 1934 and files
reports, proxy statements and other information with the SEC.
You may read and copy any reports, proxy statements and other
information First Leesport files at the SEC's public reference
rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 and at
<PAGE 102> the Securities and Exchange Commission's Regional
Offices in New York (7 World Trade Center, Suite 1300, New York,
New York 10048) and Chicago (Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661). You may call the
SEC at 1-800-SEC-0330 for further information on the public
reference rooms. First Leesport's SEC filings are also available
on the Securities and Exchange Commission's Internet site at
http://www.sec.gov.
First Leesport filed a Registration Statement on
Form S-4 (No. 333-____) to register with the Securities and
Exchange Commission the First Leesport common stock issuable to
Merchants shareholders in the merger. This joint proxy
statement/prospectus is a part of that Registration Statement and
constitutes a prospectus of First Leesport in addition to being a
proxy statement of First Leesport and of Merchants for their
special meetings. As allowed by SEC rules, this proxy statement/
prospectus does not contain all the information you can find in
the Registration Statement or the exhibits to the Registration
Statement.
Some of the information that you may want to consider
in deciding how to vote on the merger is not physically included
in this joint proxy statement/prospectus, but rather is
"incorporated by reference" to documents that have been filed by
First Leesport with the SEC. The information that is
incorporated by reference consists of:
Documents filed by First Leesport (SEC File
No. 0-14555):
- First Leesport's Annual Report on Form 10-KSB for
the year ended December 31, 1998.
- [First Leesport's Current Reports on Form 8-K
filed on ______________, and __________________].
All documents filed by First Leesport under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 after the date of this proxy statement/prospectus and
prior to the special meeting also are incorporated by reference
into this proxy statement/prospectus and deemed a part of this
proxy statement/prospectus from the date of filing.
Any statement contained in a document that is
incorporated by reference will be modified or superseded for all
purposes to the extent that a statement contained in this proxy
statement/prospectus (or in any other document that is
subsequently filed with the SEC and incorporated by reference)
modifies or is contrary to that previous statement.
We may have sent you some of the documents incorporated
by reference, but you can obtain any of them through us or the
SEC. Documents incorporated by reference are available from
First Leesport and without charge, excluding all exhibits unless
<PAGE 103> we have specifically incorporated by reference an
exhibit in this proxy statement/prospectus. Merchants
shareholders may obtain documents incorporated by reference in
this proxy statement/prospectus, with respect to First Leesport,
by requesting them in writing or by telephone from: First
Leesport Bancorp, Inc., 133 North Centre Avenue, Leesport, PA
19533, Attention: Jeannette L. Eck (telephone number
(610) 926-2161). In order to ensure timely delivery of such
documents, any request should be made by June __, 1999.
First Leesport has specified all information contained
or incorporated by reference in this proxy statement/prospectus
relating to First Leesport. Merchants has supplied all
information contained in this proxy statement/prospectus relating
to Merchants.<PAGE 104>
<PAGE>
MERCHANTS OF SHENANDOAH BAN-CORP.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
Page
Independent auditor's report F-2
Balance sheets as of December 31, 1998 and
December 31, 1997 F-3
Statements of income for the years ended
December 31, 1998 and December 31, 1997 F-4
Statements of changes in stockholders' equity
for the years ended December 31, 1998 and
December 31, 1997 F-5
Statements of cash flows for the years ended
December 31, 1998 and December 31, 1997 F-6
Notes to financial statements F-7
PAGE F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Merchants of Shenandoah Ban-Corp
and Subsidiary
Shenandoah, Pennsylvania
We have audited the accompanying consolidated balance sheets of
Merchants of Shenandoah Ban-Corp and Subsidiary as of
December 31, 1998 and 1997, and the related consolidated
statements of income, changes in shareholders' equity, and cash
flows for the years then ended. These consolidated financial
statements are the responsibility of the Corporation'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 consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated 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 Merchants of Shenandoah Ban-Corp and Subsidiary as of
December 31, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Stokes Kelly & Hinds, LLC
Pittsburgh, Pennsylvania
January 22, 1999
PAGE F-2
<PAGE>
MERCHANTS OF SHENANDOAH BAN-CORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks on demand $ 1,615,902 $ 1,546,832
Interest bearing deposits with banks 474,060 118,523
Federal funds sold 650,000 332,000
Securities available for sale 21,448,747 21,583,186
Securities held to maturity, market value
$430,000 and $1,022,000 in 1998 and 1997 422,769 1,010,326
Loans 33,014,051 29,932,127
Unearned income (259,783) (266,287)
Allowance for loan losses (373,472) (354,490)
Net loans 32,380,796 29,311,350
Premises and equipment 791,902 861,206
Accrued interest receivable 449,808 420,132
Other assets 135,844 118,872
TOTAL ASSETS $ 58,369,828 $ 55,302,427
LIABILITIES
Deposits
Non-interest bearing $ 4,164,065 $ 3,401,962
Interest bearing 42,005,258 44,406,885
Total deposits 46,169,323 47,808,847
Short-term borrowings 1,000,000 -
Accrued interest payable and other
liabilities 464,207 517,921
Long-term borrowings 3,500,000 -
Total liabilities 51,133,530 48,326,768
SHAREHOLDERS' EQUITY
Common stock, $2 stated value; 1,000,000
authorized shares; 305,721 and 291,186 shares
issued and outstanding in 1998
and 1997 611,442 582,372
Additional paid-in capital 1,154,700 784,057
Retained earnings 5,384,026 5,506,668
Accumulated other comprehensive income -
net of deferred taxes of $44,370
and $52,835 in 1998 and 1997 86,130 102,562
Total shareholders' equity 7,236,298 6,975,659
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 58,369,828 $ 55,302,427
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE F-3
<PAGE>
MERCHANTS OF SHENANDOAH BAN-CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $2,412,689 $2,450,769
Interest and dividends on securities:
Taxable 1,077,616 1,251,881
Exempt from federal income taxes 266,581 250,411
Interest on deposits with banks 30,845 26,879
Interest on federal funds sold 36,270 41,848
Total interest income 3,824,001 4,021,788
INTEREST EXPENSE
Interest on deposits 1,700,423 1,766,136
Interest on advances and other borrowings 50,557 43,314
Total interest expense 1,750,980 1,809,450
NET INTEREST INCOME 2,073,021 2,212,338
PROVISION FOR LOAN LOSSES 30,000 42,500
Net interest income after provision
for loan losses 2,043,021 2,169,838
OTHER OPERATING INCOME
Service charges on deposit accounts 93,480 101,505
Other service charges and fees 40,747 39,459
Net security gains 26,503 -
Other income 13,685 14,277
Total other operating income 174,415 155,241
OTHER OPERATING EXPENSES
Salaries and employee benefits 863,309 855,159
Net occupancy expense 114,783 113,928
Furniture and equipment expense 155,073 153,945
Other expenses 476,557 467,777
Total other operating expenses 1,609,722 1,590,809
INCOME BEFORE INCOME TAXES 607,714 734,270
INCOME TAX EXPENSE 121,058 175,350
NET INCOME $ 486,656 $ 558,920
NET INCOME PER COMMON SHARE $ 1.59 $ 1.83
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE F-4
<PAGE>
MERCHANTS OF SHENANDOAH BAN-CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Minimum
Additional Other Pension Total
Common Paid-in Retained Comprehensive Liability Shareholders'
Stock Capital Earnings Income Adjustment Equity
------ ---------- -------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - January 1, 1997 $582,372 $784,057 $5,116,636 $(118,974) $(28,768) $6,335,323
COMPREHENSIVE INCOME
Net income - - 558,920 - - 558,920
Other comprehensive income,
net of tax:
Unrealized gains on securi-
ties, net of reclassifi-
cation adjustment of $0 - - - 221,536 - 221,536
Minimum pension liability
adjustment - - - - 28,768 28,768
----------
TOTAL COMPREHENSIVE INCOME 809,224
----------
Cash dividends declared
($.58 per share) - - (168,888) - - (168,888)
-------- -------- ---------- --------- -------- ----------
BALANCE - DECEMBER 31, 1997 582,372 784,057 5,506,668 102,562 - 6,975,659
COMPREHENSIVE INCOME
Net income - - 486,656 - - 486,656
Other comprehensive income,
net of tax:
Unrealized gains on securi-
ties of $1,060, net of
reclassification adjust-
ment for gains included in
net income of $(17,492) - - - (16,432) - (16,432)
----------
TOTAL COMPREHENSIVE INCOME 470,224
----------
Cash dividends declared
($.70 per share) - - (209,585) - - (209,585)
Stock dividend 29,070 370,643 (399,713) - - -
-------- -------- ---------- --------- -------- ----------
BALANCE - DECEMBER 31, 1998 $611,442 $1,154,700 $5,384,026 $ 86,130 $ - $7,236,298
======== ========== ========== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE F-5
<PAGE>
MERCHANTS OF SHENANDOAH BAN-CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 486,656 $ 558,920
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 30,000 42,500
Amortization of securities and loans 106,034 74,574
Depreciation and amortization 92,336 106,148
Deferred tax provision (3,342) 6,947
Net security gains (loss) (26,503) -
(Increase) decrease in accrued interest
receivable (29,676) 30,061
Increase in other assets (11,129) (36,628)
Increase (decrease) in accrued interest
payable and other liabilities (49,730) 57,950
Net cash provided by operating
activities 594,646 840,472
INVESTING ACTIVITIES
Net (increase) decrease in interest bearing
deposits with banks (355,537) 489,638
Net (increase) decrease in federal funds
sold (318,000) 373,000
Purchases of securities available for sale (7,190,737) (1,463,081)
Sales of securities available for sale 970,458 37,700
Maturities and calls of securities available
for sale 6,285,770 3,215,799
Maturities and calls of securities held
to maturity 590,000 -
Net (increase) decrease in loans (3,137,369) (7,419)
Purchases of premises and equipment (21,052) (26,554)
Net cash (used) provided by investing
activities (3,176,467) 2,619,083
FINANCING ACTIVITIES
Net decrease in deposits (1,639,524) (1,900,103)
Dividends paid (209,585) (168,888)
Net increase in short-term borrowings 1,000,000 -
Proceeds from long-term borrowings 3,500,000 -
Repayment of long-term borrowings - (1,600,000)
Net cash used in financing activities 2,650,891 (3,668,991)
Net decrease in cash and cash equivalents 69,070 (209,436)
Cash and cash equivalents at beginning of
year 1,546,832 1,756,268
Cash and cash equivalents at end of year $ 1,615,902 $ 1,546,832
<PAGE F-6>
Supplemental disclosures of cash flow
information
Cash paid during the year for:
Interest $ 1,754,806 $ 1,815,733
Income taxes $ 226,404 $ 132,657
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE F-7
<PAGE>
MERCHANTS OF SHENANDOAH BAN-CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General:
The accompanying consolidated financial statements include
the accounts of Merchants of Shenandoah Ban-Corp (The
"Corporation") and its wholly owned subsidiary, Merchants
Bank of Pennsylvania (The "Bank"). All material
intercompany transactions have been eliminated.
The following summary of accounting and reporting policies
is presented to aid the reader in obtaining a better
understanding of the financial statements and related
financial data of the Corporation and the Bank contained in
this report. Such policies conform to generally accepted
accounting principles ("GAAP") and to general practice
within the banking industry. In preparing financial
statements in conformity with GAAP, management is required
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the
financial statements and income and expenses during the
reporting period. Actual results could differ from those
estimates.
Certain items of the consolidated financial statements as of
December 31, 1997 have been reclassified to conform with the
December 31, 1998 presentation. None of these
reclassifications affected net income.
Securities:
Debt securities that the Corporation has the positive intent
and ability to hold to maturity are classified as securities
held to maturity and are reported at amortized cost. Debt
and equity securities not classified as held to maturity
securities are classified as securities available for sale
and are reported at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate
component of shareholders' equity.
Net gain or loss on the sale of securities is determined
using the specific identification method.
Loans:
Loans are stated at the principal amount outstanding. The
unearned income on installment loans is taken into income in
PAGE F-8
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
decreasing amounts over the term of the loan. Interest on
all other loans is recognized based on the principal amount
outstanding. When a loan becomes past due and doubt exists
as to the ultimate collection of principal and interest, the
accrual of income is discontinued and is recognized at the
time payment is received.
Loan Origination Fees and Costs:
The fees and costs related to the origination of a loan are
deferred and amortized over the life of the loan using the
interest method.
Other Real Estate Owned:
Real estate, other than bank premises, is recorded at the
lower of cost or market at the time of acquisition.
Expenses related to holding the property, net of rental
income, are generally charged against earnings in the
current period.
Allowance for Loan Losses:
The allowance for loan losses represents management's
estimate of an amount adequate to provide for losses which
may be incurred on loans currently held. Management
determines the adequacy of the allowance based on reviews of
individual credits, historical patterns of loan charge-offs
and recoveries, industry experience, current economic
trends, and other factors relevant to the collectibility of
the loans currently in the portfolio. The allowance is
increased by provisions charged to operating expense and
reduced by net charge-offs.
Premises and Equipment:
Premises and equipment are carried at cost less accumulated
depreciation and amortization. For financial statement
reporting and income tax purposes, depreciation is computed
both on the straight-line and accelerated methods over the
estimated useful lives of the premises and equipment.
Charges for maintenance and repairs are expensed as
incurred. For leases, amortization is charged over the term
of the respective lease or the estimated useful life of the
asset, whichever is shorter.
Income Taxes:
Certain income and expense items are accounted for in
different years for financial reporting purposes than for
PAGE F-9
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
income tax purposes. Deferred taxes are provided to
recognize these temporary differences. The principal items
involved are discount accretion on securities, net deferred
loan fees and costs, alternative minimum tax, and the
provision for possible loan losses. Income tax expense is
not proportionate to earnings before taxes, principally
because income from obligations of states and political
subdivisions are nontaxable.
Earnings per Share:
Earnings per share have been calculated on the weighted
average number of common shares outstanding and have been
restated to give effect to stock dividends issued through
December 31, 1998.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("FAS 128"). This statement redefines
the standards for computing earnings per share ("EPS")
previously found in Accounting Principles Board Opinion No.
15, "Earnings Per Share." FAS 128 establishes new standards
for computing and presenting EPS and requires dual
presentation of "basic" and "diluted" EPS on the face of the
income statement for all entities with complex capital
structures. Under FAS 128, basic EPS is to be computed
based upon income available to common shareholders and the
weighted average number of common shares outstanding for the
period. Diluted EPS is to reflect the potential dilution
exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of
the Corporation. FAS 128 also requires the restatement of
all prior-period EPS data presented. The Corporation
currently maintains a simple capital structure, thus there
are no dilutive effects on earnings per share.
Benefit Plans:
The Corporation has a contributory defined contribution
pension plan covering all employees having at least one year
of service and 21 years of age. Contribution amounts are
determined annually by the Corporation and are charged to
current operating expense. The expense amounted to $36,000
and $11,000 for 1998 and 1997, respectively.
The Corporation has terminated its noncontributory defined
benefit pension plan that covered substantially all full-
time employees (Note 11).
PAGE F-10
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income:
As of January 1, 1998, the Corporation adopted Statement
130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130
establishes new rules for the reporting and display of
comprehensive income and its components; however, the
adoption of this Statement had no impact on the
Corporation's net income or shareholders' equity. FAS 130
requires unrealized gains or losses on the Corporation's
available-for-sale securities, which prior to adoption were
reported separate in shareholders' equity, to be included in
other comprehensive income. Prior year financial statements
have been reclassified to conform to the requirements of
FAS 130.
Cash and Cash Equivalents:
For purposes of reporting cash flows, the Corporation has
defined cash and cash equivalents as those amounts included
in the balance sheet caption "Cash and due from banks on
demand."
