SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31,
1998, or
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from ____________ to ____________.
Commission File Number 0-14555.
FIRST LEESPORT BANCORP, INC.
(Name of Small Business Issuer in its Charter)
Pennsylvania 23-2354007
(State or Other Juris- (I.R.S. Employer
diction of Incorporation) Identification
No.)
133 North Centre Avenue,
Leesport, Pennsylvania 19533
(Address of Principal Executive Offices)
Registrant's Telephone Number: (610) 926-2161
Securities registered under Section 12(b) of the Exchange Act:
Name of Each
Exchange
Title of Each Class on Which
Registered
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $5.00 Par Value
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No. ___.
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained herein, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for year ended December 31, 1998: $15,698,000.
As of March 12, 1999, the aggregate market value of the Common
Stock (based upon the average sales price on such date) of the
Registrant held by nonaffiliates was $23,047,820.
Number of Shares of Common Stock Outstanding at March 12, 1999:
1,264,655.
Portions of the registrant's definitive Proxy Statement prepared
in connection with its Annual Meeting of Stockholders to be held
on April 27, 1999 are incorporated in Part III hereof.
<PAGE>
PART I
FORWARD LOOKING STATEMENTS
Except for historical information, this report may be
deemed
to contain "forward looking" statements. First Leesport Bancorp,
Inc. (the "Company") desires to avail itself of the Safe Harbor
provisions of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and is including this cautionary
statement for the express purpose of availing itself of the
protection afforded by the Reform Act.
Examples of forward looking statements include, but are not
limited to (a) projections of or statements regarding future
earnings, net interest income, other income, earnings or loss per
share, asset mix and quality, growth prospects, capital structure
and other financial terms, (b) statements of plans and objectives
of the Company or its management or Board of Directors,
(c) statements of future economic performance, (d) statements of
assumptions, such as economic conditions in the Company's market
areas, underlying other statements and statements about the
Company or its businesses, and (e) estimates of the cost to
complete the Company's Year 2000 compliance program and the dates
by which particular steps of such program will be completed.
Such forward looking statements can be identified by the use of
forward looking terminology such as "believes," "expects," "may,"
"intends," "will," "should," "anticipates," or the negative of
any of the foregoing or other variations thereon or comparable
terminology, or by discussion of strategy.
No assurance can be given that the future results covered
by
the forward-looking statements will be achieved. Such statements
are subject to risks, uncertainties, and other factors which
could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements.
Important factors that could impact the Company's operating
results include, but are not limited to, (i) the effects of
changing economic conditions in the Company's market areas and
nationally, (ii) credit risks of commercial, real estate,
consumer and other lending activities, (iii) significant changes
in interest rates, (iv) changes in federal and state banking laws
and regulations which could impact the Company's operations,
(v) funding costs, and (vi) other external developments which
could materially affect the Company's business and operations,
including the effect of the Year 2000 problem on the Company's
commercial loan customers.
Item 1. Business.
The Company.
First Leesport Bancorp, Inc. (the "Company") is a
Pennsylvania business corporation headquartered at 133 North
<PAGE 1> Centre Avenue, Leesport, Pennsylvania 19533. The
Company was organized as a bank holding company on January 1,
1986, with The First National Bank of Leesport (the "Bank") as a
wholly-owned subsidiary of the Company. Presently, the Company
functions primarily as the holder of all the common stock of the
Bank.
The Bank.
The Bank was incorporated under the laws of the United
States of America as a national bank in 1909. Since its
inception, the Bank has operated as a banking institution doing
business in Berks County, Pennsylvania. At December 31, 1998,
the Bank had total assets of $231 million, total stockholders'
equity of $20 million, and total deposits of $183 million. The
Bank currently has the equivalent of 84 full-time employees.
The 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. Such time
deposits include certificates of deposit, individual retirement
accounts, Roth IRA accounts, and club accounts. The savings
accounts include money market accounts, NOW plus accounts,
indexed money market accounts, and the traditional regular
savings accounts. In addition to accepting deposits, the Bank
makes both secured and unsecured commercial and consumer loans,
finances commercial transactions, provides equipment lease and
accounts receivable financing, makes construction and mortgage
loans, including home equity loans, issues credit cards, and
rents safe deposit facilities. The Bank also provides small
business loans and student loans. The Bank purchases certain of
the data processing services that it requires from Bisys, Inc., a
company based in Cherry Hill, New Jersey.
The Bank's main office is located at 133 North Centre
Avenue, Leesport, Pennsylvania. The Bank also provides services
to its customers through six full service offices located in
Blandon, Wyomissing Hills, Wernersville, Breezy Corner, Hamburg,
and Reading, Pennsylvania. All offices, except the Wernersville
office, provide automated teller machines. Each office except
the Wernersville and Breezy Corner branches provide drive-in
facilities. (See "Properties.") The Bank also operates a loan
production office in Wyomissing, Pennsylvania. The Bank opened a
full service branch in Bern Township in the first quarter of
1999.
Essick & Barr, Inc.
On December 7, 1998, the Bank completed the acquisition of
Essick & Barr, Inc., a Berks County-based general insurance
agency ("Essick & Barr"). A wholly-owned subsidiary of the Bank,
Essick & Barr 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.
<PAGE 2> Headquartered in Leesport, Pennsylvania with its chief
sales office at 108 South Fifth Street, Reading, Pennsylvania,
Essick & Barr employed approximately 30 full-time employees at
December 31, 1998.
Supervision and Regulation.
Securities Regulation
The Company is under the jurisdiction of the Securities and
Exchange Commission and of state securities commissions for
matters relating to the offering and sale of its securities. In
addition, the Company is subject to the Securities and Exchange
Commission's rules and regulations relating to periodic
reporting, proxy solicitation, and insider trading.
General
The Company is registered as a bank holding company and is
subject to supervision and regulation by the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") under
the Bank Holding Act of 1956, as amended (the "BHCA"). As a bank
holding company, the Company's 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 under the BHCA 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, pursuant to such regulations, may require the
Company to stand ready to use its resources to provide adequate
capital funds to its bank subsidiary during periods of financial
stress or adversity.
The BHCA prohibits the Company 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.
Additionally, the BHCA prohibits the Company from engaging in or
from acquiring ownership or control of more than 5% of the
outstanding shares of any class of voting stock of any company
engaged in a non-banking business, unless such business is
determined by the Federal Reserve Board to be so closely related
to banking as to be a proper incident thereto.
As a Pennsylvania bank holding company for purposes of the
Pennsylvania Banking Code, the Company is also subject to
regulation and examination by the Pennsylvania Department of
Banking.
The Bank is a national bank and a member of the Federal
Reserve System and its deposits are insured (up to applicable
<PAGE 3> limits) by the Federal Deposit Insurance Corporation
(the "FDIC"). The Bank is subject to regulation and examination
by the Office of the Comptroller of the Currency (the "OCC"), and
to a much lesser extent, the Federal Reserve Board and the FDIC.
The 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 may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be
made and the types of services that may be offered. Various
consumer laws and regulations also affect the operations of the
Bank. In addition to the impact of regulation, commercial banks
are affected significantly by the actions of the Federal Reserve
Board as it attempts to control the money supply and credit
availability in order to influence the economy.
Capital Adequacy Guidelines
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 1 capital," consisting principally of common
stockholders' equity, less certain intangible assets. The
remainder ("Tier 2 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 bank holding company to maintain
a leverage ratio of a minimum level of Tier 1 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 ratings
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.
The Bank is subject to almost identical capital requirements
adopted by the OCC.
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
<PAGE 4> capitalized" or require an "adequately capitalized" or
"undercapitalized" institution to comply with supervisory actions
as if it were in the next lower category. Such 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). The Company and the Bank each satisfy the criteria to
be classified as "well capitalized" within the meaning of
applicable regulations.
Regulatory Restrictions on Dividends
The Bank may not, under the National Bank Act, declare a
dividend without approval of the Comptroller of the Currency,
unless the dividend to be declared by the Bank's Board of
Directors does not exceed the total of: (i) the Bank's net
profits for the current year to date, plus (ii) its retained net
profits for the preceding two current years, less any required
transfers to surplus. In addition, the Bank can only pay
dividends to the extent that its retained net profits (including
the portion transferred to surplus) exceed its bad debts. The
Federal Reserve Board, the OCC and the FDIC have formal and
informal policies which 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.
Under these policies and subject to the restrictions
applicable to the Bank, the Bank could declare, during 1999,
without prior regulatory approval, aggregate dividends of
approximately $834 thousand, plus net profits earned to the date
of such dividend declaration.
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-related 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 institution to one of
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 1 capital to
risk-based assets ratio of 6% or greater, and a Tier 1 leverage
ratio of 5% or greater, are assigned to the well-capitalized
<PAGE 5> group. As of December 31, 1998, the Bank was well
capitalized for purposes of calculating insurance assessments.
The Bank Insurance Fund ("BIF") 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. The 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 ("FICO") 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 ("SAIF") 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 the 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. Whether or not such legislation will
ever be enacted and what effect it may have on the Company and
the Bank cannot be estimated at this time.
Interstate Banking
Prior to the passage of the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 (the "Interstate Banking
Act"), the BHCA prohibited a bank holding company located in one
state from acquiring a bank located in another state, unless such
an 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
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
<PAGE 6> 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.
Competition.
The banking industry in the Bank's service area is
extremely
competitive. The Bank's market area is the primary trade area of
Berks County, Pennsylvania. The Bank competes not only with
other commercial banks, but also with other financial
institutions such as savings banks, savings and loan
associations, money market funds, mortgage companies, leasing
companies, finance companies, insurance companies, stock
brokerage firms and a variety of financial service companies.
Competition is based on both the price and quality of services
offered by competing financial institutions.
In addition to the Bank, there are 12 other commercial
banks, 3 savings associations, and several credit unions that
maintain offices in Berks County. Most of the banks and savings
and loans in Berks County are larger than the Bank.
The Company expects the operating environment for financial
institutions to become increasingly competitive. Similarly, the
manner in which banking institutions conduct their operations may
change materially as the activities in which bank holding
companies and their banking and nonbanking subsidiaries are
permitted to engage expands, and funding and investment
alternatives continue to broaden, although the long-range effects
of these changes cannot be predicted with reasonable certainty at
this time. These changes most likely will narrow the differences
and intensify competition between and among commercial banks,
thrift institutions and other financial institutions such as
credit unions, mutual funds, and insurance companies.
PAGE 7
<PAGE>
Item 2. Properties.
The only real estate owned by the Company is a
single-family
home located adjacent to the Bank's main office. The Company's
principal office is located in the main office of the Bank at
133 North Centre Avenue, Leesport, Pennsylvania. The Company
does not reimburse the Bank for use of the property.
Listed below are the locations of properties owned by the
Bank. Such properties are not subject to any mortgage, lien or
encumbrance.
Property
Location Address
1. Leesport 133-141 North Centre Avenue,
Leesport, Pennsylvania
2. Blandon Route 222, Maidencreek Township,
Blandon, Pennsylvania
3. Wyomissing Hills 2228 State Hill Road,
Wyomissing Hills, Pennsylvania
4. Reading 1210 Rockland Street
Reading, Pennsylvania
5. Hamburg 801 South Fourth Street
Hamburg, Pennsylvania
6. Reading 108 South Fifth Street
Reading, Pennsylvania
7. Bern Township 409 West Leesport Road
Leesport, Pennsylvania
Each of these Bank offices provides drive-in facilities and
automated teller machines. The Bank leases the premises of its
Wernersville branch, which does not have a drive-up facility or
an automated teller machine. The Bank also leases the property
at which its Breezy Corner branch is located in Ruscombmanor
Township, Berks County, Pennsylvania and leases the space
occupied by its loan production office in Wyomissing,
Pennsylvania.
Essick & Barr owns its office at 108 South Fifth Street,
Reading, Pennsylvania.
Item 3. Legal Proceedings.
A certain amount of litigation arises in the ordinary
course
of the business of the Company and the Bank. In the opinion of
the management of the Company, there are no proceedings pending
<PAGE 8> to which the Company or the Bank is a party or to which
its property is subject, that, if determined adversely to the
Company or the Bank, would be material in relation to the
Company's stockholders' equity or financial condition, nor are
there any proceedings pending other than ordinary routine
litigation incident to the business of the Company and the Bank.
In addition, no material proceedings are pending or are known to
be threatened or contemplated against the Company or the Bank by
governmental authorities.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders
during the fourth quarter of the Company's fiscal year ended
December 31, 1998.
PAGE 9
<PAGE>
PART II
Item 5. Market For Common Equity and Related Stockholder
Matters.
As of December 31, 1998, there were 597 record holders of
the Company's Common Stock. The market price of the Company's
Common Stock for each quarter in 1998 and 1997 and the dividends
declared on the Company's Common Stock for each quarter in 1998
and 1997 are set forth below.