2. SECURITIES
The amortized cost and estimated market values of securities
are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Securities Available for Sale:
December 31, 1998
U.S. Treasury securities $ 1,800 $ 14 $ - $ 1,814
Obligations of U.S. Government
corporations and agencies 3,575 7 (1) 3,581
Obligations of states and
political subdivisions 5,891 140 (48) 5,983
Corporate securities 997 4 (4) 997
Mortgage-backed securities 8,438 4 (57) 8,385
Equity securities 618 76 (5) 689
$ 21,319 $ 245 $(115) $ 21,449
December 31, 1997
U.S. Treasury securities $ 1,693 $ 4 $ (1) $ 1,696
Obligations of U.S. Government
corporations and agencies 3,843 14 (14) 3,843
Obligations of states and
political subdivisions 3,597 117 - 3,714
Corporate securities 600 1 - 601
Mortgage-backed securities 11,192 44 (55) 11,181
Equity securities 502 46 - 548
PAGE F-11
<PAGE>
2. SECURITIES (Continued)
$ 21,427 $ 226 $ (70) $ 21,583
Securities Held to Maturity:
December 31, 1998
Obligations of states and
political subdivisions $ 423 $ 7 $ - $ 430
$ 423 $ 7 $ - $ 430
December 31, 1997
Obligations of U.S. Government
corporations and agencies $ 300 $ 1 $ - $ 301
Obligations of states and
political subdivisions 710 11 - 721
$ 1,010 $ 12 $ - $ 1,022
</TABLE>
The amortized cost and estimated market values of securities
at December 31,1998, by contractual maturity, are shown
below (in thousands). Expected maturities will differ from
contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Securities Securities
Available for Sale Held to Maturity
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due within 1 year $ 1,738 $ 1,738 $ - $ -
Due after 1 but within 5 years 1,748 1,760 150 150
Due after 5 but within 10 years 2,939 2,952 100 102
Due after 10 years 5,838 5,926 173 178
12,263 12,376 423 430
Mortgage-backed securities 8,438 8,384 - -
Equity securities 618 689 - -
$21,319 $21,449 $ 423 $ 430
</TABLE>
The Corporation holds equity securities which consist of
$332,300 of Federal Home Loan Bank stock at December 31,
1998 and 1997, $40,000 of Atlantic Central Bankers Bank
stock at December 31, 1998 and 1997, and other bank stocks
of $317,018 and $176,081 at December 31, 1998 and 1997,
respectively.
PAGE F-12
<PAGE>
2. SECURITIES (Continued)
Proceeds from sales of securities was $970,458 and $37,700
in 1998 and 1997. Gross gains of $26,503 and $0 and gross
losses of $0 in 1998 and 1997 were realized on those sales.
There were no pledged securities at December 31, 1998 and
1997.
The changes in net unrealized gain or loss on securities
available for sale that has been included in shareholders'
equity for the year ended December 31, is as follows (in
thousands):
1998 1997
Gross change in unrealized gain (loss)
on securities available for sale $(25) $336
Less deferred taxes (9) 114
Net change in unrealized gain (loss)
on securities available for sale $(16) $222
3. LOANS
Loans at December 31 are summarized as follows (in
thousands):
1998 1997
Real estate loans $21,680 $20,289
Commercial and industrial loans 7,613 5,657
Installment loans 1,859 1,966
Municipal loans 358 375
All other loans 1,504 1,645
$33,014 $29,932
Most of the Corporation's business activity was with
customers located within Pennsylvania. Although the
Corporation has a diversified portfolio, exposure to credit
loss can be adversely impacted by downturns in local
economic and employment conditions.
PAGE F-13
<PAGE>
4. ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses are summarized
as follows (in thousands):
1998 1997
Allowance balance at January 1, $354 $314
Loans charged off (30) (33)
Recoveries on loans previously
charged off 19 30
Provision charged to operating expense 30 43
Allowance balance at December 31, $373 $354
There were no impaired loans for the years ended
December 31, 1998 and 1997.
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Corporation is a party to financial instruments with
off-balance-sheet risk in the normal course of business to
meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess
of the amount recognized in the balance sheet. The contract
or notional amount of these instruments reflect the extent
of involvement the Corporation has in particular classes of
financial instruments.
The Corporation's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and standby
letters of credit is represented by the contract or notional
amount of those instruments. The Corporation uses the same
credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
The following table identifies the contract or notional
amount of those instruments.
December 31,
1998 1997
Financial instruments whose contract
amounts represent credit risk
(in thousands):
Commitments to extend credit $3,115 $1,178
Standby letters of credit 20 30
$3,135 $1,208
PAGE F-14
<PAGE>
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
(continued)
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have
fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Corporation evaluates each customer's
credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Corporation
upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, property, plant
and equipment, and income-producing commercial properties.
Standby letters of credit written are conditional
commitments issued by the Corporation to guarantee the
performance of a customer to a third party. Those
guarantees are primarily issued to support public and
private borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
6. PREMISES AND EQUIPMENT
The depreciation and amortization provision charged to
operating expense amounted to $90,356 in 1998 and $104,160
in 1997. The cost of premises and equipment at December 31,
is summarized as follows (in thousands):
1998 1997
Premises $1,080 $1,080
Furniture and equipment 1,389 1,373
Computer software 87 82
2,556 2,535
Less accumulated depreciation and
amortization 1,804 1,714
752 821
Land 40 40
$ 792 $ 861
7. DEPOSITS
Interest bearing deposits include certificates of deposit
issued in denominations of $100,000 or greater which
amounted to $1,475,609 and $2,335,494 at December 31, 1998
and 1997.
<PAGE F-15>
Interest bearing deposits at December 31, are further
detailed as follows (in thousands):
1998 1997
Savings accounts $10,855 $11,282
NOW accounts 1,792 1,965
Money Market NOW accounts 3,050 3,381
Certificates and other time deposits 26,308 27,779
$42,005 $44,407
Scheduled maturities of certificates and other time deposits
are as follows (in thousands):
1999 $17,106
2000 7,225
2001 866
2002 512
2003 599
Subsequent to 2003 -
$26,308
8. SHORT-TERM BORROWINGS
Short-term borrowings consisted of Federal Home Loan Bank
(FHLB) borrowings of $1,000,000 at December 31, 1998. The
Corporation also has an unused line of credit with the FHLB
at December 31, 1998. The total available credit from this
line was $3,000,000 at December 31, 1998.
9. LONG-TERM BORROWINGS
Long-term FHLB advances of $3,500,000 had a weighted average
interest rate of 4.84% at December 31, 1998.
10. LEASE COMMITMENTS
The Bank has a non-cancelable ground lease agreement for one
of its banking facilities through the year 2012. The lease
contains an option for two additional terms of five years.
Total lease expense was $6,577 and $6,467 in 1998 and 1997,
respectively.
PAGE F-16
<PAGE>
10. LEASE COMMITMENTS (continued)
Minimum future rental payments under the non-cancelable
operating lease for each of the next five years and in the
aggregate as of December 31, 1998 are:
1999 $ 6,577
2000 6,577
2001 6,577
2002 6,577
2003 6,577
Subsequent to 2003 59,195
$92,080
Under the terms of the lease agreement, taxes will be passed
on to the Bank. Such adjustments are not reflected in the
above table.
11. EMPLOYEE BENEFIT PLAN
The Corporation sponsored a defined benefit pension plan
which covered substantially all employees who had satisfied
the age and service requirements. The plan called for
benefits to be paid to eligible employees at retirement
based primarily upon years of service with the Corporation
and compensation rates near retirement. Contributions to
the plan are made in amounts sufficient to meet minimum
ERISA funding standards. Plan assets consist of primarily
government agencies, U.S. Treasuries, life insurance
contracts, and mutual funds. The plan was frozen in 1995
and has been terminated effective December 31, 1997.
The plan's funded status at December 31, follows:
1997
Vested benefit obligation $296,336
Nonvested benefits -
Accumulated benefit obligation 296,336
Effect of projected future compensation levels -
Projected benefit obligation ("PBO") 296,336
Plan assets at fair value 296,336
PBO in excess of (deficient from) plan assets -
Additional liability recognized -
Unrecognized net (loss) gain -
Accrued pension cost $ -
PAGE F-17
<PAGE>
11. EMPLOYEE BENEFIT PLAN (continued)
Net pension cost for 1997 included the following components:
1997
Interest cost $ 17,086
Return on plan assets (42,225)
Net amortization and deferral 70,966
Net periodic pension cost $ 45,827
The discount rate used in determining the actuarial present
value of projected benefit obligation and the expected
return on the plan assets are summarized as follows:
1997
Discount rate 6.11%
Expected return on plan assets 7.00%
12. INCOME TAXES
The applicable income tax provision components for the years
ended December 31, are as follows:
1998 1997
Current $124,400 $168,403
Deferred (benefit) tax (3,342) 6,947
Total income tax expense $121,058 $175,350
The total tax provision or benefit for financial reporting
purposes differs from the amount computed by applying the
statutory income tax rate to income before income taxes.
The differences for the years ended December 31, are as
follows:
1998 1997
Tax at statutory rate $206,623 $249,652
Reduction resulting from:
Nontaxable interest income (106,786) (87,580)
Unallowable interest expense 17,438 9,979
Other 3,783 3,299
Total tax provision $121,058 $175,350
Included in the consolidated statements of condition are net
deferred tax assets and liabilities. The components as of
December 31 are as follows:
PAGE F-18
<PAGE>
12. INCOME TAXES (Continued)
1998 1997
Deferred tax assets $ 68,865 $ 65,256
Deferred tax liabilities (61,042) (69,240)
Net deferred tax asset (liability) $ 7,823 $(3,984)
13. CONTINGENCIES AND COMMITMENTS
There are no legal proceedings to which the Corporation or
the Bank are a party, except proceedings which arise in the
normal course of business and, in the opinion of management,
will not have any material effect on the consolidated
financial position of the Corporation and the Bank.
14. DIVIDEND RESTRICTIONS
The amount of funds available to a parent from its
subsidiary bank is limited for all state banks by
restrictions imposed by regulatory agencies. At
December 31, 1998, dividends were restricted not to exceed
$1,187,652. These restrictions have not had, and are not
expected to have, a significant impact on the Corporation's
ability to meet its cash obligations.
15. RELATED PARTY TRANSACTIONS
Some of the Corporation's or Bank's directors, principal
officers, principal shareholders, and their related
interests had transactions with the Bank in the ordinary
course of business during 1998. All loans and commitments
to loans in such transactions were made on substantially the
same terms, including collateral and interest rates, as
those prevailing at the time for comparable transactions.
In the opinion of management, these transactions do not
involve more than normal risk of collectibility or present
other unfavorable features. It is anticipated that further
such extensions of credit will be made in the future.
The aggregate amount of credit extended to these directors,
principal officers and their related interests was
approximately $204,493 and $199,163 at December 31, 1998 and
1997, respectively.
PAGE F-19
<PAGE>
16. CAPITAL REQUIREMENTS
The Corporation and the Bank are 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
consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt
corrective action, the Corporation and the Bank must meet
specific capital guidelines that involve quantitative
measures of the assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory
accounting practices. The capital amounts and
classification are also subject to qualitative judgments by
the regulators about components, risk weighting, and other
factors.
Quantitative measures established by regulation to ensure
capital adequacy require the maintenance of minimum amounts
and ratios (set forth in the tables below) of total and Tier
I capital (as defined in the regulations) to risk-weighted
assets (as defined). Management believes, as of
December 31, 1998, that the Corporation and the Bank meet
all capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from
the regulatory agencies categorized the Bank as well
capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the
table. There are no conditions or events since those
notifications that management believes have changed those
categories.
PAGE F-20
<PAGE>
16. CAPITAL REQUIREMENTS (Continued)
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk Weighted Assets)
Merchants of Shenandoah Ban-Corp $7,524,000 24.6% $2,440,000 >8.0%
Merchants Bank of Pennsylvania $7,256,000 24.0% $2,418,000 >8.0% $3,023,000 >10.0%
Tier I Capital (To Risk Weighted Assets)
Merchants of Shenandoah Ban-Corp $7,150,000 23.4% $1,222,000 >4.0%
Merchants Bank of Pennsylvania $6,883,000 22.8% $1,209,000 >4.0% $1,814,000 >6.0%
Tier I Capital (to Average Assets)
Merchants of Shenandoah Ban-Corp $7,150,000 12.4% $2,309,000 >4.0%
Merchants Bank of Pennsylvania $6,883,000 12.0% $2,299,000 >4.0% $2,874,000 >5.0%
As of December 31, 1997:
Total Capital (to Risk Weighted Assets)
Merchants of Shenandoah Ban-Corp. $7,203,000 26.90% $2,142,000 >8.0%
Merchants Bank of Pennsylvania $7,052,000 26.49% $2,129,000 >8.0% $2,662,000 >10.0%
Tier I Capital (To Risk Weighted Assets)
Merchants of Shenandoah Ban-Corp. $6,868,000 25.65% $1,071,000 >4.0%
Merchants Bank of Pennsylvania $6,719,000 25.24% $1,065,000 >4.0% $1,597,000 >6.0%
Tier I Capital (To Average Assets)
Merchants of Shenandoah Ban-Corp. $6,868,000 12.03% $2,282,000 >4.0%
Merchants Bank of Pennsylvania $6,719,000 12.08% $2,225,000 >4.0% $2,782,000 >5.0%
</TABLE>
17. MERGER
In January 1999, the Corporation entered into a definitive
letter of agreement to merge with, and into, First Leesport
Bancorp. Consummation of the merger is dependent upon the
approval of the shareholders and various regulatory
agencies.
PAGE F-21
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
between
FIRST LEESPORT BANCORP, INC.
and
MERCHANTS OF SHENANDOAH BAN-CORP
January 12, 1999
PAGE A-1
<PAGE>
AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of
January 12, 1999, is made by and between FIRST LEESPORT BANCORP,
INC. ("First Leesport"), a Pennsylvania business corporation,
having its principal place of business in Leesport, Pennsylvania,
and MERCHANTS OF SHENANDOAH BAN-CORP ("Merchants"), a
Pennsylvania business corporation, having its principal place of
business in Shenandoah, Pennsylvania.
BACKGROUND
1. First Leesport and Merchants desire for Merchants
to merge with and into First Leesport, with First Leesport
surviving such merger, in accordance with the applicable laws of
the Commonwealth of Pennsylvania and 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
Merchants have executed in favor of First Leesport, a Letter
Agreement dated January 12, 1999, in the form attached hereto as
Exhibit 1.
3. First Leesport and Merchants desire to provide the
terms and conditions governing the transactions contemplated
herein.
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):
Acquisition Transaction shall have the meaning
given to that term in Section 4.06.
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.
<PAGE A-2>
Agreement means this agreement, and any amendment
or supplement hereto.
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 Leesport and Merchants and to be filed
in the PDS, in accordance with the laws of the Commonwealth
of Pennsylvania.
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 Leesport and Merchants shall agree.
CRA means the Community Reinvestment Act of 1977,
as amended, and the rules and regulations promulgated from
time to time thereunder.
Dissenting Merchants 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. <PAGE A-3>
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.
FNBL means The First National Bank of Leesport,
the wholly owned banking subsidiary of First Leesport.
FRB means the Board of Governors of the Federal
Reserve System.
First Leesport Common Stock has the meaning given
to that term in Section 3.02(a) of this Agreement.
First Leesport Disclosure Schedule means a
disclosure schedule delivered by First Leesport to Merchants
pursuant to Article III of this Agreement.
First Leesport Financials means (i) the audited
consolidated financial statements of First Leesport as of
December 31, 1997 and for the three years ended December 31,
1997, including the notes thereto, and (ii) the unaudited
interim consolidated financial statements of First Leesport
as of each calendar quarter thereafter included in
Securities Documents filed by First Leesport.
First Leesport Market Price means, as of any date,
the average of the closing sale prices (or if unavailable
for any day, the mean between the high bid and low asked
prices for such day) of a share of First Leesport Common
Stock, as reported by Nasdaq or, if not so reported, by an
independent source in the over-the-counter market, for each
of the thirty (30) consecutive trading days commencing
thirty-one (31) trading days prior to the date of
determination.
First Leesport Regulatory Reports means the Annual
Reports of First Leesport on Form FRY-6 and any Current
Report of First Leesport on Form FRY-6A filed with the FRB
from December 31, 1997 through the Closing Date and the
Reports of Condition and Income of FNBL and accompanying
schedules for each calendar quarter, beginning with the
quarter ended March 31, 1997 through the Closing Date.
<PAGE A-4>
First Leesport Subsidiaries means any corporation,
50% or more of the capital stock of which is owned, either
directly or indirectly, by First Leesport, except any
corporation the stock of which is held in the ordinary
course of the lending activities of FNBL.
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 Leesport or Merchants, 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 Leesport or
Merchants 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.
MBP means Merchants Bank of Pennsylvania, the
wholly owned banking subsidiary of Merchants.
Merchants Common Stock means the common stock of
Merchants described in Section 2.02(a).
Merchants Disclosure Schedule means a disclosure
schedule delivered by Merchants to First Leesport pursuant
to Article II of this Agreement.
Merchants Financials means (i) the audited
consolidated financial statements of Merchants as of
December 31, 1997 and for the three years ended December 31,
1997, including the notes thereto, (ii) the unaudited
interim consolidated financial statements of Merchants as of
and for each calendar quarter thereafter.
Merchants Regulatory Reports means the Annual
Reports of Merchants on Form FRY-6 and any Current Report of
Merchants on Form FRY-6A filed with the FRB from
December 31, 1997 through the Closing Date and the Reports
of Condition and Income of MBP and accompanying schedules
for each calendar quarter, beginning with the quarter ended
March 31, 1997 through the Closing Date.
Merchants Subsidiaries means any corporation, 50%
or more of the capital stock of which is owned, either
<PAGE A-5> directly or indirectly, by Merchants, except any
corporation the stock of which is held in the ordinary
course of the lending activities of MBP.
Merger means the merger of Merchants with and into
First Leesport, with First Leesport surviving such merger,
contemplated by this Agreement.
NASD means the National Association of Securities
Dealers, Inc.
Nasdaq means the Small Cap Market tier of The
Nasdaq Stock Market operated by the NASD.
PDB means the Department of Banking of the
Commonwealth of Pennsylvania.
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 Merchants 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 Leesport 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, the PDB, 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.
<PAGE A-6>
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.
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,
111 North Sixth Street, Reading, 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, First Leesport and Merchants 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: Merchants
shall merge with and into First Leesport; the separate existence
of Merchants shall cease; First Leesport shall be the surviving
corporation in the Merger; and all of the property (real,
personal and mixed), rights, powers and duties and obligations of
Merchants shall be taken and deemed to be transferred to and
vested in First Leesport, as the surviving corporation in the
Merger, without further act or deed; all debts, liabilities and
duties of each of Merchants and First Leesport shall thereafter
be the responsibility of First Leesport as the surviving
corporation; all in accordance with the applicable laws of the
Commonwealth of Pennsylvania.
(c) First Leesport's Articles of Incorporation
and Bylaws. On and after the Effective Date, the articles of
incorporation and the bylaws of First Leesport, as the surviving
corporation in the Merger, as in effect on the Effective Date
shall continue to be the articles of incorporation and bylaws of
the surviving corporation, until thereafter altered, amended or
repealed.
<PAGE A-7>
(d) Boards of Directors and Officers of First
Leesport, FNBL and MBP.
(i) On the Effective Date, the Board of
Directors of First Leesport, as the surviving corporation in the
Merger, shall take such actions as may be necessary to cause the
Board of Directors of First Leesport to consist of (A) those
persons holding such office immediately prior to the Effective
Date and (B) Andrew J. Kuzneski, Jr., Roland C. Moyer and
Anthony R. Cali, one of whom shall be designated to serve in each
of Class I, Class II and Class III of the Board of Directors of
First Leesport. First Leesport agrees to appoint Andrew J.
Kuzneski, Jr. to the Class with the shortest remaining term as of
the Effective Date, Roland C. Moyer to the Class with the longest
remaining term as of the Effective Date and Anthony R. Cali to
the remaining Class. First Leesport shall cause Messrs Roland
and Cali to be nominated for re-election, and shall recommend
each of them for election, to the Board of Directors of First
Leesport for one additional three-year term at any annual or
special meeting of shareholders of First Leesport at which the
Class in which he is serving is considered for re-election and
shall cause Mr. Kuzneski to be nominated for re-election, and
shall recommend him for election, to the Board of Directors of
First Leesport for two additional three-year terms at any annual
or special meeting of shareholders of First Leesport at which the
Class in which he is serving is considered for re-election.
(ii) On the Effective Date, the officers of
First Leesport, as the surviving corporation in the Merger, shall
consist of (A) those persons duly elected and holding office
immediately prior to the Effective Date and (B) Anthony R. Cali,
who shall be elected an Executive Vice President of First
Leesport, each to hold office until his or her successor is
elected and qualified or otherwise in accordance with applicable
law, and the articles of incorporation and bylaws of First
Leesport.
(iii) On the Effective Date, First Leesport
shall take such action as may be necessary to cause the directors
of FNBL to consist of (A) those persons holding such office
immediately prior to the Effective Date and (B) Frank C.
Milewski. First Leesport shall take such action as may be
necessary to cause Mr. Milewski to be elected to the Board of
Directors of FNBL for a period of three (3) years from the
Effective Date. In the event that MBP is merged or combined with
FNBL on a date prior to two (2) years from the Effective Date
pursuant to Section 4.09(b)(iv) hereof, First Leesport shall take
such action as may be necessary to cause two (2) additional
individuals designated by the directors of MBP holding such
office immediately prior to the Effective Date, who are
reasonably acceptable to First Leesport, to be elected to the
Board of Directors of FNBL through a period ending three (3)
years from the Effective Date.
<PAGE A-8>
(iv) On the Effective Date, the officers of
FNBL and MBP, respectively, shall consist of those persons duly
elected and holding office immediately prior to the Effective
Date, each to hold office until his or her successor is elected
and qualified or otherwise in accordance with applicable law, and
the articles of association or incorporation and bylaws of FNBL
or MBP.
(v) On the Effective Date, First Leesport
shall take such action as may be necessary to cause the directors
of MBP to consist of (i) those persons holding such office
immediately prior to the Effective Date (the "Existing MBP
Directors") and (ii) Raymond H. Melcher, Jr. First Leesport
shall take such action as may be necessary to cause the Existing
MBP Directors to be elected to the Board of Directors of MBP for
a period of two (2) years from the Effective Date. Nothing
contained in this subsection, however, shall prevent First
Leesport, as the sole shareholder of MBP, from appointing or
electing additional members to the Board of Directors of MBP at
any time sufficient to constitute a majority of the members of
the Board of Directors of MBP. Notwithstanding the foregoing, in
the event that MBP is merged or combined with FNBL or another
banking subsidiary of First Leesport on a date prior to two (2)
years from the Effective Date pursuant to Section 4.09(b)(iv)
hereof, First Leesport shall establish and maintain an advisory
board (the "MBP Advisory Board") through the remainder of such
two (2) year period from the Effective Date. The MBP Advisory
Board shall consist of the Existing MBP Directors. Until the
annual meeting of shareholders of MBP to be held in 2000, the fee
schedule for meetings of the Board of Directors of MBP existing
on the date of this Agreement shall not be decreased for meetings
of the Board of Directors of MBP or the MBP Advisory Board, as
the case may be, unless otherwise agreed by the Existing MBP
Directors. Existing MBP Directors who, as of the Effective Date,
have attained the mandatory retirement age of seventy (70) years
under the applicable retirement policies of First Leesport shall
be permitted to continue to serve on the MBP Board of Directors
or the MBP Advisory Board, as the case may be, until the annual
meeting of shareholders of MBP to be held in 2000 notwithstanding
the existence of such retirement policies.
(e) Conversion of Shares.
(i) First Leesport Common Stock.
(A) Each share of First Leesport 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 Leesport Common Stock. Shares of First Leesport
Common Stock owned by Merchants (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
<PAGE A-9> shares, "DPC shares")) shall become treasury
stock of First Leesport.
(B) Each share of First Leesport Common
Stock issued and held in the treasury of First Leesport 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 Leesport.
(ii) Merchants Common Stock.
(A) Subject to the provisions of
Section 1.02(e)(iii) hereof with respect to dissenting
shares, each share of Merchants Common Stock issued and
outstanding immediately prior to the Effective Date (other
than shares then owned by First Leesport, 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 a right to receive:
(x) if the First Leesport Market
Price determined as of the Effective Date is greater
than or equal to $20.00 and less than or equal to
$28.00, then 1.5854 shares of fully paid and
nonassessable shares of First Leesport Common Stock;
and
(y) if the First Leesport Market
Price determined as of the Effective Date is less than
$20.00, then that number (rounded to the nearest
hundredth) of shares of fully paid and nonassessable
shares of First Leesport Common Stock equal to $31.71
divided by the First Leesport Market Price determined
as of the Effective Date; or
(z) if the First Leesport Market
Price determined as of the Effective Date is greater
than $28.00, then that number (rounded to the nearest
hundredth) of shares of fully paid and nonassessable
shares of First Leesport Common Stock equal to $44.39
divided by the First Leesport Market Price as of the
Effective Date.
The number of shares of first Leesport Common Stock into which
each share of Merchants Common Stock shall be converted as
determined pursuant to any of Sections 1.02(e)(ii)(A)(x),
1.02(e)(ii)(A)(y) or 1.02(e)(ii)(A)(z), is hereinafter referred
to as the "Exchange Ratio".
(B) Each share of Merchants Common
Stock (other than trust account shares or DPC shares) owned
by First Leesport or a First Leesport Subsidiary on the
Effective Date, if any, shall be cancelled.
<PAGE A-10>
(C) Each share of Merchants Common
Stock issued and held in the treasury of Merchants or owned
by Merchants or any Merchants 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 Leesport Common Stock and no scrip or certificates
therefor shall be issued in connection with the Merger. Any
former holder of Merchants Common Stock who would otherwise
be entitled to receive a fraction of a share of First
Leesport Common Stock shall receive, in lieu thereof, cash
in an amount equal to such fraction of a share multiplied by
the First Leesport Market Price determined as of the
Effective Date.
(iii) Dissenting Shareholders of Merchants.
If there are holders of Merchants Common Stock who dissent
from the Merger and exercise and perfect the right to obtain
valuation of and payment for their shares ("Dissenting
Merchants 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 Merchants Shares:
(A) all payments in respect of
Dissenting Merchants Shares, if any, will be made directly
by First Leesport, as the surviving corporation in the
Merger; and
(B) Dissenting Merchants 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) Surrender and Exchange of Merchants Stock
Certificates.
(i) Exchange of Certificates. Each holder
of shares of Merchants Common Stock, other than holders of
Dissenting Merchants Shares, who surrenders to First
Leesport (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 Leesport Common Stock into which such
holder's shares of Merchants 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 Leesport Common Stock issued
<PAGE A-11> in exchange for certificates for shares of
Merchants Common Stock pursuant to Section 1.02(f)(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 Merchants Common Stock will, from and after the
Effective Date, evidence solely the right to receive
certificates for shares of First Leesport Common Stock
pursuant to Section 1.02(f)(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 Merchants Common Stock are exchanged for First Leesport
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 Leesport Common Stock, First Leesport
will pay cash in an amount equal to dividends theretofore
payable on such First Leesport Common Stock and pay or
deliver any other distribution to which holders of shares of
First Leesport 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(f) upon surrender of certificates for shares of
First Leesport Common Stock. Notwithstanding the foregoing,
no party hereto will be liable to any holder of First
Leesport 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 Merchants Common Stock are surrendered by a
Merchants shareholder to First Leesport for exchange, First
Leesport shall have the right to withhold dividends or any
other distributions on the shares of First Leesport Common
Stock issuable to such shareholder.
(iii) Exchange Procedures. Each certificate
for shares of Merchants Common Stock delivered for exchange
under this Section 1.02(f) 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 Leesport Common
Stock for which certificates will be issued pursuant to this
Section 1.02(f) will be computed on the basis of the
aggregate number of shares represented by the certificates
so surrendered. If shares of First Leesport 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 Leesport 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
<PAGE A-12> or payment to a person other than the registered
holder of the certificate for shares of Merchants Common
Stock which are surrendered. As promptly as practicable
after the Effective Date, First Leesport shall send or cause
to be sent to each shareholder of record of Merchants Common
Stock transmittal materials for use in exchanging
certificates representing Merchants Common Stock for
certificates representing First Leesport Common Stock into
which the former have been converted in the Merger.
Certificates representing shares of First Leesport Common
Stock and checks for cash in lieu of fractional shares shall
be mailed to former shareholders of Merchants as soon as
reasonably possible but in no event later than twenty (20)
business days following the receipt of certificates
representing former shares of Merchants 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 Merchants Certificates. Upon the Effective
Date, the stock transfer books for Merchants Common Stock
will be closed and no further transfers of shares of
Merchants Common Stock will thereafter be made or
recognized. All certificates for shares of Merchants Common
Stock surrendered pursuant to this Section 1.02(g) will be
cancelled by First Leesport.
(g) Anti-Dilution Provisions. If First Leesport
shall, at any time before the Effective Date, (A) issue a
dividend in shares of First Leesport Common Stock, (B) combine
the outstanding shares of First Leesport Common Stock into a
smaller number of shares, (C) subdivide the outstanding shares of
First Leesport Common Stock, or (D) reclassify the shares of
First Leesport Common Stock, or set a record date prior to the
Effective Date with respect to any of the foregoing, then, in any
such event, the number of shares of First Leesport Common Stock
to be delivered to Merchants shareholders who are entitled to
receive shares of First Leesport Common Stock in exchange for
shares of Merchants Common Stock shall be adjusted so that each
Merchants shareholder shall be entitled to receive in the Merger
such number of shares of First Leesport Common Stock as such
shareholder would have been entitled to receive if the Effective
Date had occurred immediately prior to such event or the record
date for such event. (By way of illustration, if First Leesport
shall declare a stock dividend of 10% 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) shall be adjusted
upward by 10%.)
<PAGE A-13>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MERCHANTS
Merchants hereby represents and warrants to First
Leesport that, except as specifically set forth in the Merchants
Disclosure Schedule (which Merchants Disclosure Schedule
qualifies and represents exceptions to all of the representations
and warranties of Merchants contained in this Agreement taken as
a whole and does not relate to particular representations and
warranties) delivered to First Leesport by Merchants on the date
hereof:
Section 2.01 Organization.
(a) Merchants is a corporation duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Merchants is a bank holding
company duly registered under the BHC Act. Merchants 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.
Merchants 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 with respect to Merchants.
(b) MBP is a Pennsylvania state banking
institution duly organized and validly existing under the laws of
the Commonwealth of Pennsylvania. MBP 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. MBP 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
with respect to Merchants.
(c) There are no Merchants Subsidiaries other
than MBP. There are no MBP Subsidiaries.
(d) The deposits of MBP are insured by the FDIC
to the extent provided in the Federal Deposit Insurance Act.
(e) The respective minute books of Merchants and
MBP 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,
Merchants has delivered to First Leesport true and correct copies
<PAGE A-14> of the articles of incorporation and bylaws of
Merchants and MBP, respectively, as in effect on the date hereof.
Section 2.02 Capitalization.
(a) The authorized capital stock of Merchants
consists of 1,000,000 shares of common stock, par value $2.00 per
share, of which, at the date of this Agreement, 305,721 shares
are outstanding, validly issued, fully paid and nonassessable,
and free of preemptive rights. Merchants is not 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 Merchants or
any other security of Merchants or any securities representing
the right to vote, purchase or otherwise receive any shares of
the capital stock or any other security of Merchants.
(b) The authorized capital stock of MBP consists
of 3,000 shares of common stock, par value $2.00 per share, of
which, at the date of this Agreement, 3,000 shares are
outstanding, validly issued, fully paid, nonassessable, free of
preemptive rights and owned by Merchants. Neither Merchants nor
any Merchants 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 Merchants Subsidiary or
any other security of any Merchants 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
merchants Subsidiary. Either Merchants or MBP owns all of the
outstanding shares of capital stock of each merchants Subsidiary
free and clear of all liens, security interests, pledges,
charges, encumbrances, agreements and restrictions of any kind or
nature.
(c) Neither Merchants nor any Merchants
Subsidiary owns any equity interest, directly or indirectly, in
any other company or controls any other company, except for
equity interests held in the investment portfolio of MBP, equity
interests held by MBP in a fiduciary capacity, and equity
interests held in connection with the commercial loan activities
of MBP. There are no subscriptions, options, warrants, calls,
commitments, agreements or other Rights outstanding and held by
Merchants or any Merchants Subsidiary with respect to any other
company's capital stock or the equity of any other person.
(d) To Merchants'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 Merchants Common Stock, except
as disclosed in reasonable detail (using the principles described
<PAGE A-15> in Item 403 of the SEC's Regulation S-K) in the
Merchants Disclosure Schedule.
Section 2.03 Authority; No Violation.
(a) Merchants has full corporate power and
authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery
of this Agreement by Merchants and the consummation by Merchants
of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Merchants and,
except for approval by the shareholders of Merchants, no other
corporate proceedings on the part of Merchants are necessary to
complete the transactions contemplated hereby and by the Plan of
Merger. This Agreement has been duly and validly executed and
delivered by Merchants and, subject to approval of the
shareholders of Merchants and receipt of the required approvals
from Regulatory Authorities described in Section 3.04 hereof,
constitutes the valid and binding obligation of Merchants,
enforceable against Merchants 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.
(b) (A) The execution and delivery of this
Agreement by Merchants, (B) subject to approval of the
shareholders of Merchants and receipt of approvals from the
Regulatory Authorities referred to in Section 3.04 hereof and
Merchants' and First Leesport's compliance with any conditions
contained therein, the consummation of the transactions
contemplated hereby, and (C) compliance by Merchants with any of
the terms or provisions hereof will not (i) conflict with or
result in a breach of any provision of the articles of
incorporation or bylaws of Merchants or any Merchants Subsidiary;
(ii) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to
Merchants, any Merchants 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 Merchants or any Merchants 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 Merchants or any Merchants
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 with respect
to Merchants.
<PAGE A-16>
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 Merchants, 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 Merchants and
(b) the completion by Merchants of the transactions contemplated
hereby. Merchants has no reason to believe that 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 Merchants's ability to complete
the transactions contemplated by this Agreement.
Section 2.05 Financial Statements.