Market Value of Common Stock
The Company's Common Stock is traded in the NASDAQ Small
Capitalization Market under the symbol "FLPB."
The following table sets forth the high and low bid and
asked information of the Company's common stock to the extent
available, as reported by NASDAQ.
1998 1997
Bid Asked Bid Asked
Qtr High Low High Low Qtr High Low High Low
1st 24.88 23.00 26.00 24.00 1st 19.25 16.75 21.25 18.50
2nd 28.12 25.00 28.50 25.75 2nd 19.25 19.00 21.25 20.75
3rd 27.75 24.00 29.25 25.25 3rd 20.75 19.00 22.25 20.50
4th 24.75 23.00 25.75 24.00 4th 23.00 20.75 24.75 22.00
The bid quotations reflect interdealer quotations, do not
include retail mark ups, mark downs or commissions, and may not
necessarily represent actual transactions. The bid information
as stated is, to the knowledge of management of the Company, the
best approximate value at the time indicated.
Dividend Information
Dividends on the Common Stock of First Leesport Bancorp,
Inc. are payable on the 15th of January, April, July, and
October.
Dividends Declared
1998 1997
1st Qtr. $.13 $.13
2nd Qtr. .13 .13
3rd Qtr. .13 .13
4th Qtr. .13 .13
The Company derives substantially all of its income from
dividends paid to it by the Bank.
PAGE 10
<PAGE>
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The Company experienced planned, strategic change and
growth
in 1998 as the Company's Board of Directors and management sought
to position the Company to take advantage of the changing banking
environment in the Company's marketplace. In addition to
installing a new wide area network computer system to link the
Bank's branches and other offices and introducing new products,
services, and lines of business, the Bank opened new branches in
Hamburg (opened in February 1998) and Breezy Corner (opened in
September 1998), Berks County, Pennsylvania. Finally, the
Company became the first Berks County based bank to acquire a
full-service insurance agency with its acquisition on December 7,
1998 of Essick & Barr, Inc., an independent, multi-line agency
offering a broad range of commercial and personal property and
casualty insurance as well as employee benefit plans and life and
health insurance.
These developments dramatically affected the Company's
balance sheet as well as the results of operations in 1998. The
Company's management believes that these changes will enhance the
Company's future performance and provide the Company with the
opportunity to successfully adapt to the changing market in which
the Company operates.
Financial Condition
Primarily as a result of the events described above, the
Company's assets increased to $231,575,000 at December 31, 1998,
an increase of 28.5% over the total of $180,265,000 at
December 31, 1997.
Cash and Investment Securities
Cash and balances due from banks were managed to provide
higher levels of earning assets and resulted in a decrease in
total cash and cash equivalents during the year. At December 31,
1998, this total amounted to $4,675,000 compared with $5,556,000
at December 31, 1997, a decrease of 15.9%. In addition, the
level of interest-bearing balances within this total were
increased and amounted to $272,000 at the end of the year, up
from $100,000 at year-end 1997.
Investment securities increased to $50,753,000 at
December 31, 1998 compared with $38,346,000 at December 31, 1997,
an increase of 32.4%. Securities are used to supplement loan
growth, as necessary, and to help manage the Company's level of
liquid assets and tax liability. The majority of the increase
during 1998 was invested in U.S. Government Agency securities,
which offered a slightly higher yield than other securities.
<PAGE 11>
Loans
Net loans outstanding increased by $32,481,000 during 1998,
an increase of 25.3% over the total outstanding at the end of
1997, reflecting an increased focus by management on growing the
loan portfolio. A significant increase in the volume of
commercial loans during 1998 underscores that focus as the
commercial portfolio increased to $44,055,000 from $30,403,000,
an increase of 44.9%. Also during 1998, an additional
$30,000,000 in residential mortgage loans were originated.
$15,000,000 of those loans were sold into the secondary market,
leaving a net increase in mortgage loans of $15,000,000.
A program to finance accounts receivables for business
customers was implemented late in the year, which allows
commercial customers to manage their cash flows economically and
conveniently. Also during the fourth quarter of 1998, the Bank
began offering an equipment leasing program to commercial
customers whereby equipment leases can be funded by the Bank.
These specialized types of lending products provide the Bank with
a full array of loan products aimed at the small to medium sized
businesses within and around Berks County.
With the significant growth in the loan portfolio, the
allowance for possible loan losses was increased and totaled
$1,756,000 at the end of 1998 compared with $1,483,000 at the end
of 1997. As a percentage of total loans, the allowance was 1.08%
at December 31, 1998 and 1.14% at December 31, 1997. With a
full-time loan review officer in the Bank, and with a continuous
review of lending dynamics, management feels the level in the
allowance is adequate at this time.
Non-performing loans, consisting of loans in a non-accrual
status and loans past due 90 days or more and still accruing
interest, decreased to $2,059,000 at December 31, 1998, down from
$2,172,000 at December 31, 1997. Generally, loans that are more
than 90 days past due are placed in a non-accrual status. As a
percentage of total assets, non-performing loans represented
0.89% at December 31, 1998, down from 1.20% at December 31, 1997.
The allowance for loan losses at year-end represented 85.3%
and 68.3% of non-performing loans for 1998 and 1997 respectively,
representing a strengthening of the allowance position.
Buildings and Equipment
Bank premises and equipment increased during 1998 to
$5,606,000 from $3,844,000 at the end of 1997. This increased
growth is due to two new retail-banking facilities and the costs
of purchasing and installing a new networked computer system.
The two banking offices, one in Hamburg, Pennsylvania, and one in
Breezy Corner, Ruscombmanor Township, Pennsylvania, brings the
total number of full service offices to seven in addition to a
limited-service facility at Phoebe Berks Village, Wernersville,
<PAGE 12> Pennsylvania. All of the Company's offices are located
within Berks County, Pennsylvania. Another new retail office is
under construction as of the end of 1998 and is expected to open
in mid February 1999. This office is located on Route 183 in
Bern Township, Pennsylvania.
The networked computer system links all of the Bank's
facilities together electronically and allows for the sharing of
customer files, bank-wide communications, and improved workflow
and is expected to provide a significant savings in processing
and operating costs over the life of the equipment. In
conjunction with a recently renegotiated contract with its data
processing provider, Bisys, of Cherry Hill, New Jersey, the Bank
is positioned to expand its line of products and number of
customers serviced into the next year.
Other Assets
Other assets, which include accrued interest receivable,
increased by $5,541,000 to $9,764,000 at December 31, 1998. Much
of this increase, over $3,600,000, represents the Bank's
investment in Essick & Barr, Inc. Additional increases came from
an increase in the cash surrender value of life insurance
policies purchased by the Bank during 1996. These policies were
used to fund certain deferred compensation plans with board
members and senior officers. At the end of 1998, the Bank also
had $264,000 worth of mortgage service rights net of
amortization.
Deposits and Borrowings
Total deposit growth reflected a significant increase over
1997 year-end totals. Deposits increased to $183,273,000 from
$148,499,000, an increase of 23.4%. Various promotional efforts
in conjunction with the opening of the two new offices helped to
generate this growth, primarily from increases in certificates of
deposit and money market deposits. Non-interest bearing deposits
also increased by 18.5% during the year. The Bank began offering
a tiered-deposit money market product tied to the 91-day U.S.
Treasury index during the year, which was very enthusiastically
received by our deposit customers. The Bank also restructured
all of its existing money market checking and savings accounts
and began offering Roth IRA products.
Early in 1999, the Bank plans to introduce a new,
Internet-based PC Banking application which will allow for
various transfers, bill payments, inquiries, services, product
information and sales opportunities using personal computers.
Federal funds purchased and short-term and long-term
borrowings are used to supplement deposit growth, as necessary,
and provide for arbitrage opportunities by locking in interest
rate spreads for specific periods of time. During 1998, the
level of borrowed funds outstanding increased significantly,
<PAGE 13> 100%, and totaled $23,709,000 at the end of the year.
At December 31, 1997, this total was $11,814,000 and represented
federal funds purchased and short-term borrowings only.
Capital
Total stockholders' equity increased to $20,589,000 from
$18,163,000, an increase of 13.4% or $2,426,000, with $395,000 of
the increase provided by net income from the Company's operations
after dividends were paid. The change in market value on
securities classified as available for sale, a component of other
comprehensive income, requires separate disclosure within the
stockholders' equity section of the balance sheet. This increase
provided $245,000 in additional equity between December 31, 1997
and December 31, 1998. Additional stock issued as part of the
acquisition of Essick & Barr, Inc. provided the remainder of the
increase.
At December 31, 1998, the Company's book value was $16.28
per share compared with $15.25 at December 31, 1997, an increase
of 6.8%.
The Company's capital level remains strong with a leverage
ratio of 7.04% at December 31, 1998 compared with 9.72% at
December 31, 1997. The regulatory minimum capital ratio is 5%.
The risk-based capital measurement which allocates capital based
on the various levels of risk within the Bank's balance sheet was
11.46% at December 31, 1998 compared with 15.94% at December 31,
1997.
Results of Operations
All of the initiatives included within the above discussion
did not come without a price, however. Net income for 1998 was
$1,024,000, a decrease of 29.3% from $1,448,000 for 1997. In
spite of this decrease in income, the results of the various
efforts taken by the Company during the last two years have
started to return dividends. The fourth quarter of 1998 was the
strongest quarter of the year for the Bank, and each quarter
during the year showed improvement over the prior quarter. The
acquisition of Essick & Barr took place late in the year and
resulted in a small contribution to earnings during the year.
Management expects this acquisition to generate in excess of
$600,000 in net income and a positive contribution to cash
earnings per share and reported earnings per share for 1999 even
before integration efforts and earnings improvements are
initiated.
Interest Income and Expense
Net interest income increased to $6,983,000 for the year
compared with $6,838,000 for 1997, an increase of $145,000 or
2.1%. While this improvement reflects very modest gains, net
interest income has stabilized and began increasing late in the
<PAGE 14> year. The interest spread, the difference between
yield and cost on interest- bearing assets and liabilities,
however, decreased to 3.06% for 1998 from 3.49% for 1997. The
shrinking interest spread is an industry-wide trend.
Total interest income increased to $14,723,000 through
1998,
an increase of $1,703,000 or 13.1% over 1997's total in spite of
declining interest rates throughout the year. Increases in
interest on loans provided much of this amount, $1,380,000,
reflecting the commitment to expanding the Bank's loan portfolio.
Interest earned on investment securities provided the remaining
increase, $323,000. The average yield on earning assets
decreased from 8.10% for 1997 to 7.88% for 1998.
Total interest expense increased by $1,558,000 or 25.2%
during the year, growing to $7,740,000 through December 31, 1998
from $6,182,000 through December 31, 1997. A renewed focus on
deposit products in conjunction with special promotions tied to
the opening of the additional retail facilities helped to drive
this increase. Interest expense on these deposits increased to
$6,863,000 from $5,638,000, an increase of $1,225,000 or 21.7%
between 1997 and 1998. To supplement deposit growth, and to be
able to fund the tremendous loan growth throughout the year,
additional borrowings from the Federal Home Loan Bank were used.
Interest expense associated with these borrowings, along with
overnight federal funds purchased, increased to $877,000 from
$544,000, an increase of $333,000 or 61.2% between the two
periods. The average cost of liabilities increased to 4.82% for
1998 from 4.61% for 1997 reflecting the special promotional
efforts noted above.
Provision for Loan Losses
The provision for possible loan losses was increased to
$590,000 during 1998, up from $500,000 for 1997, an increase of
$90,000 or 18%. The growth in the loan portfolio throughout the
year, in conjunction with the Bank's on-going review of credit
risk issues and net losses recognized on charged-off loans,
resulted in this increase.
Other Income
With the continuing pressures on the net interest margin
resulting from competitive and economic issues, the need for
supplementing the margin is emphasized. During 1998, the Bank
took steps to increase non-interest income as part of this
effort. A number of new fee-based products and services were
initiated, including discount brokerage services and
lending-related charges and fees. In addition, the processing of
official checks was out-sourced during the fourth quarter, which
will provide fee income moving forward. The acquisition of
Essick & Barr, Inc. was completed in December 1998. Although
none of these initiatives generated significant income for the
Bank during 1998, all are expected to provide more diversified
<PAGE 15> sources of fee income and decrease the Bank's
dependence on the net interest margin.
Even with the relatively small contributions to the bottom
line that these initiatives had during 1998, total other income
increased by $226,000 or 30.2% from $749,000 through
December 1997 to $975,000 through December 1998. Net realized
gains on sales of securities contributed $32,000 towards this
increase. Other income, which includes convenience fees for ATM
usage and commissions from sales of credit insurance on loan
products, in addition to the items noted above, increased by
$192,000 or 131.5% from 1997 to 1998. Management continues to
pursue additional fee income-based opportunities as part of its
diversification plan.