(a) Merchants has previously delivered, or will
deliver, to First Leesport the Merchants Regulatory Reports. The
Merchants 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 Merchants as
of and for the periods ended on the dates thereof, in accordance
with applicable regulatory accounting principles applied on a
consistent basis.
(b) Merchants has previously delivered to First
Leesport the Merchants Financials. The Merchants 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 Merchants as of
and for the periods ending on the dates thereof, in accordance
with generally accepted accounting principles applied on a
consistent basis, except where changes in accounting principles
from one year to the next have been disclosed therein.
(c) At the date of each balance sheet included in
the Merchants Financials or the Merchants Regulatory Reports,
neither Merchants nor any Merchants Subsidiary 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 Merchants Financials or
Merchants 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
<PAGE A-17> of any unaudited statements, to normal, recurring
audit adjustments and the absence of footnotes.
Section 2.06 Taxes.
(a) Merchants and the Merchants Subsidiaries are
members of the same affiliated group within the meaning of IRC
Section 1504(A). Merchants has duly filed, and will file, all
federal, state and local tax returns required to be filed by or
with respect to Merchants or any Merchants Subsidiary 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 Merchants or any Merchants 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 Merchants or any Merchants Subsidiary.
Section 2.07 No Material Adverse Effect. Merchants
has not suffered any Material Adverse Effect since December 31,
1997.
Section 2.08 Contracts.
(a) Neither Merchants nor any Merchants
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 Merchants or any
Merchants 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 Merchants or any Merchants
Subsidiary; (iii) any collective bargaining agreement with any
labor union relating to employees of Merchants or any Merchants
Subsidiary; (iv) any agreement which by its terms limits the
payment of dividends by Merchants or any Merchants 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 Merchants or any Merchants
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 Leesport or any
<PAGE A-18> First Leesport Subsidiary; (vi) any contract (other
than this Agreement) limiting the freedom of Merchants or any
Merchants Subsidiary to engage in any type of banking or
bank-related business permissible under law or (vii) any other
material contract.
arrangements and instruments referred to in Section 2.08(a) have
been provided to First Leesport on or before the date hereof, are
listed on the Merchants Disclosure Schedule and are in full force
and effect on the date hereof. Neither Merchants, any Merchants
Subsidiary nor, to the knowledge of Merchants, 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 Merchants. 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 Merchants, 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 Merchants or any Merchants
Subsidiary is a party or under which Merchants or any Merchants
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 Merchants or
any Merchants 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 Merchants or any Merchants Subsidiary to provide a
benefit in the form of Merchants Common Stock or determined by
reference to the value of Merchants Common Stock.
Section 2.09 Ownership of Property; Insurance
Coverage.
(a) Merchants and the Merchants 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 Merchants or any Merchants 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
Merchants Regulatory Reports and in the Merchants 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
<PAGE A-19> liabilities for borrowed money and that are described
in the Merchants 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. Merchants
and the Merchants Subsidiaries, as lessee, have the right under
valid and subsisting leases of real and personal properties used
by Merchants or such Merchants Subsidiary in the conduct of its
business to occupy or use all such properties as presently
occupied and used by it.
(b) With respect to all agreements pursuant to
which Merchants or any Merchants Subsidiary has purchased
securities subject to an agreement to resell, if any, Merchants
or such Merchants Subsidiary, 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) Merchants and the Merchants Subsidiaries
currently maintain insurance in amounts considered by Merchants
to be reasonable for their respective operations and similar in
scope and coverage to that maintained by other businesses
similarly engaged. Neither Merchants nor any Merchants
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 Merchants
or any Merchants Subsidiary under such policies. All such
insurance is valid and enforceable and in full force and effect,
and within the last three years Merchants and each Merchants
Subsidiary 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 Merchants nor
any merchants Subsidiary is a party to any, and there are no
pending or, to the best of Merchants'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 Merchants
or any Merchants Subsidiary, (ii) to which the assets of
Merchants or any Merchants Subsidiary 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 Merchants to perform under this
Agreement or the Plan of Merger, 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 with respect to Merchants.
<PAGE A-20>
Section 2.11 Compliance With Applicable Law.
(a) Merchants and each Merchants Subsidiary holds
all licenses, franchises, permits and authorizations necessary
for the lawful conduct of its 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 its businesses nor otherwise
have a Material Adverse Effect with respect to Merchants.
(b) Neither Merchants nor any Merchants
Subsidiary has received any notification or communication from
any Regulatory Authority (i) asserting that it 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 it; (iii) requiring or
threatening to require it, or indicating that it 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 its operations,
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 its
operations, 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 Merchants nor
any Merchants Subsidiary has consented to or entered into any
Regulatory Agreement, except as heretofore disclosed to First
Leesport.
Section 2.12 ERISA. Merchants has previously
delivered to First Leesport 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 Merchants 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
Merchants or any Merchants 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
<PAGE A-21> agency, and (iii) all rulings and determination
letters which pertain to any Merchants Employee Benefit Plans.
To the best of Merchants' knowledge, neither Merchants nor any
pension plan maintained by Merchants, 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 Merchants
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
Merchants Employee Benefit Plan, Merchants 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 at least 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. Merchants has not incurred or is subject
to any liability under ERISA Section 4201 for a complete or
partial withdrawal from a multi-employer plan. To the best of
Merchants' knowledge, 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. To the best of Merchants' knowledge,
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 Merchants 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 Merchants.
Merchants provides 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
Merchants'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 Merchants Employee Benefit
Plans (other than routine benefit claims) nor does Merchants 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 Merchants Employee Benefit Plans, any trusts under such plans,
<PAGE A-22> the plan sponsor, the plan administrator or any
fiduciary of any of Merchants's Employee Benefit Plans which have
been threatened or instituted nor does Merchants 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 Merchants in connection with any Employee Benefit
Plan established, maintained, or contributed to (currently or
previously) by Merchants or by any other entity which, together
with Merchants, 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 Merchants nor any Merchants 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 other transaction, except for Ryan Beck & Co., Inc., whose
engagement letter with Merchants is included in the Merchants
Disclosure Schedule, or 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 other transaction, which has not been reflected in the
Merchants Financials.
Section 2.14 Environmental Matters. To the knowledge
of Merchants, neither Merchants nor any Merchants Subsidiary, nor
any properties owned or operated by Merchants 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 Merchants. 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 Merchants, threatened, relating
to the liability of any property owned or operated by Merchants
under any Environmental Law.
Section 2.15 Loan Portfolio. The allowance for loan
losses reflected, and to be reflected, in the Merchants
Regulatory Reports, and shown, and to be shown, on the balance
sheets contained in the Merchants Financials have been, and will
be, established in accordance with the requirements of generally
accepted accounting principles and all applicable regulatory
criteria.
Section 2.16 Information to be Supplied. The
information to be supplied by Merchants 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
<PAGE A-23> 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
Merchants 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 Merchants Financials, neither
Merchants nor any Merchants Subsidiary is a party to any
transaction (including any loan or other credit accommodation)
with any Affiliate of Merchants. 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 Merchants 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.
Merchants has not 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 Merchants is inappropriate.
Section 2.18 Loans. Each loan reflected as an asset
in the Merchants 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 Merchants.
Section 2.19 CRA Compliance. MBP is in material
compliance with the applicable provisions of the CRA, and, as of
the date hereof, MBP has received a CRA rating of "satisfactory"
or better. MBP knows of no fact or circumstance or set of facts
or circumstances which would cause MBP to fail to comply with
such provisions in a manner which would have a Material Adverse
Effect with respect to Merchants.
Section 2.20 Accounting for the Merger;
Reorganization. As of the date hereof, Merchants does not have
any reason to believe that the Merger will fail to qualify
(i) for "pooling of interests" accounting treatment under
generally accepted accounting principles or (ii) as a
reorganization under Section 368(a) of the IRC.
<PAGE A-24>
Section 2.21 Fairness Opinion. Merchants has received
a written opinion from Ryan, Beck & Co., Inc. to the effect that,
as of the date hereof, the consideration to be received by
shareholders of Merchants pursuant to this Agreement is fair,
from a financial point of view, to such shareholders.
Section 2.22 Year 2000 Compliance. Merchants and each
Merchants Subsidiary is in compliance in all material respects
with the Year 2000 compliance time-frames established in releases
or publications of Regulatory Authorities applicable to it and
the safety and soundness and other guidelines for Year 2000
business risk issued from time to time by the Federal Financial
Institutions Examination Council, except to the extent that the
failure to so comply would not have a Material Adverse Effect
with respect to Merchants.
Section 2.23 Quality of Representations. The
representations made by Merchants 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 LEESPORT
First Leesport hereby represents and warrants to
Merchants that, except as set forth in the First Leesport
Disclosure Schedule (which First Leesport Disclosure Schedule
qualifies and represents exceptions to all of the representations
and warranties of First Leesport contained in this Agreement
taken as a whole and does not relate solely to particular
representations and warranties) delivered by First Leesport to
Merchants on or prior to the date hereof:
Section 3.01 Organization.
(a) First Leesport is a corporation duly
organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania. First Leesport is a bank
holding company duly registered under the BHC Act. First
Leesport 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 Leesport 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 with respect to First Leesport.
(b) FNBL is a national banking association duly
organized and validly existing under the laws of the United
States of America. FNBL 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
<PAGE A-25> operated by it. Neither FNBL nor any other First
Leesport 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 with respect to First Leesport.
(c) There are no First Leesport Subsidiaries
other than FNBL or as disclosed in First Leesport's Securities
Documents. There are no FNBL Subsidiaries other than Essick &
Barr, Inc.
(d) The deposits of FNBL are insured by the FDIC
to the extent provided in the Federal Deposit Insurance Act.
(e) The respective minute books of First Leesport
and FNBL 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 Leesport has delivered to Merchants true and correct copies
of the articles of incorporation and bylaws of First Leesport and
the articles of association and bylaws of FNBL as in effect on
the date hereof.
Section 3.02 Capital Structure.
(a) The authorized capital stock of First
Leesport consists of (a) 2,000,000 shares of common stock, $5.00
par value ("First Leesport Common Stock"), of which, at the date
of this Agreement, 1,264,655 shares are outstanding, validly
issued, fully paid and nonassessable, and free of preemptive
rights. Except as disclosed in First Leesport's Securities
Documents or in connection with any employee benefit, stock
option or incentive plans of First Leesport, neither First
Leesport nor any First Leesport 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 Leesport Common Stock or any
other security of First Leesport or any securities representing
the right to vote, purchase or otherwise receive any shares of
First Leesport Common Stock or any other security of First
Leesport.
(b) The authorized capital stock of FNBL consists
of 100,000 shares of common stock, par value $10.00 per share, of
which at the date of this Agreement, all of the outstanding
shares are validly issued, fully paid, nonassessable, free of
preemptive rights and owned by First Leesport. Neither First
Leesport nor any First Leesport Subsidiary has or is bound by any
subscription, option, warrant, call, commitment, agreement or
<PAGE A-26> 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 Leesport Subsidiary or any other security of
any First Leesport 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 Leesport
Subsidiary. Either First Leesport or FNBL owns all of the
outstanding shares of capital stock of each First Leesport
Subsidiary free and clear of all liens, security interests,
pledges, charges, encumbrances, agreements and restrictions of
any kind or nature.
(c) Neither First Leesport nor any First Leesport
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 Leesport Subsidiaries, equity interests held
by FNBL in a fiduciary capacity, equity interests held in
connection with the commercial loan activities of FNBL, and
equity interests disclosed in First Leesport's Securities
Documents. There are no subscriptions, options, warrants, calls,
commitments, agreements or other Rights outstanding and held by
First Leesport or any First Leesport Subsidiary with respect to
any other company's capital stock or the equity of any other
person.
(d) To First Leesport'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 First Leesport Common Stock.
Section 3.03 Authority; No Violation.
(a) First Leesport has full corporate power and
authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery
of this Agreement by First Leesport and the consummation by First
Leesport of the transactions contemplated hereby have been duly
and validly approved by the Board of Directors of First Leesport,
and except for approval by the shareholders of First Leesport, no
other corporate proceedings on the part of First Leesport are
necessary to complete the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by
First Leesport and, subject to the approval of the shareholders
of First Leesport and receipt of the required approvals of
Regulatory Authorities described in Section 3.04 hereof,
constitutes the valid and binding obligation of First Leesport,
enforceable against First Leesport 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.
<PAGE A-27>
(b) (A) The execution and delivery of this
Agreement by First Leesport, (B) subject to the approval of the
shareholders of First Leesport and receipt of approvals from the
Regulatory Authorities referred to in Section 3.04 hereof and
Merchants' and First Leesport's compliance with any conditions
contained therein, the consummation of the transactions
contemplated hereby, and (D) compliance by First Leesport with
any of the terms or provisions hereof will not (i) conflict with
or result in a breach of any provision of the articles of
incorporation or bylaws of First Leesport or any First Leesport
Subsidiary; (ii) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction
applicable to First Leesport, any First Leesport 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 Leesport or any First Leesport
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
Leesport or any First Leesport 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 with respect to First Leesport.
Section 3.04 Consents. Except for any required
consents, approvals, filings and registrations from or with the
FRB, the PDB, 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 Leesport,
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 Leesport and (b) the completion by First Leesport of the
transactions contemplated hereby. First Leesport has no reason
to believe that 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 Leesport's ability to complete the transactions
contemplated by this Agreement.
Section 3.05 Financial Statements.
(a) First Leesport has previously delivered, or
will deliver, to Merchants the First Leesport Regulatory Reports.
The First Leesport Regulatory Reports have been, or will be,
prepared in all material respects in accordance with applicable
regulatory accounting principles and practices throughout the
<PAGE A-28> 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 Leesport 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 Leesport has previously delivered, or
will deliver, to Merchants the First Leesport Financials. The
First Leesport 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 Leesport as of and for the
periods ending on the dates thereof, in accordance with generally
accepted accounting principles, except where changes in
accounting principles from one year to the next have been
disclosed therein.
(c) At the date of each balance sheet included in
the First Leesport Financials or the First Leesport Regulatory
Reports, neither First Leesport nor any First Leesport Subsidiary
(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 Leesport Financials or the First
Leesport 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 Leesport and the First Leesport
Subsidiaries are members of the same affiliated group within the
meaning of IRC Section 1504(a). First Leesport has duly filed,
and will file, all federal, state and local tax returns required
to be filed by or with respect to First Leesport and all First
Leesport 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 Leesport
and any First Leesport 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.
<PAGE A-29>
(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 Leesport or any First Leesport Subsidiary.
Section 3.07 No Material Adverse Effect. First
Leesport has not suffered any Material Adverse Effect since
December 31, 1997.
Section 3.08 Ownership of Property; Insurance
Coverage.
(a) First Leesport and the First Leesport
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 Leesport or any First
Leesport 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 Leesport Regulatory Reports
and in the First Leesport 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 (ii) statutory liens for amounts not yet delinquent or which
are being contested in good faith. First Leesport and the First
Leesport Subsidiaries, as lessee, have the right under valid and
subsisting leases of real and personal properties used by First
Leesport and such First Leesport Subsidiary in the conduct of its
business 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 Leesport or any First Leesport Subsidiary has
purchased securities subject to an agreement to resell, if any,
First Leesport or such First Leesport 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 Leesport and the First Leesport
Subsidiaries currently maintain insurance in amounts considered
by First Leesport to be reasonable for their respective
operations and similar in scope and coverage to that maintained
by other businesses similarly engaged. Neither First Leesport
nor any First Leesport 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 Leesport or any First Leesport Subsidiary under
such policies. All such insurance is valid and enforceable and
<PAGE A-30> in full force and effect, and within the last three
years First Leesport and each First Leesport Subsidiary 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 3.09 Legal Proceedings. Neither First
Leesport nor any First Leesport Subsidiary is a party to any, and
there are no pending or, to the best of First Leesport'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 Leesport or any First Leesport Subsidiary,
(ii) to which the assets of First Leesport or any First Leesport
Subsidiary 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 Leesport 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 with respect to First Leesport.
Section 3.10 Compliance With Applicable Law.
(a) First Leesport and each First Leesport
Subsidiary holds all licenses, franchises, permits and
authorizations necessary for the lawful conduct of its business
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 its business nor otherwise have a Material Adverse
Effect with respect to First Leesport.
(b) Neither First Leesport nor any First Leesport
Subsidiary has received any notification or communication from
any Regulatory Authority (i) asserting that it 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 it; (iii) requiring or
threatening to require or indicating that it 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 its operations,
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 its
operations, 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 Leesport
<PAGE A-31> nor any First Leesport Subsidiary has consented to or
entered into any Regulatory Agreement, except as heretofore
disclosed to Merchants.
Section 3.11 Securities Documents. First Leesport has
delivered, or will deliver, to Merchants copies of its (i) annual
reports on SEC Form 10-KSB for the year ended December 31, 1997
(ii) quarterly reports on SEC Form 10-QSB for the quarters ended
March 31, 1998, June 30, 1998, and September 30, 1998, and
(iii) proxy statement dated March 9, 1998 used in connection with
its annual meeting of shareholders held in April 1998. 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 3.12 Brokers and Finders. Neither First
Leesport nor any First Leesport 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 other transaction, except for Hopper
Soliday & Co., Inc., or 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 other transaction, which has not been reflected in the First
Leesport Financials.
Section 3.13 Environmental Matters. To the knowledge
of First Leesport, neither First Leesport nor any First Leesport
Subsidiary, nor any properties owned or operated by First
Leesport or any First Leesport 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 Leesport. 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 Leesport, threatened,
relating to the liability of any property owned or operated by
First Leesport or any First Leesport Subsidiary under any
Environmental Law.
Section 3.14 Loan Portfolio. The allowance for loan
losses reflected, and to be reflected, in the First Leesport
Regulatory Reports, and shown, and to be shown, on the balance
sheets contained in the First Leesport Financials have been, and
will be, established in accordance with the requirements of
generally accepted accounting principles and all applicable
regulatory criteria.
Section 3.15 Information to be Supplied. The
information to be supplied by First Leesport and FNBL for
inclusion in the Registration Statement (including the <PAGE A-
32> 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 Leesport for inclusion in the
Applications will, at the time such documents are filed with any
Regulatory Authority, be accurate in all material aspects.
Section 3.16 Loans. Each loan reflected as an asset
in the First Leesport 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 with respect
to First Leesport.
Section 3.17 CRA Compliance. FNBL is in material
compliance with the applicable provisions of the CRA, and, as of
the date hereof, Bank has received a CRA rating of "satisfactory"
or better. Neither First Leesport nor FNBL know of any fact or
circumstance or set of facts or circumstances which would cause
FNBL to fail to comply with such provisions in a manner which
would have a Material Adverse Effect with respect to First
Leesport.
Section 3.18 Accounting for the Merger;
Reorganization. As of the date hereof, First Leesport does not
have any reason to believe that the Merger will fail to qualify
(i) for "pooling of interests" accounting treatment under
generally accepted accounting principles, or (ii) as a
reorganization under Section 368(a) of the IRC.
Section 3.19 Year 2000 Compliance. First Leesport and
each First Leesport Subsidiary is in compliance in all material
respects with the Year 2000 compliance time-frames established in
releases or publications of Regulatory Authorities applicable to
it and the safety and soundness and other guidelines for
Year 2000 business risk issued from time to time by the Federal
Financial Institutions Examination Counsel, except to the extent
that the failure so to comply would not have a Material Adverse
Effect with respect to First Leesport.
Section 3.20 First Leesport Common Stock. The shares
of First Leesport Common Stock to be issued and delivered to
Merchants shareholders in accordance with this Agreement, when so
issued and delivered, will be validly authorized and issued and
fully paid and nonassessable, and no shareholder of First
Leesport shall have any preemptive right with respect thereto.
<PAGE A-33>
Section 3.21 Quality of Representations. The
representations made by First Leesport 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. From the date of
this Agreement to the Closing Date, Merchants and each Merchants
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
Leesport. Merchants will use its reasonable good faith efforts,
and will cause each Merchants Subsidiary 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 Merchants
and each Merchants Subsidiary and others with whom business
relationships exist. From the date hereof to the Closing Date,
except as otherwise consented to or approved by First Leesport in
writing or as permitted or required by this Agreement, Merchants
will not and Merchants will not permit any Merchants Subsidiary
to:
(i) amend or change any provision of its
articles of incorporation 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 Merchants may to pay a regular semi-annual cash
dividend, not to exceed $0.35 per share of Merchants Common
Stock outstanding, consistent with past practice as to
record and payment dates; provided, however, that, if the
Effective Date occurs prior to the record date for the
payment by Merchants of its semi-annual dividend payable in
July 1999, Merchants shall be permitted to pay immediately
prior to the Effective Date, provided that such payment is
consistent with pooling of interests accounting
requirements, a pro-rated cash dividend for the first and
second quarters of 1999 in an amount determined by
(i) multiplying $0.35 by a fraction, the numerator of which
<PAGE A-34> is the number of days elapsed from January 1,
1999 through the Effective date and the denominator of which
is 180 and (ii) subtracting the amount of the quarterly cash
dividend, if any, to be received by former shareholders of
Merchants from First Leesport for such period from the
amount determined under clause (i). Subject to applicable
accounting rules regarding the pooling of interests method
of accounting, each party shall use its best efforts to
cooperate in the declaration and timing of payment of
dividends to assure that neither a windfall nor a detriment
to each party's respective shareholders shall occur
concerning the amount and timing of the payment of
dividends. Subject to applicable regulatory restrictions,
if any, MBP may pay a cash dividend, in the aggregate,
sufficient to fund any dividend by Merchants permitted
hereunder;
(iii) grant any severance or termination pay
(other than pursuant to written policies or written
agreements of Merchants or any Merchants Subsidiary in
effect on the date hereof and provided to First Leesport
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
Merchants or any Merchants Subsidiary, except for routine
periodic increases, individually and in the aggregate, in
accordance with past practice and increases disclosed in the
Merchants Disclosure Schedule, or hire or agree to hire any
additional employees;
(iv) merge or consolidate Merchants or any
Merchants Subsidiary or with any other corporation; sell or
lease all or any substantial portion of the assets or
business of Merchants or any Merchants 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 Merchants or any Merchants 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 Merchants 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 any asset
of Merchants or any Merchants Subsidiary other than in the
ordinary course of business consistent with past practice;
subject any asset of Merchants or any Merchants 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
<PAGE A-35> 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 Merchants 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 Merchants or any Merchants Subsidiary;
(viii) waive, release, grant or transfer any
rights of value or modify or change in any material respect
any existing material agreement to which Merchants or any
Merchants 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, except as may be required by
law;
(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.;
(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 $250,000 in the aggregate,
or increase, compromise, extend, renew or modify any
existing loan or commitment outstanding in excess of
$250,000, except for any commitment disclosed on the
Merchants Disclosure Schedule; provided, however, that, with
respect to any loan or commitment that deviates in any
manner from the lending policies or procedures of Merchants
in effect on the date hereof, the dollar amount set forth in
this subsection (xi) shall be $100,000;
(xii) except as set forth on the Merchants
Disclosure Schedule, enter into, renew, extend or modify any
other transaction with any Affiliate;
<PAGE A-36>
(xiii) enter into any interest rate swap or
similar commitment, agreement or arrangement; or
(xiv) 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
(xv) 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 Merchants or
any Merchants Subsidiary to do any of the following: (i) make
any capital expenditure of $15,000 or more not disclosed on
Merchants Disclosure Schedule 4.01, without the prior written
consent of First Leesport; (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 $15,000, 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 Merchants or any
Merchants 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 Merchants or
any Merchants Subsidiary of more than $15,000 annually, or
containing a material financial commitment and extending beyond
12 months from the date hereof. Notwithstanding anything in this
Section 4.01 to the contrary, Merchants or MBP shall be permitted
to take actions and make capital expenditures to complete the
projects identified in the "Five-Year Strategic Business Plan of
Merchants of Shenandoah Ban-Corp and its wholly owned subsidiary,
Merchants Bank of Pennsylvania" (the "Merchants Business Plan")
previously delivered to First Leesport.
Section 4.02 Access; Confidentiality.
(a) From the date of this Agreement through the
Closing Date, Merchants or First Leesport, as the case may be,
shall afford to, and shall cause each of its Subsidiaries 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
Merchants and First Leesport 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.
<PAGE A-37>
(b) Merchants and First Leesport 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, MBP shall permit employees of FNBL 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 FNBL
or any of its employees any final decision-making authority with
respect to such matters.
(d) If the transactions contemplated by this
Agreement shall not be consummated, Merchants and First Leesport
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. Merchants and First
Leesport 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 Leesport and Merchants 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.
S\F Merchants will furnish First Leesport with
all information concerning Merchants as may be necessary or
advisable in connection with any Application or filing made by or
on behalf of First Leesport to any Regulatory Authority in
connection with the transactions contemplated by this Agreement.
(c) First Leesport will promptly furnish
Merchants with copies of all material written communications to,
or received by First Leesport or any First Leesport Subsidiary
from, any Regulatory Authority in respect of the transactions
contemplated hereby.
(d) First Leesport will furnish Merchants with
(i) copies of all Applications at least five (5) business days
prior to filing with any Regulatory Authority and provide
Merchants a reasonable opportunity to suggest changes to such
<PAGE A-38> Applications, which suggested changes First Leesport
may, in its reasonable discretion accept or reject, (ii) copies
of all Applications filed by First Leesport and (iii) copies of
all documents filed by First Leesport under the Exchange Act.
(e) Merchants will cooperate with First Leesport
in the foregoing matters and will furnish First Leesport with all
information concerning Merchants and any Merchants Subsidiary 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 Leesport 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, Merchants and any Merchants Subsidiary will provide
certificates and other documents reasonably requested by First
Leesport.
Section 4.04 Taking of Necessary Action.
(a) First Leesport and Merchants shall each use
its best efforts in good faith, and each of them shall cause
their respective 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 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 shall not agree to make any
payments or modifications to agreements in connection therewith
without the prior written consent of First Leesport, 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; provided that nothing herein
contained shall preclude First Leesport or Merchants from
exercising its rights under this Agreement.
(b) First Leesport and Merchants shall promptly
prepare a Prospectus/Proxy Statement to be mailed to their
respective shareholders in connection with the meetings of such
shareholders and transactions contemplated hereby, and to be
filed by First Leesport with the SEC in the Registration
Statement, which Prospectus/Proxy statement shall conform in all
material respects to all applicable legal requirements. First
Leesport shall, as promptly as practicable following the
preparation thereof, file the Registration Statement with the SEC
and Merchants and First Leesport shall use all reasonable efforts
to have the Registration Statement declared effective under the
<PAGE A-39> Securities Act as promptly as practicable after such
filing. First Leesport shall advise Merchants, promptly after
First Leesport 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
Leesport 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
Leesport shall provide Merchants with as many copies of such
Registration Statement and all amendments thereto promptly upon
the filing thereof as Merchants 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 Merchants, 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
Merchants (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 Merchants, any
Merchants Subsidiary, or any of their respective predecessors 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 Merchants. On or after the Effective
Date, First Leesport shall indemnify, defend and hold harmless
all prior and then-existing directors and officers of Merchants
and any Merchants Subsidiary, against (i) all losses, claims,
damages, costs, expenses, liabilities or judgments or amounts
that are paid in settlement (with the approval of First Leesport
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
Merchants, 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 Merchants, or any Merchants 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
<PAGE A-40> or employee may be indemnified by Merchants as of the
date hereof including the right to advancement of expenses,
provided, however, that any such officer, director or employee of
Merchants may not be indemnified by First Leesport if such
indemnification is prohibited by applicable law.
(b) First Leesport shall use its reasonable best
efforts to maintain Merchants existing directors' and officers'
liability insurance policy (or a policy providing comparable
coverage amounts on terms generally no less favorable, including
First Leesport's existing policy if it meets the foregoing
standard) covering persons who are currently covered by such
insurance for a period of six years after the Effective Date;
provided, however, that in no event shall First Leesport 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 Merchants 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 Leesport 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) On or prior to the Effective Date, First
Leesport shall enter into an employment agreement with Anthony R.
Cali, to be effective as of the Effective Date, in the form set
forth in the First Leesport Disclosure Schedule.
Section 4.06 No Other Bids and Related Matters. So
long as this Agreement remains in effect, Merchants shall not and
shall not authorize or permit any Merchants Subsidiary, or any of
their respective directors, officers, employees or agents, to
directly or indirectly (i) respond to, solicit, initiate or
encourage any inquiries relating to, or the making of any
proposal which relates to, an Acquisition Transaction (as defined
below), (ii) recommend or endorse an Acquisition Transaction,
(iii) participate in any discussions or negotiations regarding an
Acquisition Transaction, (iv) provide any third party (other than
First Leesport or an Affiliate of First Leesport) with any
nonpublic information in connection with any inquiry or proposal
relating to an Acquisition Transaction, or (v) enter into an
agreement with any other party with resect to an Acquisition
Transaction. Notwithstanding the foregoing, the Board of
Directors of Merchants may respond to unsolicited inquiries
relating to an Acquisition Transaction or the Board of Directors
of Merchants may recommend or endorse an Acquisition transaction,
in each case, if it receives a written opinion (subject only to
normal and customary qualifications) of outside counsel that the
failure to do so would constitute a breach of their fiduciary
duty. In the event of any such response by Merchants, First
Leesport shall have the right, but not the obligation, to
terminate this Agreement at any time thereafter without penalty
or further liability. As used in this Agreement, "Acquisition
<PAGE A-41> Transaction" shall mean any of the following
transactions: (i) a merger or consolidation, or any similar
transaction, involving Merchants or MBP, (ii) a purchase, lease
or other acquisition of all or a substantial portion of the
assets or liabilities of Merchants or MBP, or (iii) a purchase or
other acquisition (including by way of share exchange, tender
offer, exchange offer or otherwise) of 20% or more of the
outstanding shares of Merchants Common Stock. Merchants shall
notify First Leesport immediately if (i) any such discussions or
negotiations are sought to be initiated with it 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 Merchants
Common Stock in the ordinary course of business.
Section 4.07 Duty to Advise; Duty to Update the
Merchants Disclosure Schedule. Merchants shall promptly advise
First Leesport of any change or event having a Material Adverse
Effect on it 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.
Merchants shall update the Merchants 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 Merchants
Disclosure Schedule. The delivery of such updated Disclosure
Schedule shall not relieve Merchants 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 Duty to Advise; Duty to Update the First
Leesport's Disclosure Schedule. First Leesport shall promptly
advise Merchants of any change or event having a Material Adverse
Effect on it or on any First Leesport 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 Leesport shall
update the First Leesport 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 Leesport
Disclosure Schedule. The delivery of such updated Disclosure
Schedule shall not relieve First Leesport 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.
Section 4.09 Additional Undertakings by Merchants and
First Leesport.
(a) From and after the date of this Agreement,
Merchants shall:
<PAGE A-42>
(i) Shareholder Meeting. Submit this
Agreement to its shareholders for approval at a meeting to
be held as soon as practicable, and use its best efforts to
cause its Board of Directors to recommend approval of this
Agreement to Merchants shareholders.
(ii) Board and Committee Minutes. Merchants
shall provide First Leesport, within 30 days after any
meeting of the Board of Directors of Merchants, 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.
(b) From and after the date of this Agreement,
First Leesport shall:
(i) Shareholder Meeting. Submit this
Agreement to its shareholders for approval at a meeting to
be held as soon as practicable, and use its best efforts to
cause its Board of Directors to recommend approval of this
Agreement to First Leesport shareholders.
(ii) Delivery of Securities Documents.
Deliver to Merchants copies of all reports filed with the
SEC under the Exchange Act promptly upon the filing thereof;
(iii) Election of Directors. Upon
consummation of the Merger and subject to all applicable
legal requirements, elect the additional directors of First
Leesport and cause the election of the additional directors
of each of FNBL and MBP, respectively, as provided in
Section 1.02(d) of this Agreement;
(iv) Subsidiary Status of MBP. For a period
of two (2) years from the Effective Date, First Leesport
shall maintain MBP as a separate operating banking
subsidiary under the name "Merchants Bank of Pennsylvania,"
provided that MBP shall adopt and be subject to policies and
procedures of First Leesport, including without limitation
lending and credit quality standards and employee benefits
and human resource policies and procedures, applicable to
First Leesport and its banking subsidiaries.
Notwithstanding the foregoing, First Leesport may, prior to
the expiration of such two (2) year period, cause the merger
or combination of MBP with another banking subsidiary of
First Leesport or change the name of MBP upon the unanimous
vote of the Board of Directors of First Leesport provided
further that any written consent of First Leesport as sole
shareholder of FNBL or MBP to any such merger or combination
shall only be authorized by the unanimous vote of the Board
of Directors of First Leesport;
<PAGE A-43>
(v) Strategic Business Plan. Permit
Merchants and MBP to take actions and make capital
expenditures to complete the projects identified in the
Merchants Business Plan referenced in Section 4.01; and
(vi) Interim Financial Results. Use its
reasonable best efforts to publish as soon as possible, but
in no event later than thirty (30) days after the end of the
first full calendar month in which there are at least thirty
(30) days of post-Merger combined operations, combined
revenues and net income figures as contemplated by and in
accordance with the terms of SEC Accounting Series Release
No. 135, provided that First Leesport may delay publishing
such information for such period of time as it, in its good
faith reasonable judgment, deems necessary or desirable to
achieve a bona fide corporate purpose determined by the
Board of Directors of First Leesport.