Operating Expenses
Total other expenses increased by $896,000 or 17.1%,
growing
from $5,252,000 for 1997 to $6,148,000 for 1998. Much of this
increase can be tied directly to staffing, equipment, building,
and supplies required in opening the additional banking offices
and installing the computer network.
Salaries and benefits increased by 13.6%, growing to
$2,905,000 from $2,556,000, and total occupancy, including
buildings and equipment, increased by 37.2% to $967,000 from
$705,000 between 1997 and 1998. Computer services decreased
during the period, falling from $304,000 in 1997 to $264,000 in
1998, a decrease of $40,000 or 13.1% as a result of some savings
associated with the new system and a renegotiated contract with
the Bank's data processing supplier.
During the year, the Bank foreclosed upon a number of
properties, and the costs of maintaining the Bank's foreclosed
properties was higher than in 1997. Real estate owned expense
increased to $105,000 from $43,000, an increase of $62,000 or
144.2%. Professional services, including fees associated with
computer maintenance, planning, management succession and
personnel recruiting efforts and legal fees, amounted to $193,000
for 1998, a decrease of $39,000 or 16.8% from the $232,000
expensed in 1997 for these efforts.
Other expenses, including supplies required by the new
offices, postage costs, travel and entertainment, among others,
increased by $282,000 or 30.1% from $936,000 for 1997 to
$1,218,000 for 1998. Income before federal income taxes
decreased to $1,220,000 from $1,835,000 between 1998 and 1997,
respectively, a decrease of $615,000 or 33.5%.
Income tax expense totaled $196,000 for 1998 compared with
$387,000 for 1997, a decrease of $191,000 or 49.4%. See Note 11
of the consolidated financial statements for a reconciliation of
the statutory income tax expense to the income tax expense
included in the consolidated statements of income. Expressed as
<PAGE 16> earnings per share, net income fell to $0.86 per share
in 1998 compared with $1.21 per share in 1997. During the year,
the quarterly dividend was maintained at $0.13 per share, which
is consistent with 1997 as well. The annualized dividend,
therefore, remained stable at $0.52 per share for both years.
The Company's return on assets ratio decreased to 0.50% for
1998 from 0.85% for 1997, and the Company's return on equity
ratio decreased to 5.28% for 1998 from 8.21% for 1997, both
significant decreases reflecting the combination of accelerated
growth and depressed earnings noted above. One of the key
indicators of management's ability to generate adequate returns
to its stockholders is the Bank's efficiency ratio, a measurement
comparing general and administrative expenses as a percentage of
net interest income and recurring non-interest income. The
impact of 1998's initiatives is very apparent as the Bank's
efficiency ratio for 1998 was 73.2% compared with 64.4% for 1997.
Management's continuing focus on all aspects of non-interest
income and expense, in conjunction with its on-going efforts to
improve the net interest margin, are expected to improve this
measurement. Management's goal is to achieve an efficiency ratio
below 60%.
Subsequent Event
During January 1999, the Company announced that a
definitive
agreement to merge with Merchants of Shenandoah BanCorp had been
signed. Merchants is a commercial bank headquartered in
Shenandoah, Schuylkill County, Pennsylvania with assets of
$58 million at December 31, 1998. Footnote 18 in the
consolidated financial statements includes a pro-forma table of
operating results and financial condition as of December 31,
1998. This merger is expected to close during the second or
third quarter of 1999.
Liquidity and Rate Sensitivity
Through the years, the banking industry has adapted to an
environment in which interest rates have fluctuated dramatically
and in which depositors have been provided with liquid, rate
sensitive investment options. The industry uses a process known
as asset/liability management as a means of managing this
adaptation. Asset/liability management is intended to provide
for adequate liquidity and interest rate sensitivity by matching
interest rate sensitive assets and liabilities and coordinating
maturities and repricing characteristics on assets and
liabilities.
Approximately 46% of the total loan portfolio is subject to
rate changes within one year. In addition, approximately 28% of
the securities portfolio is scheduled to reprice within one year.
Offsetting these rate sensitive assets are deposits repricing
within one year. At the present time, the Bank's one-year gap is
negative by $5.3 million and signifies a decrease in net interest
<PAGE 17> income in a rising rate environment. Throughout the
year, the Bank attempts to structure its rate sensitivity
position to minimize the risk to earnings in changing rate
environments.
Capital Adequacy
Federal bank regulatory agencies have established certain
capital-related criteria that must be met by banks and bank
holding companies. The measurements which incorporate the
varying degrees of risk contained within the Bank's balance sheet
and exposure to off-balance sheet commitments were established to
provide a framework for comparing different institutions because
of each institution's concentration of resources. See Note 13 of
the consolidated financial statements for a discussion of
regulatory capital requirements.
The Company is not aware of any pending recommendations by
regulatory authorities which would have a material impact on the
Company's capital resources, or liquidity if they were
implemented, nor is the Company under any agreements with any
regulatory authorities.
Year 2000 Issues
The much publicized Year 2000 problem is having an impact
on
the financial services industry. Federal regulatory agencies
have targeted banks as especially vulnerable not only to systemic
considerations, but public relations problems as well. The Bank
established a committee in 1996 to address this issue and is well
on its way to meeting not only its internal deadlines, but all of
the regulatory deadlines as well. The committee's plan to
address the many issues involved began by assessing the impact of
the Year 2000 problem throughout the Company, identifying all of
the affected equipment, resolving any problems that were
uncovered, and testing the chosen solutions. In addition to
working very closely with its data processing provider, Bisys, of
Cherry Hill, New Jersey, a number of less critical applications
were tested internally as well.
The Bank expensed $20,000 during 1998 as part of these
efforts in addition to replacing specific computer equipment,
which is being depreciated separately from this amount.
Individual application and systems testing was begun in
November of 1998, and through the end of January, virtually all
applications have been tested. Minor enhancements will be
implemented through the end of the first quarter of 1999, at
which time the Bank expects to have completed testing all of its
systems. The Bank expects to be Year 2000 compliant at that
time.
The Bank expects to incur expenses of approximately $15,000
and capital expenditures of approximately $20,000 in 1999 in
conjunction with this process. <PAGE 18>
As part of its Year 2000 plan, the Company is also
endeavoring to analyze the risks posed to it by its material
borrowers, as the Company believes that the projected worst case
Year 2000 scenario relates to risks posed by its material
borrowers. The Company is inquiring of its largest commercial
borrowers of their Year 2000 readiness. The Company has no
reason to believe at this time that the Company's borrowers pose
a material risk to the Company's future results of operations or
financial condition due to such borrowers' Year 2000 readiness.
The Company has also asked its outside data-processing provider,
Bisys, to provide the Company with assurances as to its Year 2000
readiness.
Interest Rate Risk Management
Interest rate risk management involves managing the extent
to which interest-sensitive assets and interest-sensitive
liabilities are matched. Interest rate sensitivity is the
relationship between market interest rates and earnings
volatility due to the repricing characteristics of assets and
liabilities. The Company's net interest income is affected by
changes in the level of market interest rates. In order to
maintain consistent earnings performance, the Company seeks to
manage, to the extent possible, the repricing characteristics of
its assets and liabilities.
The ratio between assets and liabilities repricing in
specific time intervals is referred to as an interest rate
sensitivity gap. Interest rate sensitivity gaps can be managed
to take advantage of the slope of the yield curve as well as
forecasted changes in the level of interest rate changes.
One major objective of the Company when managing the rate
sensitivity of its assets and liabilities is to stabilize net
interest income. The management of and authority to assume
interest rate risk is the responsibility of the Company's Asset/
Liability Committee ("ALCO"), which is comprised of senior
management and Board members. ALCO meets quarterly to monitor
the ratio of interest sensitive assets to interest sensitive
liabilities. The process to review interest rate risk management
is a regular part of management of the Company. Consistent
policies and practices of measuring and reporting interest rate
risk exposure, particularly regarding the treatment of
noncontractual assets and liabilities, are in effect. In
addition, there is an annual process to review the interest rate
risk policy with the Board of Directors which includes limits on
the impact to earnings from shifts in interest rates.
To manage the interest sensitivity position, an asset/
liability model called "gap analysis" is used to monitor the
difference in the volume of the Company's interest sensitive
assets and liabilities that mature or reprice within given
periods. A positive gap (asset sensitive) indicates that more
assets reprice during a given period compared to liabilities,
<PAGE 19> while a negative gap (liability sensitive) has the
opposite effect.
At December 31, 1998, the Bank maintained a one year
cumulative gap of negative $10.3 million or 4.5% of total assets.
The effect of this gap position provided a negative mismatch of
assets and liabilities which can expose the Bank to interest rate
risk during a period of rising interest rates.
<TABLE>
<CAPTION>
Interest Sensitivity
Gap at December 31, 1998
Three
Within to
One to Over
Three Twelve
Three Three
(in thousands) Months Months
Years Years
<S> <C> <C>
<C> <C>
Interest bearing deposits $ 272 $ 0
$ 0 $ 0
Investment securities(1),(2) 4,630 9,771
4,422 31,930
Loans(2) 31,325 43,561
25,174 62,473
Total rate sensitive assets 36,227 53,332
29,596 94,403
Total assets
Interest bearing deposits 7,556 22,644
19,494 18,186
Time deposits 27,046 24,324
16,185 15,501
Time, $100,000 and over 3,914 3,181
1,714 1,639
Federal funds purchased 5,509 0
0 0
Short-term borrowed funds 0 5,700
0 0
Long-term borrowed funds 0 0
0 12,500
Total rate sensitive liabilities 44,025 55,849
37,393 47,826
Interest sensitivity gap $(7,798) $(2,517)
$(7,797) $46,577
Cumulative gap $(7,798) $(10,315)
$(18,112) $ 28,465
Cumulative gap to total assets -3.4% -4.5%
-7.8% 12.3%
</TABLE>
_____________________
(1) Gross of unrealized gains/losses on available for sale
securities.
(2) Investments and loans are included in the earlier of the
period in which interest rates were next scheduled to
adjust
or the period in which they are due. In addition, loans
were included in the periods in which they are scheduled to
be repaid based on scheduled amortization. For amortizing
loans and mortgage-backed securities, annual prepayment
rates are assumed reflecting historical experience as well
as management's knowledge and experience of its loan
products.
(3) The Bank's demand and savings accounts were generally
subject to immediate withdrawal. However, management
considers a certain amount of such accounts to be core
accounts having significantly longer effective maturities
<PAGE 20> based on the retention experiences of such
deposits in changing interest rate environments. The
effective maturities presented are the FDICIA
305 recommended maturity distribution limits for
nonmaturing
deposits.
Upon reviewing the current interest sensitivity scenario,
decreasing interest rates could positively effect net income
because the Company is liability sensitive. In a rising interest
rate environment, net income could be negatively affected because
more liabilities than assets will reprice during a given period.
Certain shortcomings are inherent in the method of analysis
presented in the above table. Although certain assets and
liabilities may have similar maturities or period of repricing,
they may react in different degrees to changes in market interest
rates. The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types of assets and
liabilities may lag behind changes in market interest rates.
Certain assets, such as adjustable-rate mortgages, have features
which restrict changes in interest rates on a short-term basis
and over the life of the asset. In the event of a change in
interest rates, prepayment and early withdrawal levels may
deviate significantly from those assumed in calculating the
table. The ability of many borrowers to service their
adjustable-rate debt may decrease in the event of an interest
rate increase.
Capital
The adequacy of the Company's capital is reviewed on an
ongoing basis with regard to size, composition and quality of the
Company's resources. An adequate capital base is important for
continued growth and expansion in addition to providing an added
protection against unexpected losses.
An important indicator in the banking industry is the
leverage ratio, defined as the ratio of common stockholders'
equity less intangible assets, to average quarterly assets less
intangible assets. The leverage ratio at December 31, 1998 was
7.04% compared to 9.72% at December 31, 1997. This decrease is
the direct result of the increase in average assets in 1998. For
1998 and 1997, the ratios were well above minimum regulatory
guidelines.
As required by the federal banking regulatory authorities,
guidelines have been adopted to measure capital adequacy. Under
the guidelines, certain minimum ratios are required for core
capital and total capital as a percentage of risk-weighted assets
and other off-balance sheet instruments. For the Company, Tier I
capital consists of common stockholders' equity less intangible
assets, and Tier II capital includes the allowable portion of the
allowance for possible loan losses, currently limited to 1.25% of
<PAGE 21> risk-weighted assets. By regulatory guidelines, the
separate component of equity for unrealized appreciation or
depreciation on available for sale securities is excluded from
Tier I Capital.
The following table sets forth the Bank's capital and
ratios. The Company's capital amounts and ratios were not
materially different from those of the Bank.
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1998
1997
<S> <S> <S>
Tier I
Common stockholders' equity (excluding
unrealized appreciation on securities) $ 15,221 $
17,411
Tier II
Allowable portion of allowance for loan
losses 1,756
1,482
Risk-based capital $ 16,977 $
18,893
Risk adjusted assets (including off-
balance sheet exposures) $148,153
$118,534
Tier I risk-based capital ratio 10.27%
14.69%
Total risk-based capital ratio 11.46%
15.94%
Leverage ratio 7.04%
9.72%
</TABLE>
Regulatory guidelines require that Tier I capital and total
risk-based capital to risk-adjusted assets must be at least 4.0%
and 8.0%, respectively.
Liquidity and Funds Management
Liquidity management is to ensure that adequate funds will
be available to meet anticipated and unanticipated deposit
withdrawals, debt servicing payments, investment commitments,
commercial and consumer loan demand and ongoing operating
expenses. Funding sources include principal repayments on loans
and investment securities, sales of loans, growth in core
deposits, short- and long-term borrowings and repurchase
agreements. Regular loan payments are a dependable source of
funds, while the sale of loans and investment securities, deposit
flows, and loan prepayments are significantly influenced by
general economic conditions and level of interest rates.
At December 31, 1998, the Company maintained $4.7 million
in
cash and cash equivalents primarily consisting of cash and due
from banks. In addition, the Company had $50.8 million in
securities available for sale. The combined total of
$55.5 million represented 23.9% of total assets at December 31,
1998. The Company believes that its liquidity is adequate.
<PAGE 22>
The Company considers its primary source of liquidity to be
its core deposit base, which includes noninterest bearing and
interest-bearing demand deposits, savings, and time deposits
under $100,000. This funding source has grown steadily over the
years and consists of deposits from customers throughout the
branch network. The Company will continue to promote the growth
of deposits through its branch offices. At December 31, 1998,
approximately 75% of the Company's assets were funded by core
deposits acquired within its market area. An additional 9% of
the assets were funded by the Company's equity. These two
components provide a substantial and stable source of funds.
Recently Issued Accounting Standards
Reporting Comprehensive Income
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income," which establishes standards for the
reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. Statement
No. 130 requires that all items that are required to be
recognized as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as
other financial statements. This Statement does not require a
specific format for that financial statement, but requires that
an enterprise display an amount representing total comprehensive
income for the period in that financial statement. Statement
No. 130 is effective for fiscal years beginning after
December 15, 1997. The Company adopted Statement No. 130 in its
March 31, 1998 Form 10-QSB. Reclassification of financial
statements for earlier periods provided for comparative purposes
was required. Adoption of Statement No. 130 has not had a
material impact on the Company.
Operating Segment Disclosure
In June 1997, the FASB issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." Statement No. 131, effective for periods beginning
after December 31, 1997, establishes standards for the way that
public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments
in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. The Bank acts as
an independent community financial services provider, and offers
traditional banking, insurance and related financial services to
individual, business and government customers. Through its
branch and automated teller machine network, the Bank offers a
full array of commercial and retail financial services, including
the taking of time, savings and demand deposits; the making of
commercial, consumer and mortgage loans; and the providing of
other financial services. <PAGE 23>
Management does not separately allocate expenses, including
the cost of funding loan demand, between the commercial, retail
and mortgage banking operations of the Bank. As such, discrete
financial information is not available and segment reporting
would not be meaningful. Results of insurance operations were
not material to the consolidated financial statements in 1998.
PAGE 24
<PAGE>
Changes in Interest Income and Interest Expense
The following table sets forth certain information
regarding
changes in interest income and interest expense of the Company
for the periods indicated. For each category of interest-earning
asset and interest-bearing liability, information is provided on
changes attributable to (1) changes in volume (changes in volume
multiplied by old rate), and (2) changes in rate (changes in rate
multiplied by average volume).
ANALYSIS OF CHANGES IN INTEREST INCOME(1)
<TABLE>
<CAPTION>
1998/1997 Increase
(Decrease) 1997/1996 Increase (Decrease)
Due to Change in
Due to Change in
Volume Rate Net
Volume Rate Net
<S> <C> <C> <C>
<C> <C> <C>
Interest-bearing deposits in other
banks and federal funds sold $ 27 $ 21 $ 48
$ (25) $ (4) $ (29)
Securities (taxable) 335 (42) 293
171 70 241
Securities (tax-exempt) (4) (14)
(18) (37) (17) (54)
Loans 1,777 (397) 1,380
893 (371) 522
Total Interest Income 2,135 (432) 1,703
1,002 (322) 680
Short-term borrowed funds (10) (18)
(28) 276 36 312
Long-term borrowed funds 361 0 361
0 0 0
Interest-bearing demand deposits 3 114 117
8 43 51
Savings deposits 128 144 272
(4) (13) (17)
Time deposits 836 0 836
317 55 372
----- ---- ---
----- ---- ---
Total Interest Expense 1,318 240 1,558
597 121 718
----- ---- ---
----- ---- ---
Increase (Decrease)
in Net Interest Income $ 817 $ (672) $ 145
$ 405 $ (443) $ (38)
===== ==== ====
===== ==== ===
</TABLE>
_________________
(1) Loan fees have been included in the change in interest
income totals presented. Nonaccrual loans have been
included in average loan balances.
Risk Elements
The following table is a summary of nonperforming loans and
renegotiated loans for the years presented.
<PAGE 25>
NONPERFORMING LOANS
(In Thousands)
<TABLE>
<CAPTION>
As
of December 31,
1998 1997
1996 1995 1994
<S> <C> <C>
<C> <C> <C>
Nonaccrual loans
Real Estate $ 696 $ 881
$ 253 $ 110 $ 53
Consumer 23 45
4 6 23
Commercial 196 458
517 820 1,019
Total $ 915 $1,384
$ 774 $ 936 $1,095
Loans past due 90 days or more and still
accruing interest
Real Estate $ 241 $ 452
$ 213 $ 260 $ 53
Consumer 105 124
103 74 184
Commercial 798 212
1 - 278
Total loans past due 90 days or more $1,144 $ 788
$ 317 $ 334 $ 515
Troubled debt restructurings
Real Estate $ 0 $ 0
$ - $ - $ 57
Consumer 0 0
- - -
Commercial 2,473 1,757
1,246 1,404 1,006
Total troubled debt restructurings $2,473 $1,757
$1,246 $1,404 $1,063
</TABLE>
The following summary shows the impact on interest income
of
nonaccrual and restructured loans for the year ended December 31,
1998 (in thousands):
Amount of interest on loans which would have
been recorded at original rates $ 73
Amount of interest which was reflected in
income 0
Interest income not recognized on total
nonaccrual loans $ 73
The Bank generally places a loan on non-accrual after the
loan is more than 90 days past due.
Allowance for Loan Losses
The following tables set forth an analysis of the Company's
allowance for loan losses for the years presented and the
allocation of the allowance.
PAGE 26
<PAGE>
Analysis of the Allowance for Loan Losses
(In Thousands Except Ratios)
[CAPTION]
<TABLE>
December 31,
1998
1997 1996 1995 1994
<S> <C> <C>
<C> <C> <C>
Balance, Beginning of Year $ 1,483 $
1,105 $ 1,179 $ 1,124 $ 1,092
Charge-Offs
Commercial 59
13 249 112 116
Real estate 160
21 -- 29 --
Consumer 175
125 95 188 89
Total 394
159 344 329 205
Recoveries
Commercial 28
1 17 37 16
Real estate 0
0 -- -- 7
Consumer 49
36 43 77 46
Total 77
37 60 114 69
Net Charge-Offs 317
122 284 215 136
Provision Charged to Operations 590
500 210 270 168
Balance, End of Year $ 1,756 $
1,483 $ 1,105 $ 1,179 $ 1,124
Average Loans, Net $140,099
$118,585 $108,796 $101,352 $ 89,884
Ratio of Net Charge-Offs to Average Loans 0.23%
0.10% 0.26% 0.21% 0.15%
Ratio of Allowance Balance to Loans, End
of Year 1.09%
1.14% 1.00% 1.12% 1.14%
</TABLE>
The allowance for loan losses is maintained at a level
considered adequate to provide for losses that can be reasonably
anticipated. The allowance is increased by provisions charged to
operating expenses and reduced by net charge-offs. The Bank
performs continuous credit reviews of the loan portfolio and
considers current economic conditions, review of specific problem
loans and other factors in determining the adequacy of the
allowance balance.
The following table details the allocation of the allowance
for loan losses to the various loan categories. The allocation
is made for analytical purposes and is not necessarily indicative
of the categories in which future credit losses may occur. The
total allowance is available to absorb losses from any segment of
loans.
PAGE 27
<PAGE>
Allocation of Allowance for Loan Losses
(In Thousands)
<TABLE>
<CAPTION>
December 31,
1998 1997
1996 1995 1994
Percent Percent
Percent Percent Percent
of of
of of of
Total Total
Total Total Total
Amount Loans Amount Loans
Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
Commercial $ 848 27.1% $ 249 34.3%
$ 198 29.7% $ 177 30.7% $ 175 29.7%
Real Estate 611 59.9% 476 50.2%
107 56.0 99 54.5 65 54.7%
Consumer 289 13.0 117 15.5%
178 14.3% 161 14.8% 177 15.6%
Total Allocated 1,748 100% 842 100%
483 100% 437 100% 417 100%
Unallocated 8 -- 641 --
622 -- 742 -- 707 --
TOTAL $1,756 100% $1,483 100%
$1,105 100% $1,179 100% $1,124 100%
</TABLE>
Loan Portfolio
The following table sets forth the Company's loan
distribution at December 31:
<TABLE>
<CAPTION>
1998 1997
1996 1995 1994
<S> <C> <C>
<C> <C>
Commercial, financial, agricultural $ 44,055 $ 30,404
$ 32,915 $ 32,353 $ 29,183
Real estate construction 1,587 1,964
1,439 583 --
Real estate mortgage 95,823 77,378
60,768 56,723 53,695
Consumer 21,068 20,033
15,756 15,612 15,309
$ 162,533 $129,779
$110,878 $105,271 $ 98,187
</TABLE>
Loan Maturities
The following table shows the maturity of loans (excluding
residential mortgages of 1-4 family residences and consumer
loans) outstanding at December 31, 1998.
Maturities of Outstanding Loans
(In Thousands)
Within After One After
One But Within Five
Year Five Years Years Total
Commercial,
Financial
and Agri-
cultural $12,760 $15,295 $16,000 $44,055
PAGE 28
<PAGE>
Maturity of Certificates of Deposit of $100,000 or More
The following table sets forth the amounts of the Bank's
certificates of deposit of $100,000 or more by maturity date.
December 31, 1998
(In Thousands)
Three Months or Less $ 3,914
Over Three Through Six Months 542
Over Six Through Twelve Months 2,639
Over Twelve Months 3,353
TOTAL $ 10,448
Securities Portfolio Maturities and Yields
The following table sets forth information about the
maturities and weighted average yield on the Company's securities
portfolio. Floating rate, immediately repriceable items are
included in the first column, and yields are not reported on a
tax equivalent basis.
Amortized Cost at
December 31, 1998
(In Thousands)
Due in After 1 After 5
1 Year Year to Years to After
or Less 5 Years 10 Years 10 Years Total
Obligations of $19,770 $17,313 $ 250 $ 200 $37,533
the U.S. 6.75% 6.61% 6.27% 7.0% 5.16%
Treasury and
other U.S.
Government
Agencies and
Corporations
State and $ 1,544 $ 7,324 $ 672 $ 531 $10,071
Municipal 5.36% 5.13% 5.92% 7.08% 5.31%
Obligations
Other Securities $ 0 $ 486 $ 227 $ 17 $ 730
0.00% 7.28% 8.62% 6.78% 7.67%
<PAGE 29>
Securities Portfolio
The following table sets forth the carrying value of the
Company's investment securities at its last three fiscal year
ends:
<TABLE>
<CAPTION>
As of December
31,
1998 1997
1996
(In
Thousands)
<S> <C> <C>
<C>
U.S. Treasuries $ 8,224 $10,292
$10,205
U.S. Government Agencies 30,025 15,221
16,584
State and Political Subdivisions 10,353 10,589
10,914
Other Securities and Equity Securities 2,151 2,244
1,987
$50,753 $38,346
$39,690
</TABLE>
For purposes of the above table, all securities are
classified as available for sale and are reflected at fair value.
Average Deposits and Average Rates by Major Classification
The following table sets forth the average balances of the
Bank's deposits and the average rates paid for the years
presented.
<TABLE>
<CAPTION>
1998 1997
1996
Amount Rate Amount Rate
Amount Rate
(Dollars in
thousands)
<S> <C> <C> <C> <C>
<C> <C>
Non-interest bearing demand $ 20,542 $ 18,040
$ 16,896
Interest bearing demand 28,105 3.22% 28,007
2.81% 27,709 2.66%
Savings deposits 30,709 2.54% 24,524
2.08% 24,719 2.13%
Time Deposits 86,241 6.00% 72,317
6.00% 66,969 5.93%
Total $ 165,597 $ 142,888
$ 136,293
</TABLE>
Other Borrowed Funds
Short-term borrowings at December 31, 1998 consisted of
borrowings from the FHLB under a repurchase agreement which
matures in 1999 with fixed interest rates ranging from 5.07% to
5.78%. The borrowings are collateralized by certain qualifying
assets of the Bank.