(c) From and after the date of this Agreement,
First Leesport and Merchants shall each:
(i) 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 Leesport 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 (D) all other documents
contemplated by this Agreement;
(ii) 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, prior to the release or
dissemination thereof, 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;
(iii) 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;
(iv) 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
<PAGE A-44> consistent with those principles used in
preparing the financial statements heretofore delivered; and
(v) 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.
Section 4.10 Employee Benefits and Termination
Benefits.
(a) Employee Benefits. As of the Effective Date,
Merchants or MBP employees who become employees of First Leesport
or of any First Leesport Subsidiary shall be entitled to full
credit for each year of service with Merchants or MBP for
purposes of determining eligibility for participation and
vesting, but not benefit accrual, in First Leesport's employee
benefit plans, programs and policies. The employee benefits
provided to former employees of Merchants or MBP after the
Effective Date shall be substantially similar to the employee
benefits, in the aggregate, provided by First Leesport or the
First Leesport Subsidiaries to their similarly situated
employees. Subject to the foregoing, after the Effective Date,
First Leesport may discontinue, amend or convert to a First
Leesport plan any particular benefit or welfare plan of Merchants
or MBP, subject to such plan's provisions and applicable law.
(b) Severance Policy. First Leesport agrees to
cause FNBL to provide any employee of Merchants or MBP whose
employment is involuntarily terminated other than for cause
within one year after the Effective Date or who within such
one-year period is offered but declines to accept employment at a
location more than 35 miles from such employee's work location
with Merchants or MBP severance benefits at least as favorable as
those set forth in the severance plan of First Leesport and FNBL
set forth in and made a part of the First Leesport Disclosure
Schedule provided such employees execute such documentation as
First Leesport or FNBL may reasonably require. The benefits
payable under this subsection shall not apply to any employee or
MBP who enters into a written employment agreement with First
Leesport or FNBL.
ARTICLE V
CONDITIONS
Section 5.01 Conditions to Merchants's Obligations
under this Agreement. The obligations of Merchants hereunder
shall be subject to satisfaction at or prior to the Closing Date
of each of the following conditions, unless waived by Merchants
pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required
to be taken by, or on the part of, First Leesport to authorize
<PAGE A-45> the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated
by this Agreement, shall have been duly and validly taken by
First Leesport; and Merchants shall have received certified
copies of the resolutions evidencing such authorizations;
(b) Covenants. The obligations and covenants of
First Leesport required by this Agreement to be performed by
First Leesport 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 Leesport 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 Leesport;
(d) Approvals of Regulatory Authorities. First
Leesport shall have received all required approvals of Regulatory
Authorities of the Merger, and delivered copies thereof to
Merchants; and all notice and waiting periods required thereunder
shall have expired or been terminated;
(e) No Material Adverse Effect. Since
December 31, 1997, there shall not have occurred any Material
Adverse Effect with respect to First Leesport;
(f) 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;
(g) Officer's Certificate. First Leesport shall
have delivered to Merchants 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 Leesport's Counsel.
Merchants shall have received an opinion of Stevens & Lee, P.C.,
counsel to First Leesport, dated the Closing Date, in form and
substance reasonably satisfactory to Merchants and its counsel to
the effect set forth on Exhibit 2 attached hereto;
M\0 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
<PAGE A-46> respect to the transactions contemplated by this
Agreement, shall have been obtained;
(j) Tax Opinion. Merchants shall have received
an opinion of Stevens & Lee, P.C., in form and substance
reasonably satisfactory to Merchants and its counsel to the
effect set forth on Exhibit 3 attached hereto;
(k) Investment Banking Opinion. Merchants shall
have received an updated written opinion of Ryan, Beck & Co.,
Inc., as of a date within five (5) days of mailing the
Prospectus/Proxy Statement, to the effect that the Exchange Ratio
is fair, from a financial point of view, to the shareholders of
Merchants;
(l) Approval of Merchants' Shareholders. This
Agreement shall have been approved by the shareholders of
Merchants by such vote as is required under Merchants's articles
of incorporation and bylaws and by applicable law;
(m) Approval of First Leesport's Shareholders.
This Agreement shall have been approved by the shareholders of
First Leesport by such vote as is required under First Leesport's
articles of incorporation and bylaws and by Nasdaq requirements
applicable to it; and
(n) Pooling Letter. First Leesport shall have
received an opinion from its independent auditors, in a form
reasonably acceptable to Merchants, to the effect that the Merger
will be accounted for as a "pooling of interests" for financial
accounting purposes.
Section 5.02 Conditions to First Leesport's
Obligations under this Agreement. The obligations of First
Leesport hereunder shall be subject to satisfaction at or prior
to the Closing Date of each of the following conditions, unless
waived by First Leesport pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required
to be taken by, or on the part of, Merchants to authorize the
execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated by this Agreement,
shall have been duly and validly taken by Merchants; and First
Leesport shall have received certified copies of the resolutions
evidencing such authorizations;
(b) Covenants. The obligations and covenants of
Merchants, 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 Merchants 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
<PAGE A-47> 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 Merchants;
(d) Approvals of Regulatory Authorities. First
Leesport 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
Leesport upon completion of the Merger; and all notice and
waiting periods required thereunder shall have expired or been
terminated;
(e) No Material Adverse Effect. Since
December 31, 1997, there shall not have occurred any Material
Adverse Effect with respect to Merchants;
(f) 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;
(g) Officer's Certificate. Merchants shall have
delivered to First Leesport 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 Merchants' Counsel. First
Leesport shall have received an opinion of Shumaker Williams,
P.C., counsel to Merchants, dated the Closing Date, in form and
substance reasonably satisfactory to First Leesport and its
counsel to the effect set forth on Exhibit 4 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 Leesport shall have
received an opinion of Stevens & Lee, P.C., its counsel,
substantially to the effect set forth on Exhibit 4 attached
hereto;
(k) Investment Banking Opinion. First Leesport
shall have received a written opinion of Hopper Soliday & Co.,
Inc., as of a date within five (5) days of mailing the
Prospectus/Proxy Statement, to the effect that the consideration
<PAGE A-48> payable to shareholders of Merchants pursuant to this
Agreement, is fair from a financial point of view, to First
Leesport;
(l) Approval of Merchants's Shareholders. This
Agreement shall have been approved by the shareholders of
Merchants by such vote as is required by the articles of
association of Merchants and by law;
(m) Affiliate Letters. First Leesport shall have
received, within fifteen (15) days of the date of this Agreement
signed copies of the letter attached hereto as Exhibit 1 from all
required executive officers and from at least a majority of all
directors and affiliates of Merchants;
(n) Approval of First Leesport's Shareholders.
This Agreement shall have been approved by the shareholders of
First Leesport by such vote as is required under First Leesport's
articles of incorporation and bylaws and by Nasdaq requirements
applicable to it; and
(o) Pooling Letter. First Leesport shall have
received an opinion from its independent auditors, in a form
reasonably satisfactory to First Leesport, to the effect that the
Merger will be treated as a "pooling of interests" for financial
accounting purposes.
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; or
(b) By First Leesport or Merchants:
(i) if, in the case of termination by
Merchants, there shall have been any breach of any
representation or warranty of First Leesport which results
in a Material Adverse Effect with respect to First Leesport,
on the one hand, or, in the case of termination by First
Leesport, there shall have been any breach of any
representation or warranty of Merchants which results in a
Material Adverse Effect with respect to Merchants, 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
Merchants, there shall have been any breach of any material
covenant or other obligation of First Leesport, on the one
hand, or, in the case of termination by First Leesport,
<PAGE A-49> there shall have been any breach of any material
covenant or other obligation of Merchants, 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 September 30, 1999, 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;
(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
(v) any shareholder vote contemplated by
this Agreement is not obtained; or
(c) By Merchants if, prior to the Closing Date,
First Leesport shall have entered into a written agreement with
respect to a transaction to acquire a party other than Merchants
(i) involving the issuance by First Leesport of more than 500,000
shares of First Leesport Common Stock or Rights to acquire First
Leesport Common Stock or (ii) resulting, after giving effect to
such issuance, in pro forma dilution stated in terms of earnings
per share, calculated by reference to the historical income
statements of First Leesport and such other party for the most
recently completed twelve calendar months immediately prior to
the date of such written agreement, which exceeds 1%.
Section 6.02 Effect of Termination.
(a) If this Agreement is terminated pursuant to
Section 6.01 hereof, this Agreement shall forthwith become void
(other than Section 4.02(d), Section 6.02(b) 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 Leesport or
Merchants to the other, except for any liability arising out of
any breach of any covenant or other agreement contained in this
Agreement.
(b) If shareholders of Merchants fail to approve
this Agreement after public disclosure of an Acquisition
Transaction involving a party other than First Leesport or an
Affiliate of First Leesport and within twelve months following
the date of termination of this Agreement thereafter, a Person
<PAGE A-50> other than First Leesport or an affiliate of First
Leesport, enters into an agreement with Merchants pursuant to
which such Person or Affiliate would (i) merge or consolidate, or
enter into any similar transaction, with Merchants or
(ii) acquire all or substantially all of the assets of Merchants,
then Merchants shall immediately pay to First Leesport a fee of
$250,000, which fee shall include reimbursement to First Leesport
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 6.02(b) shall
constitute a waiver of limitation, in whole or in part, of any
legal or equitable rights which First Leesport may possess
against any Person or Affiliate relating to this Agreement, or
relating to First Leesport's relationship with Merchants or for
any act or omission of such Person, including any tortious
interference with this Agreement or otherwise wrongfully inducing
or causing any breach of any such agreement.
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 provided that
any amendment, extension or waiver granted after shareholders of
Merchants or First Leesport shall have approved this Agreement
shall not modify either the amount or form of consideration to be
provided hereby to holders of Merchants Common Stock without the
approval of such shareholders. 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,
<PAGE A-51> 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), 1.02(f), 4.05,
4.09(b)(iv), 4.09(b)(v), 4.09(b)(vi) and 4.10.
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 Leesport, to:
First Leesport Bancorp., Inc.
133 North Centre Avenue
Leesport, Pennsylvania 19533
Attention: Raymond H. Melcher, Jr.,
President and Chief Executive
Officer
Telecopy No.: (610) 916-3024
with a copy to:
Stevens & Lee, P.C.
111 North Sixth Street
Reading, Pennsylvania 19601
Attention: David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
(b) If to Merchants, to:
Merchants of Shenandoah Ban-Corp.
101 North Main Street
Shenandoah, Pennsylvania 17976 <PAGE A-52>
Attention: Anthony R. Cali,
President and Chief Executive
Officer
Telecopy No.: (717) 462-0549
with copies to:
Shumaker Williams, P.C.
3425 Simpson Ferry Road
P.O. Box 88
Harrisburg, Pennsylvania 17108-0088
Attention: Nicholas Bybel, Jr., Esquire
Telecopy No.: (717) 763-7419
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
<PAGE A-53> 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.
FIRST LEESPORT BANCORP, INC.
By /s/ Raymond H. Melcher
Attest: /s/ Jeanette Eck
MERCHANTS OF SHENANDOAH BAN-CORP
By /s/ Anthony R. Cali
Attest: /s/ Jane Mallick
PAGE A-54
<PAGE>
Exhibit 1
January 12, 1999
First Leesport Bancorp, Inc.
133 Centre Avenue
Leesport, Pennsylvania 19533
Ladies and Gentlemen:
First Leesport Bancorp, Inc. ("First Leesport") and
Merchants of Shenandoah Ban-Corp ("Merchants") desire to enter
into an agreement dated as of January 12, 1999 ("Agreement"),
pursuant to which, subject to the terms and conditions set forth
therein, (a) Merchants will merge with and into First Leesport,
with First Leesport surviving the merger, and (b) shareholders of
Merchants will receive common stock of First Leesport in
exchange for common stock of Merchants outstanding on the closing
date (the foregoing, collectively, referred to herein as the
"Merger").
First Leesport has required, as an inducement to its
execution and delivery to Merchants of the Agreement, that the
undersigned, being directors, executive officers and major
shareholders of Merchants, execute and deliver to First Leesport
this Letter Agreement.
Each of the undersigned, in order to induce First Leesport
to execute and deliver to Merchants the Agreement, hereby
irrevocably:
(a) Agrees to be present (in person or by proxy) at
all meetings of shareholders of Merchants called to vote for
approval of the Merger so that all shares of common stock of
Merchants 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 Merchants);
(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 Merchants, to approve or adopt the
Agreement;
(c) Agrees not to take any actions with the intent to
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 Leesport with
<PAGE A-55> respect to any offer, sale, transfer or other
disposition of, any shares of common stock of Merchants 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 Leesport 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 Leesport 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 Leesport 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
Leesport is under no obligation to register the sale, transfer or
other disposition of First Leesport 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 Merchants or of common stock of
First Leesport, 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 Leesport and Merchants have been
published within the meaning of Section 201.01 of the SEC's
Codification of Financial Reporting Policies;
(g) Agrees that First Leesport shall not be bound by
any attempted sale of any shares of First Leesport common stock,
and First Leesport'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 Leesport
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 (e), (f) and (g) hereof, to the extent the
undersigned can control any of the following persons or entities,
also apply to shares of First Leesport common stock received in
the Merger (or any shares of Merchants common stock or of First
Leesport common stock, whether or not received in the Merger, for
<PAGE A-56> 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 First Leesport common stock to be received in the Merger prior
to expiration of the time period referred to in subparagraph (f)
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.
________________________
It is understood and agreed that the provisions of
subparagraphs (a) through (d) of this Letter Agreement relate
solely to the capacity of the undersigned as a shareholder or
other beneficial owner of shares of Merchants common stock and is
not in any way intended to affect the exercise by the undersigned
of the undersigned's responsibilities as a director or officer of
Merchants. It is further understood and agreed that such
subparagraphs of this Letter Agreement are not in any way
intended to affect the exercise by the undersigned of any
fiduciary responsibility which the undersigned may have in
respect of any shares of Merchants common stock held by the
undersigned as of the date hereof.
________________________
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.
________________________
<PAGE A-57>
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 A-58
<PAGE>
Exhibit 2
FORM OF OPINION OF COUNSEL TO FIRST LEESPORT
Merchants shall have received from counsel to First
Leesport, an opinion, dated as of the Closing Date, substantially
to the effect that, subject to customary exceptions and
qualifications:
(a) First Leesport has full corporate power to carry
out the transactions contemplated in the Agreement. The
execution and delivery of the Agreement and the consummation of
the transactions contemplated thereunder have been duly and
validly authorized by all necessary corporate action on the part
of First Leesport, and the Agreement constitutes a valid and
legally binding obligation of First Leesport, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium,
receivership, conservatorship, and other laws affecting
creditors' rights generally, 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, nor compliance by First Leesport 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 Leesport, 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 Leesport or FNBL 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 Leesport or FNBL, except such material lien, instrument
or obligation that has been disclosed pursuant to the Agreement;
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
Leesport or FNBL.
(b) FNBL is a validly existing national banking
association organized and in good standing under the laws of the
United States of America. The deposits of FNBL 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 Leesport or
FNBL is a party which would, if determined adversely to First
Leesport or FNBL, have a material adverse effect on the
consolidated financial condition or results of operation of First
Leesport, taken as a whole, or which presents a claim to restrain
or prohibit the transactions contemplated by the Agreement.
<PAGE A-59>
(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 Leesport of the transactions contemplated
by the Agreement, 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, the Merger
will have been effected in compliance with all applicable federal
and Pennsylvania laws and regulations in all material respects.
(f) The shares of First Leesport Common Stock to be
issued in connection with the Merger 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 advise
that, on the sole basis of such counsel's participation in
conferences with officers and employees of First Leesport 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 Merchants or MBP 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 Leesport or omitted to state any material fact
with respect to First Leesport necessary to make any statement
therein with respect to First Leesport, in light of the
circumstances under which it was made, not misleading. Counsel
may state in delivering such statement, 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 Leesport or FNBL or the
transactions contemplated in the Agreement.
PAGE A-60
<PAGE>
Exhibit 3
FORM OF TAX OPINION OF COUNSEL TO FIRST LEESPORT
First Leesport and Merchants shall have received an opinion
from counsel to First Leesport, 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 Merchants of all of its
assets to First Leesport in exchange for First Leesport Common
Stock (including fractional share interests) and the assumption
by First Leesport of all of Merchants' liabilities will
constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the IRC.
2. The Merger will constitute a reorganization within the
meaning of Sections 368(a)(1)(A) of the IRC.
3. First Leesport and Merchants will each be "a party to a
reorganization" within the meaning of Section 368(b) of the IRC.
4. Neither First Leesport nor Merchants will recognize any
gain or loss by reason of the Merger upon the transfer of
Merchants' assets to First Leesport in exchange solely for First
Leesport common stock (including fractional share interests) and
the assumption by First Leesport of the liabilities of Merchants.
5. The basis of the Merchants' assets in the hands of
First Leesport will be the same as the basis of such assets in
the hands of Merchants immediately prior to the Merger.