Short-term borrowings at December 31, 1997 consisted of
borrowings from the Federal Home Loan Bank (FHLB) under a
renewable line of credit arrangement and a repurchase agreement,
both of which matured in 1998 with variable interest rates which
were 6.21% and 5.63% respectively. The borrowings were
collateralized by certain qualifying assets of the Bank.
<PAGE 30>
An additional source of funds for the Bank is federal funds
purchased, of which $5,509,000 and $3,814,000 were outstanding at
December 31, 1998, and 1997 respectively. The federal funds
purchased typically mature in one day.
Information concerning the short-term borrowings at FHLB is
summarized as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
1996
<S> <C> <C>
<C>
Line of credit $ 200 $5,000
$5,700
Repurchase agreement 5,500 3,000
--
$ 5,700 $8,000
$5,700
Average balance during the year $ 7,829 $6,968
$3,304
Average interest rate during the year 5.90% 5.83%
5.72%
Maximum month-end balance during
the year $13,500 $9,000
$5,700
</TABLE>
Average Balances, Rates and Net Yield
The following table sets forth the average daily balances
of
major categories of interest earning assets and interest bearing
liabilities, the average rate paid thereon, and the net interest
margin for each of the periods indicated.
<TABLE>
<CAPTION>
1998
1997 1996
Interest
Interest Interest
Average Income %
Average Income % Average Income %
Balances (Expense) Rate
Balances (Expense) Rate Balances (Expense) Rate
<S> <C> <C> <C>
<C> <C> <C> <C> <C> <C>
Interest bearing deposits in
other banks and federal funds
sold $ 1,152 $ 61 5.30%
$ 370 $ 13 3.51% $ 939 $ 42 4.47%
Securities (taxable) 34,630 2,288 6.61%
29,646 1,995 6.73% 27,014 1,754 6.49%
Securities (tax-exempt)(1) 10,675 558 5.23%
10,741 576 5.36% 11,417 630 5.52%
Loans(2) 140,375 11,816 8.42%
119,947 10,436 8.70% 110,038 9,914 9.01%
Total interest
earning assets $186,832 $14,723 7.88%
$160,704 $13,020 8.10% $149,408 $12,340 8.26%
Interest bearing liabilities
Short-term borrowings $ 7,829 $ 462 5.90%
$ 9,343 $ 544 5.82% $ 4,268 232 5.44%
Interest bearing demand
deposits 28,105 904 3.22%
28,007 787 2.81% 27,709 736 2.66%
Savings deposits 30,709 781 2.54%
24,524 509 2.08% 24,719 526 2.13%
Time deposits 86,241 5,178 6.00%
72,317 4,342 6.00% 66,969 3,970 5.93%
Long-term debt 7,541 415 5.50%
-- -- 0.00% -- -- 0.00%
Total interest
bearing liabilities $160,425 $ 7,740 4.82%
$134,191 $ 6,182 4.61% $123,665 $ 5,464 4.42%
Noninterest bearing deposits $ 20,542
$ 18,040 $ 16,896
Interest rate spread 3.06%
3.49% 3.84%
Net interest margin $ 6,983 3.74%
$ 6,838 4.26% $ 6,876 4.60%
</TABLE> <PAGE 31>
_______________
(1) Rates on Municipal Obligations are not reported on a tax-
equivalent basis.
(2) Nonaccrual loans have been included in average loan
balances.
PAGE 32
<PAGE>
Dividends and Stockholders' Equity
The Company maintained its dividends in 1998 at $0.52 per
share, the same as in 1997. The Company's dividend payout ratio
increased from 42.7% in 1997 to 61.4% in 1998 due to the decrease
in the Company's net income. The Company's ratio of average
stockholders' equity to average assets for the year ended
December 31, 1998 was 9.41%.
Years ended December 31
1998 1997 1996
Return on assets 0.50% 0.85% 1.08%
Return on equity 5.28% 8.21% 10.36%
Dividend payment ratio 61.43% 42.75% 34.17%
Equity to assets ratio 9.41% 10.31% 10.42%
PAGE 33
<PAGE>
Item 7. Financial Statements.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
First Leesport Bancorp, Inc.
Leesport, Pennsylvania
We have audited the accompanying consolidated balance
sheets
of First Leesport Bancorp, Inc. and its wholly-owned subsidiary,
The First National Bank of Leesport, as of December 31, 1998 and
1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of First Leesport Bancorp, Inc. and its
wholly-owned subsidiary, The First National Bank of Leesport, as
of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
Reading, Pennsylvania
January 12, 1999
Beard & Company, Inc.
PAGE 34
<PAGE>
FIRST LEESPORT BANCORP, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
THE FIRST NATIONAL BANK OF LEESPORT
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
(In Thousands)
ASSETS
Cash and due from banks $ 4,403 $ 5,456
Interest-bearing deposits in other banks 272 100
Total cash and cash equivalents 4,675 5,556
Securities available for sale 50,753 38,346
Loans, net of allowance for loan losses
1998 $1,756; 1997 $1,483 160,777 128,296
Bank premises and equipment, net 5,606 3,844
Accrued interest receivable and other
assets 9,764 4,223
Total assets $231,575 $180,265
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 21,889 $ 18,466
Interest-bearing 161,384 130,033
Total deposits 183,273 148,499
Federal funds purchased 5,509 3,814
Short-term borrowings 5,700 8,000
Long-term debt 12,500 --
Accrued interest payable and other
liabilities 4,004 1,789
Total liabilities 210,986 162,102
Stockholders' Equity
Common stock, par value $ 5 per share;
authorized 2,000,000 shares; issued
1998 1,273,284 shares; 1997
1,200,000 shares 6,366 6,000
Surplus 4,417 3,000
Retained earnings 9,245 8,850
Accumulated other comprehensive
income 679 434
Treasury stock, at cost 1998 (118) (121)
8,629 shares; 1997 8,829 shares
Total stockholders' equity 20,589 18,163
Total liabilities and stockholders'
equity $231,575 $180,265
See Notes to Consolidated Financial Statements.
PAGE 35
<PAGE>
FIRST LEESPORT BANCORP, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
THE FIRST NATIONAL BANK OF LEESPORT
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
1998 1997 1996
(In Thousands, Except Per
Share Amounts)
Interest income:
Loans receivable, including fees $11,816 $10,436 $ 9,914
Securities:
Taxable 2,288 1,995 1,754
Tax-exempt 558 576 630
Other 61 13 42
Total interest income 14,723 13,020 12,340
Interest expense:
Deposits 6,863 5,638 5,232
Borrowings 877 544 232
Total interest expense 7,740 6,182 5,464
Net interest income 6,983 6,838 6,876
Provision for loan losses 590 500 210
Net interest income after
provision for loan losses 6,393 6,338 6,666
Other income:
Customer service fees 304 313 311
Mortgage banking activities 301 290 74
Other income 338 146 99
Net realized gain on sale of
securities 32 - -
Total other income 975 749 484
Other expenses:
Salaries and employee benefits 2,905 2,556 2,378
Occupancy 478 416 424
Equipment 489 289 291
Computer services 264 304 289
Taxes, other than income 171 161 151
Foreclosed real estate 105 43 161
Marketing and advertising 325 315 263
Professional services 193 232 199
Other expenses 1,218 936 772
Total other expenses 6,148 5,252 4,928
Income before income taxes 1,220 1,835 2,222
Federal income taxes 196 387 513
Net income $ 1,024 $ 1,448 $ 1,709
Basic earnings per share $ 0.86 $ 1.21 $ 1.43
See Notes to Consolidated Financial Statements. <PAGE 36>
PAGE 37
<PAGE>
FIRST LEESPORT BANCORP, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
THE FIRST NATIONAL BANK OF LEESPORT
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December
31, 1998, 1997 and 1996
Accumulated
Additional
Other
Common Paid-in
Retained Comprehensive Treasury
Stock Capital
Earnings Income Stock Total
(In
Thousands, Except Per Share Data)
<S> <C> <C>
<C> <C> <C> <C>
Balance, December 31, 1995 $ 6,000 $ 3,000 $
6,896 $ 502 $ (121) $16,277
Comprehensive Income:
Net income -- --
1,709 -- -- 1,709
Change in net unrealized gain
(loss) on securities available
for sale, net of reclass-
ification adjustment -- --
-- (281) -- (281)
Total comprehensive income
1,428
Cash dividends declared $.49 per
share -- --
(584) -- -- (584)
Balance, December 31, 1996 6,000 3,000
8,021 221 (121) 17,121
Comprehensive income:
Net income -- --
1,448 -- -- 1,448
Change in net unrealized gain
(loss) on securities available
for sale, net of reclass-
ification adjustment -- --
-- 213 -- 213
Total comprehensive income
1,661
Cash dividends declared $.52 per
share -- --
(619) -- -- (619)
Balance, December 31, 1997 6,000 3,000
8,850 434 (121) 18,163
Comprehensive income:
Net income -- --
1,024 -- -- 1,024
Change in net unrealized gain
(loss) on securities available
for sale, net of reclass-
ification adjustment -- --
-- 245 -- 245
Total comprehensive income
1,269
Issuance of common stock in
connection with acquisition 366 1,414
-- -- -- 1,780
Issuance of treasury stock -- 3
-- -- 3 6
Cash dividends declared $.52 per
share -- --
(629) -- -- (629)
Balance, December 31, 1998 $ 6,366 $ 4,417 $
9,245 $ 679 $ (118) $ 20,589
See Notes to Consolidated Financial Statements.
</TABLE>
PAGE 38
<PAGE>
FIRST LEESPORT BANCORP, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
THE FIRST NATIONAL BANK OF LEESPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
December 31,
1998 1997
1996
(In
Thousands)
<S> <C> <C>
<C>
Cash Flows From Operating Activities
Net income $ 1,024 $ 1,448
$ 1,709
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 590 500
210
Provision for depreciation and
amortization 492 274
295
Net accretion of securities premiums
and discounts (20)
(4) (18)
Amortization of mortgage servicing rights 42 13
-
Net cash provided by loans held for sale 260 252
36
Gain on sales of securities and loans (292)
(252) (36)
Change in assets and liabilities, net of
effects from acquisition:
Increase in accrued interest receivable
and other assets (947)
(761) (151)
Increase (decrease) in accrued interest
payable and other liabilities 856 124
(34)
Net cash provided by operating activities 2,005 1,594
2,011
Cash Flows From Investing Activities
Proceeds from sales of securities
available for sale 975 -
-
Proceeds from principal repayments and
maturities of securities available for
sale 13,362 7,943
7,404
Purchase of securities available for sale (26,322)
(6,272) (9,654)
Acquisition of Essick & Barr, Inc. (1,715) -
-
Purchase of life insurance - -
(1,785)
Net decrease in federal funds sold - 448
153
Loans made to customers, net of
principal collected (33,071)
(19,023) (5,891)
Purchases of bank premises and equipment (2,171)
(790) (309)
Net cash used in investing activities (48,942)
(17,694) (10,082)
Cash Flows From Financing Activities
Net increase in deposits 34,774 10,962
4,099
Net increase in federal funds purchased 1,695 3,814
-
Net proceeds (repayments) of short-term
borrowings (2,300) 2,300
5,700
Repayment of long-term debt - -
(1,000)
Proceeds from long-term debt 12,500 -
-
Issuance of treasury stock 6 -
-
Dividends paid (619)
(619) (572)
Net cash provided by financing activities 46,056 16,457
8,227
Increase (decrease) in cash and cash
equivalents (881) 357
156
Cash and cash equivalents:
January 1 5,556 5,199
5,043
December 31 $ 4,675 $ 5,556
$ 5,199
<PAGE 39>
Cash payments for:
Interest $ 7,652 $ 6,093
$ 5,423
Income taxes $ 300 $ 685
$ 530
See Notes to Consolidated Financial Statements.
</TABLE>
PAGE 40
<PAGE>
FIRST LEESPORT BANCORP, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
THE FIRST NATIONAL BANK OF LEESPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The consolidated financial statements include the accounts
of First Leesport Bancorp, Inc. ("the Company"), a bank
holding company, and its wholly-owned subsidiary, The First
National Bank of Leesport ("the Bank"), including the
Bank's
wholly-owned subsidiary, Essick & Barr, Inc. ("Essick &
Barr"). All significant intercompany accounts and
transactions have been eliminated.
Nature of operations:
The Bank operates under a national bank charter and
provides
full banking services. Essick & Barr provides personal and
commercial insurance coverage through several insurance
companies. As a national bank, the Bank is subject to
regulation of the Office of the Comptroller of the Currency
and the Federal Deposit Insurance Corporation. The bank
holding company is subject to regulation by the Federal
Reserve Bank. The area served by the Bank and its
subsidiary is principally Berks County, Pennsylvania.
Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks and interest-
bearing demand deposits in other banks.
Securities:
Securities classified as available for sale are those
securities that the Bank intends to hold for an indefinite
period of time but not necessarily to maturity. Any
decision to sell a security classified as available for
sale
would be based on various factors, including significant
<PAGE 41> movement in interest rates, changes in maturity
mix of the Bank's assets and liabilities, liquidity needs,
regulatory capital considerations and other similar
factors.
Securities available for sale are carried at fair value.
Unrealized gains or losses are reported in other
comprehensive income, net of the related deferred tax
effect. Realized gains or losses, determined on the basis
of the cost of the specific securities sold, are included
in
earnings. Premiums and discounts are recognized in
interest
income using a method which approximates the interest
method
over the period to maturity.
Management determines the appropriate classification
of
debt securities at the time of purchase and re-evaluates
such designation as of each balance sheet date.
Loans receivable:
Loans that management has the intent and ability to
hold for the foreseeable future or until maturity or
pay-off
generally are stated at their outstanding unpaid principal
balances, net of any deferred fees or costs on originated
loans or unamortized premiums or discounts on purchased
loans. Interest income is accrued on the unpaid principal
balance. Loan origination fees, net of certain direct
origination costs, are deferred and recognized as an
adjustment of the yield (interest income) of the related
loans.
A loan is generally considered impaired when it is
probable the Bank will be unable to collect all contractual
principal and interest payments due in accordance with the
terms of the loan agreement. The accrual of interest is
generally discontinued when the contractual payment of
principal or interest has become 90 days past due or
management has serious doubts about further collectibility
of principal or interest, even though the loan is currently
performing. A loan may remain on accrual status if it is
in
the process of collection and is either guaranteed or well
secured. When a loan is placed on nonaccrual status,
unpaid
interest credited to income in the current year is reversed
and unpaid interest accrued in prior years is charged
against the allowance for loan losses. Interest received
on
nonaccrual loans generally is either applied against
principal or reported as interest income, according to
management's judgment as to the collectibility of
principal.
Generally, loans are restored to accrual status when the
obligation is brought current, has performed in accordance
with the contractual terms for a reasonable period of time
and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
<PAGE 42>
Allowance for loan losses:
The allowance for loan losses is established through
provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the
allowance
for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
The allowance for loan losses related to impaired
loans
that are identified for evaluation is based on discounted
cash flows using the loan's initial effective interest rate
or the fair value, less selling costs, of the collateral
for
certain collateral dependent loans. By the time a loan
becomes probable of foreclosure, it has been charged down
to
fair value, less estimated costs to sell.
The allowance for loan losses is maintained at a
level
considered adequate to provide for losses that can be
reasonably anticipated. Management's periodic evaluation
of
the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the
borrower's
ability to repay, the estimated value of any underlying
collateral, composition of the loan portfolio, current
economic conditions, and other relevant factors. This
evaluation is inherently subjective as it requires material
estimates that may be susceptible to significant change,
including the amounts and timing of future cash flows
expected to be received on impaired loans.
Loans held for sale:
Mortgage loans originated and intended for sale in
the
secondary market are carried at the lower of cost or
estimated fair value. All sales are made without recourse.
There were no loans held for sale at December 31, 1998 and
1997.
Foreclosed real estate:
Foreclosed assets, which are recorded in other
assets,
include properties acquired through foreclosure or in full
or partial satisfaction of the related loan.
Foreclosed assets are initially recorded at fair
value,
net of estimated selling costs, at the date of foreclosure.
After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of
carrying amount or fair value, less estimated costs to
sell.
Revenue and expenses from operations and changes in the
valuation allowance are included in foreclosed real estate
expenses.
<PAGE 43>
Bank premises and equipment:
Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on the
straight-line and accelerated depreciation methods over the
estimated useful lives of the related assets.
Loan servicing:
Capitalized servicing rights are reported in other
assets and are amortized into noninterest income in
proportion to, and over the period of, the estimated future
net servicing income of the underlying financial assets.
Servicing rights are evaluated for impairment based upon
the
fair value of the rights as compared to amortized cost.
Fair value is determined using prices for similar assets
with similar characteristics, when available, or based upon
discounted cash flows using market based assumptions.
Impairment is recognized through a valuation allowance to
the extent that fair value is less than the capitalized
amount.
Goodwill:
Goodwill is the excess of the purchase price over the
fair value of net assets of the entity acquired through a
business combination that is recorded using the purchase
method of accounting. Goodwill is being amortized using
the
straight-line method over 20 years.
Income taxes:
Deferred taxes are provided on the liability method
whereby deferred tax assets are recognized for deductible
temporary differences and deferred tax liabilities are
recognized for taxable temporary differences. Temporary
differences are the differences between the reported
amounts
of assets and liabilities in the financial statements and
their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted through the provision
for income taxes for the effects of changes in tax laws and
rates on the date of enactment.
Off-balance sheet financial instruments:
In the ordinary course of business, the Bank has
entered into off-balance sheet financial instruments
consisting of commitments to extend credit, letters of
credit and commitments to sell loans. Such financial
instruments are recorded in the consolidated balance sheets
when they become receivable or payable. <PAGE 44>
Advertising:
Advertising costs are expensed as incurred.
Earnings per share:
Basic earnings per share represents income available
to
common stockholders divided by the weighted-average number
of common shares outstanding during the period. The
weighted-average number of shares of common stock
outstanding was 1,195,696 in 1998 and 1,191,171 in 1997 and
1996.
Comprehensive income:
The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," as of January 1, 1998. Accounting
principles generally require that recognized revenue,
expenses, gains and losses be included in net income.
Although certain changes in assets and liabilities, such as
unrealized gains and losses on available for sale
securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with
net income, are components of comprehensive income. The
adoption of SFAS No. 130 had no effect on the Company's net
income or stockholders' equity.
The components of other comprehensive income and
related tax effects are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1998 1997
1996
(In
Thousands)
<S> <C> <C>
<C>
Unrealized holding gains (losses)
on available for sale securities $ 400 $ 323
$ (426)
Less reclassification adjustment
for gains realized in income (32) -
-
Net unrealized gains (losses) 368 323
(426)
Tax effect (123) (110)
145
Net of tax amount $ 245 $ 213
$ (281)
</TABLE>
Segment reporting:
The Bank acts as an independent community financial
services provider, and offers traditional banking,
insurance
and related financial services to individual, business and
government customers. Through its branch and automated
teller machine network, the Bank offers a full array of
commercial and retail financial services, including the
taking of time, savings and demand deposits; the making of
<PAGE 45> commercial, consumer and mortgage loans; and the
providing of other financial services.
Management does not separately allocate expenses,
including the cost of funding loan demand, between the
commercial and retail operations of the Bank. As such,
discrete financial information is not available and segment
reporting would not be meaningful. Results of insurance
operations were not material to the consolidated financial
statements in 1998.
New Accounting standard:
The Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities," in June 1998. The Bank is
required
to adopt the Statement on January 1, 2000. The adoption of
the Statement is not expected to have a significant impact
on the financial condition or results of operations of the
Bank.
2. Acquisition
On December 7, 1998, the Company completed its acquisition
of Essick & Barr, Inc., an independent insurance agency.
The Company issued 73,284 shares of its common stock and
paid cash of $1,715,000 in exchange for all of the shares
of
common stock of Essick & Barr, Inc. The excess of the
total
acquisition cost over the fair value of the net assets
acquired is being amortized over 20 years by the straight-
line method. The acquisition has been accounted for as a
purchase and results of operations of Essick & Barr, Inc.
since the date of acquisition are included in the
consolidated financial statements.
3. Restrictions on Cash and Due from Bank Balances
The Bank is required to maintain average reserve balances
with the Federal Reserve Bank. For the years 1998 and
1997,
the average of these reserve balances approximated $767,000
and $705,000 respectively.
4. Securities
The amortized cost of available for sale securities and
their approximate fair values at December 31 were as
follows:
<PAGE 46>
<TABLE>
<CAPTION>
Gross
Gross
Amortized Unrealized
Unrealized Fair
Cost Gains
Losses Value
(In
Thousands)
<S> <C> <C>
<C> <C>
December 31, 1998:
U.S. Treasury securities $ 8,046 $178
$ - $ 8,224
U.S. Government agencies 22,678 230
(8) 22,900
Mortgage-backed securities 6,809 339
(23) 7,125
Obligations of state and
political subdivisions 10,071 282
- 10,353
Corporate debt securities 730 28
- 758
Equity securities 1,393 -
- 1,393
$49,727 $1,057
$(31) $50,753
December 31, 1997:
U.S. Treasury securities $10,188 $114
$ (10) $10,292
U.S. Government agencies 10,921 95
(17) 10,999
Mortgage-backed securities 4,036 193
(7) 4,222
Obligations of state and
political subdivisions 10,338 251
- 10,589
Corporate debt securities 1,070 32
- 1,102
Equity securities 1,135 7
- 1,142
$37,688 $692
$ (34) $38,346
</TABLE>
Equity securities are comprised of stock in the Federal
Reserve Bank, the Federal Home Loan Bank and Atlantic
Central Bankers' Bank.
The amortized cost and fair value of securities as of
December 31, 1998, by contractual maturity, are shown
below.
Expected maturities may differ from contractual maturities
because the securities may be called or prepaid without
penalty.
Amortized Cost Fair Value
(In Thousands)
Due in one year or less $14,326 $14,401
Due after one year through
five years 25,588 26,154
Due after five years through
ten years 917 949
Due after ten years 694 731
Mortgage-backed securities 6,809 7,125
Equity securities 1,393 1,393
$49,727 $50,753
Securities with an amortized cost of $8,343,000 and
$3,596,000 at December 31, 1998 and 1997 respectively were
<PAGE 47> pledged to secure public deposits and for other
purposes as required or permitted by law.
Gross gains of $32,000 were realized on sales of securities
available for sale in 1998. There were no sales of
securities in 1997 and 1996.
5. LOANS RECEIVABLE
The components of loans receivable at December 31, 1998 and
1997 were as follows:
1998 1997
(In Thousands)
Commercial $44,055 $ 30,403
Commercial real estate 26,560 24,494
Residential real estate 69,263 52,885
Consumer 20,462 19,368
Real estate construction 1,587 1,964
Credit card 606 665
162,533 129,779
Allowance for loan losses 1,756 1,483
$160,777 $128,296
Changes in the allowance for loan losses were as follows:
Years Ended December 31,
1998 1997 1996
(In Thousands)
Balance, beginning $1,483 $1,105 $1,179
Provision for loan losses 590 500 210
Loans charged off (394) (159) (344)
Recoveries 77 37 60
Balance, ending $1,756 $1,483 $1,105
The recorded investment in impaired loans, not requiring an
allowance for loan losses, was $-0- at December 31, 1998
and
1997. The recorded investment in impaired loans requiring
an allowance for loan losses was $545,000 and $944,000 at
December 31, 1998 and 1997 respectively. At December 31,
1998 and 1997, the related allowance for loan losses
associated with those loans was $82,000 and $195,000,
respectively. For the years ended December 31, 1998, 1997
and 1996, the average recorded investment in these impaired
loans was $556,000, $1,009,000, and $726,000 respectively,
and the interest income recognized on impaired loans was
$0,
$42,000, and $2,000 respectively.
<PAGE 48>
6. LOAN SERVICING
Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid
principal balance of these loans as of December 31, 1998
and
1997 was $35,960,000 and $25,392,000 respectively.
Custodial escrow balances maintained in connection with the
foregoing loan servicing and included in other liabilities
were approximately $234,000 and $173,000 at December 31,
1998 and 1997 respectively.
The net carrying value of capitalized mortgage servicing
rights, included in other assets at December 31, 1998 and
1997 was $264,000 and $145,000, respectively. The carrying
value of mortgage servicing rights approximates its fair
value. Mortgage servicing rights of $161,000 and $158,000
were capitalized and amortization of mortgage servicing
rights was $42,000 and $13,000 in 1998 and 1997
respectively. Mortgage servicing rights were not
capitalized in 1996 because they were not material.