6. The holding period of the Merchants' assets in the
hands of First Leesport will include the period during which such
assets were held by Merchants prior to the Merger.
7. No gain or loss will be recognized by the shareholders
of Merchants on the receipt of First Leesport Common Stock
(including fractional share interests) solely in exchange for
their shares of Merchants Common Stock.
8. The basis of the First Leesport Common Stock (including
fractional share interests) to be received by the shareholders of
Merchants in the Merger will be the same as the basis of the
Merchants Common Stock surrendered in exchange therefor.
9. The holding period of the First Leesport Common Stock
(including fractional share interests) to be received by the
shareholders of Merchants in the Merger will include the period
during which the shareholders of Merchants held their Merchants
Common Stock, provided the shares of Merchants Common Stock are
held as a capital asset on the Effective Date.
<PAGE A-61>
10. The payment of cash in lieu of fractional share
interests of First Leesport Common Stock will be treated as if
the fractional share interests were distributed as part of the
Merger and then redeemed by First Leesport. 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 Section 302(a) of the IRC.
11. As provided in Section 381(c)(2) of the IRC and related
Treasury regulations, First Leesport will succeed to and take
into account the earnings and profits, or deficit in earnings and
profits, of Merchants as of the effective date of the Merger.
Any deficit in the earnings and profits of First Leesport or
Merchants will be used only to offset the earnings and profits
accumulated after the Merger.
12. Pursuant to Section 381(a) of the IRC and related
Treasury regulations, First Leesport will succeed to and take
into account the items of Merchants described in Section 381(c)
of the IRC. Such items will be taken into account by First
Leesport subject to the conditions and limitations of
Sections 381, 382, 383, and 384 of the IRC and the Treasury
regulations thereunder.
PAGE A-62
<PAGE>
Exhibit 4
FORM OF OPINION OF COUNSEL TO MERCHANTS
First Leesport shall have received from counsel to
Merchants an opinion, dated as of the Closing Date, substantially
to the effect that, subject to customary exceptions and
qualifications:
(a) Merchants has full corporate power to carry out
the transactions contemplated in the Agreement. The execution
and delivery of the Agreement and the consummation of the
transactions contemplated thereunder have been duly and validly
authorized by all necessary corporate action on the part of
Merchants, and the Agreement constitutes a valid and legally
binding obligation of Merchants, in accordance with its terms,
except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship, and
other laws affecting creditors' rights generally, 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, nor compliance by Merchants 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 Merchants, 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 Merchants 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 Merchants or MBP, except such material lien, instrument or
obligation that has been disclosed to First Leesport pursuant to
the Agreement, 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 Merchants or MBP.
(b) MBP is a validly existing state-chartered banking
institution organized and in good standing under the laws of the
Commonwealth of Pennsylvania. The deposits of MBP 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 Merchants or MBP is
a party which would, if determined adversely to Merchants or MBP,
have a material adverse effect on the business, properties,
results of operations, or condition, financial or otherwise, of
Merchants taken as a whole or which presents a claim to restrain
or prohibit the transactions contemplated by the Agreement.
<PAGE A-63>
(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 MBP of the
transactions contemplated by the Agreement, 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 Merchants in
connection with the preparation of the Prospectus/Proxy Statement
and without other independent investigation or inequity, 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 Leesport or FNBL 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 statement, 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 Merchants or MBP or
the transactions contemplated in the Agreement.<PAGE A-64>
<PAGE>
ANNEX B
[Letterhead of Ryan, Beck & Co., Inc.]
May __, 1999
The Board of Directors
Merchants of Shenandoah Ban-Corp
101 North Main Street
Shenandoah, Pennsylvania 17976
Members of the Board:
Merchants of Shenandoah Ban-Corp ("Merchants") and First Leesport
Bancorp, Inc. ("First Leesport") entered into an Agreement and
Plan of Merger dated January 12, 1999 (the "Agreement").
Pursuant to the Agreement, among other things Merchants shall
merge with and into First Leesport (the "Merger"), and each share
of Merchants' issued and outstanding common stock will be
converted into and become 1.5854 shares of First Leesport Common
Stock provided First Leesport's common stock price, as defined in
the Agreement, is between $20.00 and $28.00 per share subject to
certain adjustments as set forth in the Agreement (the "Exchange
Ratio"). If First Leesport's common stock price is below $20.00,
then the Exchange Ratio shall be adjusted to equal $31.71 divided
by the First Leesport common stock price. If First Leesport's
common stock price is greater than $28.00, then the Exchange
Ratio shall be adjusted such that it equals $44.39 divided by the
First Leesport common stock price. You have requested our
opinion as to whether the Exchange Ratio in the merger is fair,
from a financial point of view, to the holders of Merchants
Common Stock. We have assumed that the Merger will be a tax free
exchange and will be accounted for as a pooling of interests by
First Leesport.
Ryan, Beck & Co., as a customary part of its investment banking
business, is engaged in the valuation of banking and savings
institutions and their securities in connection with mergers and
acquisitions. In conducting our investigation and analysis of
this transaction, we have met separately with members of senior
management of Merchants and First Leesport to discuss their
respective operations, historical financial statements, strategic
plans and future prospects. We have reviewed and analyzed
material prepared in connection with the Merger, including but
not limited to the following: (i) the Merger Agreement and
related documents; (ii) the proxy statement/prospectus; (iii)
First Leesport's Form 10-KSB for the years ended December 31,
1998, 1997, 1996, and 1995, and First Leesport's Quarterly
Reports on Form 10-QSB for the periods ended September 30, 1998,
June 30, 1998 and March 31, 1998; (iv) Merchants' Annual Reports
to Shareholders for the years ended December 31, 1998, 1997,
1996, and 1995, and Merchants' Quarterly Call Reports to the FDIC
<PAGE B-1> for the periods ended September 30, 1998, June 30,
1998, March 31, 1998; (v) certain operating and financial
information provided to us by the managements of First Leesport
and Merchants relating to their business and prospects; (vi) the
historical stock prices and trading volume of First Leesport's
Common Stock; (vii) the publicly available financial data of
commercial banking organizations which Ryan, Beck deemed
generally comparable to First Leesport; (viii) the publicly
available financial data of commercial banking organizations
which Ryan, Beck deemed generally comparable to Merchants; and
(ix) the terms of recent acquisitions of commercial banks which
Ryan, Beck deemed generally comparable to Merchants. We also
conducted or reviewed such other studies, analyses, inquiries and
examinations as we deemed appropriate. Ryan, Beck as part of its
review of the Merger, also analyzed First Leesport's ability to
consummate the Merger.
While we have taken care in our investigation and analyses, we
have relied upon and assumed the accuracy, completeness and
fairness of the financial and other information provided to us by
the respective institutions or which was publicly available and
have not assumed any responsibility for independently verifying
such information. We have also relied upon the managements of
First Leesport and Merchants as to the reasonableness and
achievability of the financial and operating forecasts and
projections (and the assumptions and bases therefor) provided to
us and in certain instances we have made certain adjustments to
such financial and operating forecasts which in our judgment were
appropriate under the circumstances. In addition, we have
assumed with your consent that such forecasts and projections
reflect the best currently available estimates and judgments of
the respective managements. We are not experts in the evaluation
of allowances for loan losses. Therefore, we have not assumed
any responsibility for making an independent valuation of the
adequacy of the allowances for loan losses set forth in the
balance sheets of First Leesport and Merchants at December 31,
1998, and we assumed such allowances were adequate and comply
fully with applicable law, regulatory policy, sound banking
practice and policies of the Securities and Exchange Commission
as of the date of such financial statements. We also assumed
that the Merger in all respects is, and will be consummated in
compliance with all laws and regulations applicable to First
Leesport and Merchants. We have not made or obtained any
independent evaluations or appraisals of the assets and
liabilities of either First Leesport and Merchants or their
respective subsidiaries, nor have we reviewed any individual loan
files of First Leesport and Merchants.
In conducting our analysis and arriving at our opinion as
expressed herein, we have considered such financial and other
factors as we have deemed appropriate in the circumstances. We
have assumed that in the course of obtaining the necessary
regulatory approvals for the Merger and the transaction
contemplated thereby, no restrictions will be imposed that will
<PAGE B-2> have a material adverse effect on the contemplated
benefits of the Merger or the transaction contemplated thereby to
Merchants.
Our opinion is necessarily based on economic, market and other
conditions and projections as they exist and can be evaluated on
the date hereof. Ryan, Beck does not express any opinion as to
the price or range of prices at which First Leesport Common Stock
might trade subsequent to the Merger.
We have been retained by the Board of Directors of Merchants as
an independent contractor to act as financial advisor to
Merchants with respect to the Merger and will receive a fee for
our services. Ryan, Beck is a market maker for both First
Leesport's and Merchants' Common Stock. Ryan, Beck has no prior
investment banking relationship with either First Leesport or
Merchants. Ryan, Beck's research department does not cover
either First Leesport or Merchants.
Our opinion is directed to the Board of Directors of Merchants
and does not constitute a recommendation to any shareholder of
Merchants as to how such shareholder should vote at any
shareholder meeting held in connection with the Merger.
Based upon and subject to the foregoing it is our opinion as
investment bankers that the Exchange Ratio in the Merger as
provided and described in the Agreement is fair to the holders of
Merchants Common Stock from a financial point of view.
Very truly yours,
RYAN, BECK & CO., INC.
PAGE B-3
<PAGE>
[Letterhead of Hopper Soliday]
ANNEX C
March ___, 1999
Board of Directors
First Leesport Bancorp, Inc.
133 North Centre Avenue
Leesport, PA 19533
Ladies and Gentlemen:
You have requested our opinion, as investment bankers, as to
the fairness, from a financial point of view, of the terms of the
proposed merger of Merchants of Shenandoah Ban-Corp. with and
into First Leesport Bancorp, Inc. Pursuant to the merger
agreement dated January 12, 1999 between First Leesport and
Merchants, each share of Merchants common stock outstanding at
the effective time of merger will be converted into the right to
receive 1.5854 shares of First Leesport Common Stock provided
that as of the effective date the First Leesport common stock
market price is equal to or greater than $20.00 per share and is
equal to or less than $28.00 per share. If the First Leesport
common stock market price as of the Effective Date is less than
$20.00 per share, the exchange ratio shall be calculated by
dividing $31.71 by the First Leesport common stock market price
as of the effective date. If the First Leesport common stock
market price as of the effective date is greater than $28.00 per
share, the exchange ratio shall be calculated by dividing $44.39
by the First Leesport Common Stock market price as of the
effective date.
Hopper Soliday, a division of Tucker Anthony Incorporated
("Hopper Soliday"), as a customary part of its investment banking
business, is engaged in valuing businesses and their securities
in connection with mergers and acquisitions, stock purchase
offers, negotiated underwritings, secondary distributions of
securities, private placements and for estate, corporate
reorganization and other purposes.
Hopper Soliday reviewed, among other things:
- Merchants' Quarterly Call Reports as filed with the
Federal Deposit Insurance Corporation (FDIC) for the
periods ending March 31, 1998, June 30, 1998, and
September 30, 1998 and audited financial statements for
fiscal years ended December 31, 1994 through
December 31, 1997;
- First Leesport's Annual Reports on Form 10-K and
related financial information for fiscal years ended
December 31, 1994 through December 31, 1997, and First
<PAGE C-1> Leesport's Quarterly Reports on Form 10-Q
and related unaudited financial information for the
quarters ended March 31, 1998, June 30, 1998 and
September 30, 1998;
- certain information concerning the respective
businesses, operations, regulatory condition and
prospects of First Leesport and Merchants, including
financial forecasts, relating to the business,
earnings, assets and prospects of First Leesport and
Merchants, furnished to Hopper Soliday by First
Leesport and Merchants, which Hopper Soliday discussed
with members of senior management of First Leesport and
Merchants;
- historical market prices and trading activity for the
First Leesport common stock and Merchants common stock
and similar data for certain publicly traded companies
which Hopper Soliday deemed to be relevant;
- the results of operations of First Leesport and
Merchants and similar data for certain companies which
Hopper Soliday deemed to be relevant;
- the financial terms of the merger contemplated by the
Agreement and the financial terms of certain other
mergers and acquisitions which Hopper Soliday deemed to
be relevant;
- the pro forma impact of the merger on the earnings and
book value per share, consolidated capitalization and
certain balance sheet and profitability ratios of First
Leesport;
- the merger agreement; and
- such other matters as Hopper Soliday deemed necessary.
Hopper Soliday also met with certain members of senior
management and other representatives of First Leesport
and Merchants to discuss the foregoing as well as other
matters Hopper Soliday deemed relevant.
In conducting our review and in arriving at our opinion, we
relied upon and assumed the accuracy and completeness of the
financial and other information provided to us or that which was
publicly available and did not attempt independently to verify
such information. We relied upon the managements of First
Leesport and Merchants as to the reasonableness and achievability
of the financial and operating forecasts and projections (and the
assumptions and bases thereof) provided to us and assumed that
such forecasts and projections reflected the best currently
available estimates and judgements of such managements and that
such forecasts and projections would be realized in the amounts
and in the time periods estimated by such managements. We also
assumed, without independent verification, that the aggregate
<PAGE C-2> allowances for loan losses for First Leesport and
Merchants were adequate to cover such losses. We did not make or
obtain any evaluations or appraisals of the assets of First
Leesport and Merchants, nor did we examine any individual loan
credit files. Our opinion is limited to the fairness, from a
financial point of view, to the shareholders of First Leesport of
the merger consideration.
In rendering our opinion we have assumed that in the course
of obtaining the necessary regulatory approvals for the merger,
no conditions will be imposed that will have a material adverse
effect on the contemplated benefits of the merger to either First
Leesport or, on a pro forma basis, the resulting company
following the merger. Our opinion necessarily is based upon
conditions as they exist on, and can be evaluated as of, the date
of this letter.
On the basis of the aforementioned analysis, and subject to
the qualifications described above, as of the date hereof, we are
of the opinion that the merger consideration provided for by the
merger agreement is fair to the shareholders of First Leesport
from a financial point of view.
Sincerely,
Hopper Soliday, a Division of
Tucker Anthony Incorporated
PAGE C-3
<PAGE>
ANNEX D
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 D-1
<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).
<PAGE D-2>
(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
<PAGE D-3> 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,
<PAGE D-4> 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
<PAGE D-5> 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
<PAGE D-6> 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.
<PAGE D-7>
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.
010 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
<PAGE D-8> 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 D-9
<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 stockholders, 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 Leesport 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 Leesport.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Agreement and Plan of merger dated as of
January 12, 1999, between First Leesport Bancorp,
Inc. and Merchants of Shenandoah Ban-Corp
(included as Annex A to the Proxy Statement
Prospectus). Schedules are omitted; First
Leesport Bancorp, Inc. agrees to furnish copies of
such schedules to the Commission upon request.
3.1 Articles of Incorporation of First Leesport
Bancorp, Inc. (Incorporated herein by reference to
Exhibit 3.1 to Registrant's annual report on
Form 10-KSB for the year ended December 31, 1998.)
3.2 By-laws of First Leesport Bancorp, Inc.
(Incorporated herein by reference to Exhibit 3.2
to Registrant's annual report on Form 10-KSB for
the year ended December 31, 1998.)
5.1 Opinion of Stevens & Lee re: Validity. <PAGE II-
1>
8.1 Form of opinion of Stevens & Lee re: tax
matters.*
10.1 Contract between the First National Bank of
Leesport and Bisys. (Incorporated herein by
reference to Exhibit 10.1 to First Leesport's
Form 10-KSB for the year ended December 31, 1998.)
10.2 Severance Agreement between the First National
Bank of Leesport and John T. Connelly.
(Incorporated herein by reference to Exhibit 10.2
First Leesport's Form 10-KSB for the year ended
December 31, 1998.)**
10.3 Employment Agreement between the First National
Bank of Leesport and John T. Connelly.
(Incorporated herein by reference to Exhibit 10.3
First Leesport's Form 10-KSB for the year ended
December 31, 1998.)**
10.4 Employment Agreement between the First National
Bank of Leesport and Raymond H. Melcher, Jr.
(Incorporated herein by reference to Exhibit 10.4
First Leesport's Form 10-KSB for the year ended
December 31, 1998.)**
10.5 Lease Agreement for Wernersville branch.
(Incorporated herein by reference to Exhibit 10.5
to Registrant's annual report on Form 10-KSB for
the year ended December 31, 1995.)
10.6 Lease Agreement for Wyomissing, Pennsylvania loan
production office. (Incorporated herein by
reference to Exhibit 10.6 to Registrant's annual
report on Form 10-KSB for the year ended
December 31, 1995.)