7. BANK PREMISES AND EQUIPMENT
Components of bank premises and equipment were as follows:
December 31,
1998 1997
(In Thousands)
Land and land improvements $1,366 $ 982
Buildings 5,039 3,691
Furniture and equipment 2,708 2,408
9,113 7,081
Less accumulated depreciation 3,507 3,237
$5,606 $3,844
Certain bank facilities and equipment are leased under
various operating leases. Rental expense for these leases
was $86,000, $72,000, and $55,000 respectively for the
years
ended December 31, 1998, 1997 and 1996. Future minimum
rental commitments under noncancellable leases are as
follows (in thousands):
1999 $ 92
2000 65
2001 60
2002 39
2003 39
Thereafter 372
$667
<PAGE 49>
8. DEPOSITS
The components of deposits at December 31, 1998 and 1997
were as follows:
1998 1997
(In Thousands)
Demand, non-interest bearing $ 21,889 $ 18,466
Demand, interest bearing 32,793 28,133
Savings 35,087 23,563
Time, $ 100,000 and over 10,448 6,714
Time, other 83,056 71,623
$183,273 $148,499
At December 31, 1998, the scheduled maturities of time
deposits are as follows (in thousands):
1999 $50,108
2000 24,377
2001 4,489
2002 7,986
2003 6,544
$93,504
9. BORROWINGS
The Bank has a line of credit commitment from each of the
Federal Home Loan Bank (FHLB) and Atlantic Central Bankers
Bank (ACBB) for borrowings up to $6,000,000. The ACBB line
is renewed annually and the FHLB line expires March 25,
1999. No amounts were outstanding under these lines at
December 31, 1998 and 1997.
Short-term borrowings at December 31, 1998 consisted of
borrowings from the FHLB under a repurchase agreement which
matures in 1999 with fixed interest rates ranging from
5.07%
to 5.78%. The borrowings are collateralized by certain
qualifying assets of the Bank.
Short-term borrowings at December 31, 1997 consisted of
borrowings from the FHLB under a line of credit arrangement
and a repurchase agreement, both of which mature in 1998
with variable interest rates which were 6.21% and 5.63%
respectively. The borrowings were collateralized by
certain
qualifying assets of the Bank.
Long-term debt consists of advances from the FHLB, with
maturity dates ranging from April 2005 to September 2008
and
fixed interest rates ranging from 4.92% to 5.55% which
convert to variable rates after several years.
<PAGE 50>
10. EMPLOYEE BENEFITS
The Bank has a noncontributory defined benefit pension plan
covering all employees who meet the eligibility
requirements. To be eligible, an employee must have
completed 1,000 hours of service in their first 12 months
of
employment or in any like period thereafter. The Plan
provides benefits based on years of service and the
employee's highest five-year average of compensation.
Benefits are subject to certain reductions if the employee
retires before reaching age 65. The Bank's funding policy
is to make the minimum annual contribution that is required
by applicable regulations, plus such amounts as the Bank
may
determine to be appropriate from time to time. Information
pertaining as to the activity in the plan is as follows:
<TABLE>
<CAPTION>
Years
Ended December 31,
1998
1997 1996
(In
Thousands)
<S> <C>
<C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $1,689
$1,440 $1,610
Service cost 128
101 96
Interest cost 109
100 112
Actuarial (gain) loss (238)
209 (90)
Benefits paid (45)
(161) (288)
Benefit obligation at end of year 1,643
1,689 1,440
Change in plan assets:
Fair value of plan assets at beginning of year 1,688
1,485 1,414
Actual return on plan assets 139
270 151
Employer contribution 103
94 208
Benefits paid (45)
(161) (288)
Fair value of plan assets at end of year 1,885
1,688 1,485
Funded status 242
(1) 45
Unrecognized net actuarial (gain) loss (23)
242 186
Unrecognized prior service cost 24
26 28
Unrecognized net transition asset (176)
(200) (223)
Prepaid benefit cost $ 67 $
67 $ 36
Net pension cost for this plan consisted of the following
components:
Years Ended December 31,
1998 1997 1996
(In Thousands)
Service cost (benefits earned) $128 $ 101 $ 96
Interest cost on projected benefit
obligation 109 100 112
Actual return on plan assets (139) (270) (151)
Net amortization and deferral (17) 127 15
$ 81 $ 58 $ 72
<PAGE 51>
Assumptions used by the Bank in the determination of
pension plan
information consisted of the following:
December 31,
1998 1997 1996
Discount rate 6.50% 6.50% 7.00%
Rate of increase in compensation
levels 4.00% 4.00% 4.50%
Expected long-term rate of return
on plan assets 8.00% 8.00% 8.00%
The Bank has a 401(k) plan which covers employees who meet
the
eligibility requirements of having worked 1,000 hours in a
plan
year and have attained the age of 21. Participants are
permitted
to contribute from 1% - 10% of compensation. The Bank
matches
50% of the participant's contributions up to a maximum
match of
3-1/2%. The expense related to this plan was $49,000,
$45,000,
and $43,000 for the years ended December 31, 1998, 1997 and
1996
respectively.
The Bank has entered into deferred compensation agreements
with
certain directors and a salary continuation plan for
certain key
employees. At December 31, 1998 and 1997, the present
value of
the future liability for these plans was $373,000 and
$258,000
respectively. To fund the benefits under these agreements,
the
Bank is the owner and beneficiary of life insurance
policies on
the lives of the directors and employees. These policies
had an
aggregate cash surrender value of $2,191,000 and $2,080,000
at
December 31, 1998 and 1997 respectively. For the years
ended
December 31, 1998, 1997 and 1996, $112,000, $102,000, and
$65,000
respectively was charged to expense in connection with
these
agreements.
In 1998, the Company's Board of Directors approved the
adoption
of stock option plans for executive officers and directors
respectively. The plan for executive officers covers
200,000
shares of common stock reserved for issuance upon exercise
of
options granted or available for grant and will expire in
2008.
The plan for directors covers 50,000 shares of common stock
reserved for issuance upon exercise of options granted or
available for grant and will expire in 2003. Options
granted
under the plans will be at a price not less than 100% of
the fair
market value of the stock at the date of grant. During
1998,
45,152 options at prices ranging from $23.88 to $27.25 were
granted under the plan for executive officers. Both plans
are
subject to stockholder approval at the 1999 annual
stockholders'
meeting.
<PAGE 52>
11. INCOME TAXES
The components of income tax expense are as follows:
Years Ended December 31,
1998 1997 1996
(In Thousands)
Current $229 $440 $460
Deferred (33) (53) 53
$196 $387 $513
The income tax provision includes $11,000 in 1998 of income
taxes
related to gains on the sale of securities of $32,000.
Reconciliation of the statutory income tax expense computed
at
34% to the income tax expense included in the consolidated
statements of income is as follows:
Years Ended December 31,
1998 1997 1996
(In Thousands)
Federal income tax at statutory
rate $ 415 $ 624 $ 755
Tax exempt interest (226) (229) (246)
Interest disallowance 32 30 29
Other (38) (38) (22)
Bank owned life insurance 13 --- (3)
$ 196 $ 387 $ 513
Net deferred tax assets consisted of the following
components as
of December 31, 1998 and 1997:
1998 1997
(In Thousands)
Deferred tax assets:
Allowance for loan losses $ 473 $ 366
Deferred compensation 103 64
Deferred loan fees - 42
Total deferred tax assets 576 472
Deferred tax liabilities:
Prepaid pension (23) (23)
Bank premises and equipment (107) (78)
Mortgage servicing rights (94) (49)
Net unrealized gains on securities
available for sale (347) (224)
Total deferred tax liabilities (571) (374)
Net deferred tax assets $ 5 $ 98
<PAGE 53>
12. TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
The Bank has had banking transactions in the ordinary
course of
business with its executive officers and directors and
their
related interests on the same terms, including interest
rates and
collateral, as those prevailing at the time for comparable
transactions with others. At December 31, 1998 and 1997,
these
persons were indebted to the Bank for loans totaling
$4,996,000
and $3,418,000, respectively. During 1998, $4,827,000 of
new
loans were made and repayments totaled $3,011,000. Other
changes
caused the December 31, 1998 balance of the loans
outstanding to
decrease by $238,000.
13. REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Bank is subject to various regulatory capital
requirements
administered by the federal banking agencies. Failure to
meet
minimum capital requirements can initiate certain mandatory
and
possibly additional discretionary actions by regulators
that, if
undertaken, could have a direct material effect on the
Bank's
financial statements. Under capital adequacy guidelines
and the
regulatory framework for prompt corrective action, the Bank
must
meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-
balance sheet items as calculated under regulatory
accounting
practices. The Bank's capital amounts and classification
are
also subject to qualitative judgments by the regulators
about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital
adequacy require the Bank to maintain minimum amounts and
ratios
(set forth below) of total and Tier I capital (as defined
in the
regulations) to risk-weighted assets, and of Tier I capital
to
average assets. Management believes, as of December 31,
1998,
that the Bank meets all capital adequacy requirements to
which it
is subject.
As of December 31, 1998, the most recent notification from
the
Office of the Comptroller of the Currency categorized the
Bank as
well capitalized under the regulatory framework for prompt
corrective action. There are no conditions or events since
that
notification that management believes have changed the
Bank's
category.
The Bank's actual capital amounts and ratios are also
presented
below. The Company's capital amounts and ratios were not
materially different from those of the Bank.
</TABLE>
<TABLE>
<CAPTION>
To Be Well
For Capital
Capitalized Under
Adequacy
Prompt Corrective
Actual Purposes
Action Provisions
Amount Ratio Amount Ratio
Amount Ratio
<PAGE 54>
(Dollar Amounts In
Thousands)
<S> <C> <C> <C> <C>
<C> <C>
As of December 31, 1998:
Total capital (to risk
weighted assets) $16,977 11.46% $>11,852 >8.00%
$>14,815 >10.00%
Tier I capital (to
risk weighted
assets) 15,221 10.27 > 5,926
>4.00% > 8,889 > 6.00%
Tier I capital (to
average assets) 15,221 7.04 > 8,643
>4.00% >10,803 > 5.00%
As of December 31, 1997:
Total capital (to risk
weighted assets) $18,893 15.94% $>9,483 >8.00%
$>11,853 >10.00%
Tier I capital (to
risk weighted assets) 17,411 14.69 >4,741 >4.00
>7,112 >6.00
Tier I capital (to
average assets) 17,411 9.72 >7,165 >4.00
>8,956 >5.00
</TABLE>
The approval of the Comptroller of the Currency is required
if the total of all dividends declared by a national bank
in
any calendar year exceeds the Bank's net profits (as
defined) for that year combined with its retained net
profits for the preceding two calendar years. Under this
formula, the Bank can declare dividends in 1999 without
approval of the Comptroller of the Currency of
approximately
$834,000 plus an additional amount equal to the Bank's net
profit for 1999, up to the date of any such dividend
declaration. As of December 31, 1998, the Company has
declared a $0.13 per share cash dividend for stockholders
of
record on January 4, 1999, payable January 15, 1999.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank 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, letters
of
credit and commitments to sell loans. Those instruments
involve, to varying degrees, elements of credit and
interest
rate risk in excess of the amount recognized in the balance
sheets.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and letters of
credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does
for on-balance sheet instruments.
A summary of the contractual amount of the Bank's financial
instrument commitments is as follows:
<PAGE 55>
December 31,
1998 1997
(In Thousands)
Commitments to grant loans $ 6,195 $ 2,413
Unfunded commitments under
lines of credit 22,640 15,460
Outstanding letters of credit 347 648
Commitments to sell loans - -
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. Since many of the commitments
are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. Commitments generally have fixed expiration
dates or other termination clauses and may require payment
of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit
evaluation. Collateral held varies but may include
personal
or commercial real estate, accounts receivable, inventory
and equipment.
Outstanding letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a
customer to a third party. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
Commitments to sell loans are to the Federal National
Mortgage Association. These commitments are generally met
through mortgage originations in the normal course of
business.
15. CONCENTRATIONS OF CREDIT RISK
The Bank grants commercial, residential and consumer loans
to customers primarily located in Berks County,
Pennsylvania. The concentrations of credit by type of loan
are set forth in Note 5. Although the Bank has a
diversified loan portfolio, its debtors' ability to honor
these contracts is influenced by the region's economy.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair
value of the Company's financial instruments; however,
there
are inherent weaknesses in any estimation technique.
Therefore, for substantially all financial instruments, the
fair value estimates herein are not necessarily indicative
of the amounts the Company could have realized in a sales
transaction on the dates indicated. The estimated fair
<PAGE 56> value amounts have been measured as of their
respective year ends and have not been re-evaluated or
updated for purposes of these consolidated financial
statements subsequent to those respective dates. As such,
the estimated fair values of these financial instruments
subsequent to the respective reporting dates may be
different than the amounts reported at each year end.
The following information should not be interpreted as an
estimate of the fair value of the entire Company since a
fair value calculation is only provided for a limited
portion of the Company's assets. Due to a wide range of
valuation techniques and the degree of subjectivity used in
making the estimates, comparisons between the Company's
disclosures and those of other companies may not be
meaningful. The following methods and assumptions were
used
to estimate the fair values of the Company's financial
instruments at December 31, 1998 and 1997:
Cash and cash equivalents:
The carrying amounts reported in the balance sheet for cash
and short-term instruments approximate those assets' fair
values.
Securities:
Fair values for securities are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments.
Loans receivable:
For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on
carrying values. The fair values for other loans (e.g.,
consumer loans and fixed rate mortgage loans) are estimated
using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to
borrowers of similar credit quality.