10.7 Supplemental Executive Retirement Plan.
(Incorporated herein by reference to Exhibit 10.1
to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996).**
10.8 Deferred Compensation Plan for Directors.
(Incorporated herein by reference to Exhibit 10.2
to Registrant's Quarterly Report on Form 10-QSB
for the quarter ended June 30, 1996).**
10.9 1998 Employee Stock Incentive Plan. (Incorporated
herein by reference to Exhibit 10.9 First
Leesport's Form 10-KSB for the year ended
December 31, 1998.)***
<PAGE II-2>
10.10 1998 Independent Directors Stock Option Plan.
(Incorporated herein by reference to
Exhibit 10.10 First Leesport's Form 10-KSB
for the year ended December 31, 1998.)**
10.11 Employment Agreement dated September 17,
1998, among First Leesport Bancorp, Inc.,
Essick & Barr, Inc. and Charles J. Hopkins.
(Incorporated herein by reference to
Exhibit 10.12 First Leesport's Form 10-KSB
for the year ended December 31, 1998.)**
10.13 Employment Agreement dated September 17, 1998
among First Leesport Bancorp, Inc., Essick &
Barr, Inc. and Michael D. Hughes.
(Incorporated herein by reference to
Exhibit 10.13 First Leesport's Form 10-KSB
for the year ended December 31, 1998.)**
23.1 Consent of Beard & Co., Independent Auditors.
(Relating to First Leesport Financial Statements).
23.2 Consent of Stokes Kelly & Hinds, LLC, Independent
Auditors. (Relating to Merchants Financial
Statements).
23.3 Consent of Stevens & Lee (contained in
Exhibit 5.1).
23.4 Consent of Stevens & Lee re: tax opinion
(contained in Exhibit 8.1).
23.5 Consent of Hopper Soliday, a Division of Tucker
Anthony.*
23.6 Consent of Ryan Beck & Co., Inc.*
24.1 Powers of Attorney of Directors and Officers
(included on signature page hereof).
99.1 Form of Opinion of Ryan, Beck & Co., Inc. dated
May __, 1999 (included as Annex B to joint proxy
statement/prospectus).*
99.2 Form of Opinion of Hopper, Soliday & Co., Inc.
dated May __, 1999 (included as Annex C to joint
proxy statement/prospectus).*
99.3 Form of Proxy for the Special Meeting of
Stockholders of Merchants of Shenandoah Ban-Corp
99.4 Form of Proxy for the Special Meeting of
Stockholders of First Leesport Bancorp, Inc.
99.5 Consent of Director Anthony R. Cali.* <PAGE II-3>
99.6 Consent of Director Andrew J. Kuzneski, Jr.*
99.7 Consent of Director Frank C. Milewski.*
99.8 Consent of Director Roland C. Moyer.*
99.9 Form of Notice of Special Meeting of Shareholders
of First Leesport Bancorp, Inc.
99.10 Form of Notice of Special Meeting of Shareholders
of Merchants of Shenandoah Ban-Corp.
____________________
* To be filed by amendment.
** Denotes management contract or compensatory contract, plan
or arrangement.
(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.
<PAGE II-4>
(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
<PAGE II-5> 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 II-6
<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 Wyomissing, Commonwealth of
Pennsylvania, on April 19, 1999.
First Leesport BANCORP, INC.
(Registrant)
By: /s/ Raymond H. Melcher, Jr.
Raymond H. Melcher, Jr.
President and Chief Executive
Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Raymond H.
Melcher, Jr., Joseph M. Harenza, and David W. Swartz 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/ John T. Connelly Chairman and April 19, 1999
John T. Connelly Director
/s/ Raymond H. Melcher, Jr. President and Chief April 19, 1999
Raymond H. Melcher, Jr. Executive Officer
(Principal Executive
Officer) and Director
/s/ Edward C. Barrett Director April 26, 1999
Edward C. Barrett
______________________ Director April __, 1999
Richard L. Henry
/s/ Charles J. Hopkins Director April 20, 1999
Charles J. Hopkins
/s/ William J. Keller Director April 19, 1999
William J. Keller
/s/ Harry J. O'Neill, III Director April 23, 1999
Harry J. O'Neill, III
/s/ Karen A. Rightmire Director April 21, 1999
Karen A. Rightmire
/s/ Alfred J. Weber Director April 21, 1999
Alfred J. Weber
/s/ Daniel W. Weist Director April 21, 1999
Daniel W. Weist
/s/ Frederick P. Henrich Treasurer (Chief April 26, 1999
Frederick P. Henrich Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Number Description
5.1 Opinion of Stevens & Lee re: Validity.
8.1 Opinion of Stevens & Lee re: tax matters.*
23.1 Consent of Beard & Co., Independent Auditors.
(Relating to First Leesport Financial Statements).
23.2 Consent of Stokes Kelly & Hinds, LLC, Independent
Auditors. (Relating to Merchants Financial
Statements).
23.3 Consent of Stevens & Lee (contained in
Exhibit 5.1).
23.4 Consent of Stevens & Lee re: tax opinion
(contained in Exhibit 8.1).
23.5 Consent of Hopper Soliday, a Division of Tucker
Anthony.*
23.6 Consent of Ryan Beck & Co., Inc.*
99.3 Form of Proxy for the Special Meeting of
Stockholders of Merchants of Shenandoah Ban-Corp
99.4 Form of Proxy for the Special Meeting of
Stockholders of First Leesport Bancorp, Inc.
99.5 Consent of Director Anthony R. Cali.*
99.6 Consent of Director Andrew J. Kuzneski, Jr.*
99.7 Consent of Director Frank C. Milewski.*
99.8 Consent of Director Roland C. Moyer.*
99.9 Form of Notice of Special Meeting of Shareholders
of First Leesport Bancorp, Inc.
99.10 Form of Notice of Special Meeting of Shareholders
of Merchants of Shenandoah Ban-Corp.
____________________________
*To be filed by amendment.
Exhibit 5.1
[Letterhead of Stevens & Lee]
April 27, 1999
Board of Directors
First Leesport Bancorp, Inc.
133 North Centre Avenue
Leesport, Pennsylvania 19533
Re: Registration Statement on Form S-4
First Leesport Bancorp, Inc.
Gentlemen:
In connection with the proposed offering of up to 538,600
shares of common stock, $5.00 par value (the "Common Stock"), by
First Leesport Bancorp, Inc. (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 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this
Registration Statement (Form S-4) of our report, dated
January 12, 1999, relating to the consolidated financial
statements of First Leesport Bancorp, Inc. included in its Annual
Report (Form 10-KSB) for the year ended December 31, 1998. We
also consent to the reference to our firm under the caption
"Experts" in the Joint Proxy Statement/Prospectus.
/s/ BEARD & COMPANY, INC.
Reading, Pennsylvania
April 22, 1999
Exhibit 23.2
INDEPENDENT AUDITOR'S CONSENT
We have issued our report dated January 22, 1999 accompanying the
consolidated financial statements of Merchants of Shenandoah
Ban-Corp and Subsidiary for the years ended December 31, 1998 and
1997, which is included in this Registration Statement and Proxy
Statement/Prospectus. We consent to the inclusion of the
aforementioned report in the Registration Statement and Proxy
Statement/Prospectus and to the use of our name as it appears
under the caption "Experts."
April 26, 1999 /s/ Stokes Kelly & Hinds, LLC
Pittsburgh, Pennsylvania
Exhibit 99.3
MERCHANTS OF SHENANDOAH BAN-CORP.
("Merchants")
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
Solicited on Behalf of the Board of Directors
The undersigned hereby appoints ______________________ and
____________________________the proxies of the undersigned (each
with full power of substitution and with all powers the
undersigned would possess if personally present) to vote all of
the shares of common stock of Merchants standing in the
undersigned's name at the Special Meeting of Shareholders of
Merchants, to be held at the main office of Merchants, located at
_________________________________________, Pennsylvania, on
______________, ___________, 1999, at _____ a.m., local time, and
at any adjournment or postponement thereof (the "Meeting"). The
undersigned hereby revokes any and all proxies heretofore given
with respect to the Meeting.
_______________________________
This proxy will be voted as specified on the reverse side of
this card. If no choice is specified, the proxy will be
voted FOR approval of the Agreement of Merger dated as of
January 12, 1999 between Merchants and First Leesport
Bancorp, Inc. (the "Merger Agreement") and FOR approval of
the proposal to adjourn the Meeting, if necessary.
(continued and to be signed on reverse side)
<PAGE>
The Board of Directors recommends a vote FOR approval of the
Merger Agreement and FOR approval of the proposal to adjourn the
Meeting, if necessary.
1. Proposal to adopt the Merger Agreement dated as of
January 12, 1999 between Merchants and First Leesport
Bancorp, Inc.
/__/ For /__/ Against /__/ Abstain
2. Approval of the proposal to adjourn the Meeting, if
necessary, to permit further solicitation of proxies in
the event there is not sufficient votes at the time of
the Meeting to approve the Merger Agreement.
/__/ For /__/ Against /__/ Abstain
3. In their discretion, such other business as may
properly come before the meeting.
Dated:__________, 1999 ________________________________________
Signature
________________________________________
Signature
(Please sign exactly as your name
appears. When signing as an executor,
administrator, guardian, trustee or
attorney, please give your title as
such. If signer is a corporation,
please sign the full corporate name and
then an authorized officer should sign
his name and print his name and title
below his signature. If the shares are
held in joint name, all joint owners
should sign.)
PLEASE DATE, SIGN AND RETURN THIS
PROXY IN THE ENCLOSED RETURN
ENVELOPE.
Exhibit 99.4
FIRST LEESPORT BANCORP, INC.
("FIRST LEESPORT")
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
Solicited on Behalf of the Board of Directors
The undersigned hereby appoints ______________________ and
______________________ the proxies of the undersigned (each with
full power of substitution and with all powers the undersigned
would possess if personally present) to vote all of the shares of
common stock of First Leesport standing in the undersigned's name
at the Special Meeting of Shareholders of First Leesport, to be
held at the main office of First Leesport, located at
______________________________________, Pennsylvania, on
____________, ___________, 1999, at _____ a.m., local time, and
at any adjournment or postponement thereof (the "Meeting"). The
undersigned hereby revokes any and all proxies heretofore given
with respect to the Meeting.
_______________________________
This proxy will be voted as specified on the reverse side of
this card. If no choice is specified, the proxy will be
voted FOR approval of the Agreement of Merger dated as of
January 12, 1999 between First Leesport and Merchants of
Shenandoah Ban-Corp. (the "Merger Agreement") and FOR
approval of the proposal to adjourn the Meeting, if
necessary.
(continued and to be signed on reverse side)
<PAGE>
The Board of Directors recommends a vote FOR approval of the
Merger Agreement and FOR approval of the proposal to adjourn the
Meeting, if necessary.
1. Proposal to adopt the Merger Agreement dated as of
January 12, 1999 between First Leesport and Merchants
of Shenandoah Ban-Corp.
/__/ For /__/ Against /__/ Abstain
2. Approval of the proposal to adjourn the Meeting, if
necessary, to permit further solicitation of proxies in
the event there is not sufficient votes at the time of
the Meeting to approve the Merger Agreement.
/__/ For /__/ Against /__/ Abstain
3. In their discretion, such other business as may
properly come before the meeting.
Dated:__________, 1999 ________________________________________
Signature
________________________________________
Signature
(Please sign exactly as your name
appears. When signing as an executor,
administrator, guardian, trustee or
attorney, please give your title as
such. If signer is a corporation,
please sign the full corporate name and
then an authorized officer should sign
his name and print his name and title
below his signature. If the shares are
held in joint name, all joint owners
should sign.)
PLEASE DATE, SIGN AND RETURN THIS
PROXY IN THE ENCLOSED RETURN
ENVELOPE.
Exhibit 99.10
MERCHANTS OF SHENANDOAH BAN-CORP
101 North Main Street
Shenandoah, Pennsylvania 17976
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on June __, 1999
____________________
TO THE SHAREHOLDERS OF MERCHANTS OF SHENANDOAH BAN-CORP:
WE HEREBY GIVE NOTICE that Merchants of Shenandoah
Ban-Corp will hold a special meeting of shareholders on ________,
June __, 1999, at _:00 _.m., local time, at [__________________,
_________________, 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 merger
agreement, dated as of January 12, 1999, between First
Leesport and Merchants, which provides, among other things,
for the merger of Merchants with and into First Leesport and
the conversion of each share of common stock of Merchants
outstanding immediately prior to the merger into the right
to receive a number of shares of First Leesport common stock
determined in the manner set forth in the merger agreement,
plus cash in lieu of any fractional share interest.
2. The adjournment of the special meeting, if
necessary, to permit further solicitation of proxies in the
event there are not sufficient votes at the time of the
special meeting to approve the merger agreement.
3. The transaction of such other business as may
properly be brought before the special meeting.
The Board of Directors of Merchants unanimously
recommends a vote "FOR" each proposal.
The Board of Directors of Merchants has fixed the close
of business on April __, 1999 as the record date for determining
shareholders entitled to notice of, and to vote at, the special
meeting.
Your vote is important regardless of the number of
shares you own. Whether or not you plan to attend the special
meeting, the Board of Directors 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 special meeting but will assure that your
vote is counted if you are unable to attend. If you are a
stockholder whose shares are not registered in your own name, you
will need additional documentation from your record holder in
order to vote personally at the special meeting.
Please do not send in any certificates for your shares
at this time.
BY ORDER OF THE BOARD OF DIRECTORS
___________________________________
Jane E. Mallick
Secretary
Shenandoah, Pennsylvania
May __, 1999
Exhibit 99.10
MERCHANTS OF SHENANDOAH BAN-CORP
101 North Main Street
Shenandoah, Pennsylvania 17976
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on June __, 1999
____________________
TO THE SHAREHOLDERS OF MERCHANTS OF SHENANDOAH BAN-CORP:
WE HEREBY GIVE NOTICE that Merchants of Shenandoah
Ban-Corp will hold a special meeting of shareholders on ________,
June __, 1999, at _:00 _.m., local time, at [__________________,
_________________, 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 merger
agreement, dated as of January 12, 1999, between First
Leesport and Merchants, which provides, among other things,
for the merger of Merchants with and into First Leesport and
the conversion of each share of common stock of Merchants
outstanding immediately prior to the merger into the right
to receive a number of shares of First Leesport common stock
determined in the manner set forth in the merger agreement,
plus cash in lieu of any fractional share interest.
2. The adjournment of the special meeting, if
necessary, to permit further solicitation of proxies in the
event there are not sufficient votes at the time of the
special meeting to approve the merger agreement.
3. The transaction of such other business as may
properly be brought before the special meeting.
The Board of Directors of Merchants unanimously
recommends a vote "FOR" each proposal.
The Board of Directors of Merchants has fixed the close
of business on April __, 1999 as the record date for determining
shareholders entitled to notice of, and to vote at, the special
meeting.
Your vote is important regardless of the number of
shares you own. Whether or not you plan to attend the special
meeting, the Board of Directors 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 special meeting but will assure that your
vote is counted if you are unable to attend. If you are a
stockholder whose shares are not registered in your own name, you
will need additional documentation from your record holder in
order to vote personally at the special meeting.
Please do not send in any certificates for your shares
at this time.
BY ORDER OF THE BOARD OF DIRECTORS
___________________________________
Jane E. Mallick
Secretary
Shenandoah, Pennsylvania
May __, 1999<PAGE>
WORD PERFECT SYSTEM
Long Document Name: EXHIBIT 99.2 to S-4 - FIRST LEESPORT - MERCHANTS
OF SHENANDOAH BAN-CORP
System Document Name: C:\DMS\RDG\DWS\0111108.WP
Document Location: Reading
Additional Information:
taken from RDG 101867
________________________________________________________________________
YOU WILL HAVE LINE NUMBERS DOWN THE SIDE OF EACH DRAFT DOCUMENT UNLESS
YOU INDICATE OTHERWISE. 1.5 LINE SPACING WILL BE USED ON ALL DRAFTS
UNLESS YOU INDICATE OTHERWISE.
RETURN TO: _____________________ LOCATION: _________________________
RETURN: ____ draft ____ final ____ blacklined ____ stapled
LINE SPACING: ____ same; ____ 1.0; ____ 1.5; ____ 2.0
DUPLICATE: ____ yes ____ no (New Client/Matter No. _________________)
SAVE FOR BLACKLINING PRIOR TO REVISIONS: ____ yes ____ no
Caret Method ____ Standard Method ____
DELETE PRIOR VERSION(S) SAVED FOR BLACKLINING: ____ yes ____ no
Litigation Dept. Use: PROFILE'S TITLE/SUBJECT AREA:
procedural posture: ______________________________________________
substantive issues: ______________________________________________
________________________________________________________________________
NOTE(S) TO NEXT WORD PROCESSING SPECIALIST:
Origination Date: 04/14/99
Author's Initials: dws
Last Revised By: aml/mm
Last Revision Date: 4/26
Paragraph Numbering:
1 = 4 = 7 =
2 = 5 = 8 =
3 = 6 =