Deposit liabilities:
The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, passbook savings and
certain types of money market accounts) are, by definition,
equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). Fair values for fixed-rate
certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
<PAGE 57>
Short-term borrowings and federal funds purchased:
The carrying amounts of short-term borrowings and federal
funds purchased approximate their fair values.
Long-term debt:
The fair value of long-term debt is calculated based on the
discounted value of contractual cash flows, using rates
currently available for borrowings from the FHLB with
similar maturities.
Accrued interest receivable and payable:
The carrying amount of accrued interest receivable and
accrued interest payable approximates its fair value.
Off-balance sheet instruments:
Fair values for the Bank's off-balance sheet instruments
are
based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
The estimated fair values of the Company's financial
instruments at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998
1997
Carrying Estimated
Carrying Estimated
Amount Fair Value
Amount Fair Value
(In
Thousands)
<S> <C> <C>
<C> <C>
Financial Assets:
Cash and cash equivalents $ 4,675 $ 4,675 $
5,556 $ 5,556
Securities 50,753 50,753
38,346 38,346
Loans receivable, net 160,777 165,231
128,296 129,393
Accrued interest receivable 1,453 1,453
1,292 1,292
Financial Liabilities:
Deposits 183,273 185,303
148,499 149,394
Federal funds purchased 5,509 5,509
3,814 3,814
Short-term borrowings 5,700 5,700
8,000 8,000
Long-term debt 12,500 12,490
- -
Accrued interest payable 980 980
892 892
Off-Balance Sheet Financial
Instruments:
Commitments to extend credit - -
- -
Standby letters of credit - -
- -
Commitments to sell loans - -
- -
</TABLE>
<PAGE 58>
17. FIRST LEESPORT BANCORP, INC. (PARENT COMPANY ONLY)
FINANCIAL
INFORMATION
<TABLE>
<CAPTION> Balance Sheets
December 31,
1998 1997
(In Thousands)
<S> <C>
<C>
ASSETS
Cash $
175 $ 155
Investment in bank subsidiary
20,086 17,877
Securities available for sale
427 210
Premises and equipment and other assets
71 71
$20,759 $18,313
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities, other $
170 $ 150
Stockholders' equity
20,589 18,163
$20,759 $18,313
<CAPTION>
Statements of Income
Years
Ended December 31,
1998
1997 1996
(In
Thousands)
<S> <C>
<C> <C>
Dividends from bank subsidiary $ 874 $
858 $ 632
Other income 34
15 5
Other expenses (99)
(94) (93)
Income before equity in undistributed
net income of subsidiary and income taxes 809
779 544
Income tax benefit (21)
(29) (30)
Equity in undistributed net income of
bank subsidiary 194
640 1,135
Net income $1,024
$1,448 $1,709
<PAGE 59>
<CAPTION>
Statements of Cash Flows
Years Ended
December 31,
1998
1997 1996
(In
Thousands)
<S> <C> <C>
<C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $1,024
$1,448 $ 1,709
Depreciation 4
4 4
Undistributed earnings of
bank subsidiary (194)
(640) (1,135)
Increase in other liabilities 9
2 -
(Increase) in other assets (4)
(5) -
Net cash provided by
operating activities 839
809 578
CASH FLOWS USED IN INVESTING
ACTIVITIES
Purchase of investment
securities 200
(203) -
CASH FLOWS USED IN FINANCING
ACTIVITIES
Cash dividends paid (619)
(619) (572)
Increase (decrease) in cash 20
(13) 6
Cash:
Beginning 155
168 162
Ending $ 175 $
155 $ 168
</TABLE>
18. SUBSEQUENT EVENT
On January 12, 1999, the Company announced the signing of a
definitive agreement to merge with Merchants of Shenandoah
Ban-Corp ("Merchants"), a commercial bank with total assets
of $58 million, headquartered in Shenandoah, Pennsylvania.
Under the terms of the agreement, each Merchants'
shareholder will receive 1.5854 shares of the Company's
common stock for each Merchants' share outstanding (subject
to possible adjustment under certain circumstances). The
transaction will be accounted for under the pooling-of-
interests method of accounting and is subject to regulatory
and stockholder approvals. The merger is expected to be
consummated in the second quarter of 1999.
The following table provides a summary of the consolidated
operating results and financial condition on a proforma
basis as of and for the year ended December 31, 1998:
PAGE 60
<PAGE>
<TABLE>
<CAPTION>
Company
Company
(As Reported) Merchants
Proforma
(In Thousands)
<S> <C> <C>
<C>
Net interest income $ 6,983 $ 2,073
$ 9,056
Net income $ 1,024 $ 487
$ 1,511
Total assets $231,575 $58,370
$289,945
Total stockholders' equity $ 20,589 $ 7,236
$ 27,825
</TABLE>
PAGE 61
<PAGE>
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
The name, age, principal occupation, business experience
during the past five years, and other information with respect to
each director and executive officer of the Company is set forth
on pages 4, 5, 8 and 9 of the Company's Proxy Statement dated
March 23, 1999, prepared in connection with the Company's Annual
Meeting of Stockholders to be held on April 27, 1999 (the "Proxy
Statement"), and such information is incorporated herein by
reference thereto.
Item 10. Executive Compensation.
Information with respect to the compensation of executive
officers and directors of the Company is set forth on pages 7, 10
and 12 of the Proxy Statement and is incorporated herein by
reference thereto.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Information relating to those persons who, to the knowledge
of the Company's management, may be deemed to be the beneficial
owners, either directly or indirectly, of 5% or more of the
shares of the outstanding Common Stock of the Company as of
February 28, 1999, is set forth on page 24 of the Proxy Statement
and is incorporated herein by reference thereto.
Information relating to beneficial ownership of shares of
the Company's Common Stock owned by each director, nominee, and
executive officer and by all directors and executive officers, as
a group, as of February 28, 1999, is set forth on pages 4, 5, 8
and 9 of the Proxy Statement and is incorporated herein by
reference thereto.
Item 12. Certain Relationships and Related Transactions.
Information relating to business relationships and
transactions between the Company and members of management or
their affiliates is set forth on page 14 of the Proxy Statement
and is incorporated herein by reference thereto.
<PAGE 62>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The Exhibits required in response to this item are as
follows:
Exhibit No. Description
3.1 Articles of Incorporation of First Leesport
Bancorp, Inc.
3.2 By-laws of First Leesport Bancorp, Inc.
10.1 Contract between the First National Bank of
Leesport and Bisys.
10.2 Severance Agreement between the First National
Bank of Leesport and John T. Connelly.*
10.3 Employment Agreement between the First National
Bank of Leesport and John T. Connelly.*
10.4 Employment Agreement between the First National
Bank of Leesport and Raymond H. Melcher, Jr.*
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.*
10.10 1998 Independent Directors Stock Option Plan.*
10.11 Agreement and Plan of Merger dated January 12,
1999 by and between First Leesport Bancorp,
Inc.
and Merchants of Shenandoah
Ban-Corp.(Incorporated
<PAGE 63> herein by reference to Exhibit 99.2
to
Registrant's Current Report on Form 8-K filed
January 22, 1999).
10.12 Employment Agreement dated September 17, 1998,
among First Leesport Bancorp, Inc., Essick &
Barr,
Inc. and Charles J. Hopkins.*
10.13 Employment Agreement dated September 17, 1998
among First Leesport Bancorp, Inc., Essick &
Barr,
Inc. and Michael D. Hughes.*
11 No statement setting forth the computation of
per
share earnings is included because, pursuant to
Instruction (b)(11) to Item 601 of Regulation
S-B,
such computation is reflected clearly in the
financial statements set forth in response to
Item 7 of this Report.
21 Subsidiaries of First Leesport Bancorp, Inc.
27.1 Financial Data Schedule (included herein)
_____________________
* Denotes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K.
The following report on Form 8-K were filed by the
Company during the quarter ended December 31, 1998:
First Leesport Bancorp, Inc. filed a Current
Report on Form 8-K on December 15, 1998 disclosing under
Item 5 the completion of the acquisition of Essick & Barr,
Inc., a Pennsylvania licensed insurance agency.
PAGE 64
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
March 16, 1999 FIRST LEESPORT BANCORP, INC.
By /s/ Raymond H. Melcher,
Jr.
Raymond H. Melcher,
Jr.,
President and Chief
Executive
Officer
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/ John T. Connelly Chairman of the March 16, 1999
John T. Connelly Board, Director
/s/ Raymond H. Melcher, Jr. President and Chief March 16, 1999
Raymond H. Melcher, Jr. Executive Officer,
Director
/s/ Frederick P. Henrich Treasurer, Chief March 16, 1999
Frederick P. Henrich Financial Officer,
and Chief Accounting
Officer
/s/ Charles J. Hopkins Director March 16, 1999
Charles J. Hopkins
/s/ Edward C. Barrett Director March 16, 1999
Edward C. Barrett
/s/ Richard L. Henry Director March 16, 1999
Richard L. Henry
/s/ William Keller Director March 16, 1999
William Keller
Director March __, 1999
Harry J. O'Neill III
Director March __, 1999
Karen A. Rightmire
Director March __, 1999
Alfred J. Weber
/s/ Daniel W. Weist Director March 16, 1999
Daniel W. Weist
PAGE 65
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3.1 Articles of Incorporation of First Leesport
Bancorp, Inc.
3.2 Bylaws of First Leesport Bancorp, Inc.
10.1 Contract between the First National Bank of
Leesport and Bisys.
10.2 Severance Agreement between the First National
Bank of Leesport and John T. Connelly.*
10.3 Employment Agreement between the First National
Bank of Leesport and John T. Connelly.*
10.4 Employment Agreement between the First National
Bank of Leesport and Raymond H. Melcher, Jr.*
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.*
10.10 1998 Independent Directors Stock Option Plan.*
10.11 Agreement and Plan of Merger dated January 12,
1999 by and between First Leesport Bancorp,
Inc.
and Merchants of Shenandoah
Ban-Corp.(Incorporated
herein by reference to Exhibit 99.2 to
Registrant's Current Report on Form 8-K filed
January 22, 1999). <PAGE 66>
10.12 Employment Agreement dated September 17, 1998,
among First Leesport Bancorp, Inc., Essick &
Barr,
Inc. and Charles J. Hopkins.*
10.13 Employment Agreement dated September 17, 1998
among First Leesport Bancorp, Inc., Essick &
Barr,
Inc. and Michael D. Hughes.*
11 No statement setting forth the computation of
per
share earnings is included because, pursuant to
Instruction (b)(11) to Item 601 of Regulation
S-B,
such computation is reflected clearly in the
financial statements set forth in response to
Item 7 of this Report.
21 Subsidiaries of First Leesport Bancorp, Inc.
27.1 Financial Data Schedule (included herein)
_____________________
* Denotes a management contract or compensatory plan or
arrangement.
<PAGE 67>
EXHIBIT 21
SUBSIDIARIES
Name Jurisdiction of
Incorporation
The First National Bank United States of
America
of Leesport (national bank)
HayCorp, Inc. Pennsylvania
Essick & Barr, Inc. Pennsylvania
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
DEC-31-1998
<PERIOD-END> DEC-31-1997
DEC-31-1998
<CASH> 5,456
4,403
<INT-BEARING-DEPOSITS> 100
272
<FED-FUNDS-SOLD> 0
0
<TRADING-ASSETS> 0
0
<INVESTMENTS-HELD-FOR-SALE> 38,346
50,753
<INVESTMENTS-CARRYING> 0
0
<INVESTMENTS-MARKET> 0
0
<LOANS> 129,779
162,533
<ALLOWANCE> 1,483
1,756
<TOTAL-ASSETS> 180,265
231,575
<DEPOSITS> 148,499
183,273
<SHORT-TERM> 11,814
11,209
<LIABILITIES-OTHER> 1,789
4,004
<LONG-TERM> 0
12,500
0
0
0
0
<COMMON> 6,000
6,366
<OTHER-SE> 12,163
14,223
<TOTAL-LIABILITIES-AND-EQUITY> 180,265
231,575
<INTEREST-LOAN> 10,436
11,816
<INTEREST-INVEST> 2,571
2,846
<INTEREST-OTHER> 13
61
<INTEREST-TOTAL> 13,020
14,723
<INTEREST-DEPOSIT> 5,638
6,863
<INTEREST-EXPENSE> 544
877
<INTEREST-INCOME-NET> 6,838
6,983
<LOAN-LOSSES> 500
590
<SECURITIES-GAINS> 0
32
<EXPENSE-OTHER> 5,252
6,148
<INCOME-PRETAX> 1,835
1,220
<INCOME-PRE-EXTRAORDINARY> 1,448
1,024
<EXTRAORDINARY> 0
0
<CHANGES> 0
0
<NET-INCOME> 1,448
1,024
<EPS-PRIMARY> 1.21
0.86
<EPS-DILUTED> 1.21
0.86
<YIELD-ACTUAL> 4.26
3.74
<LOANS-NON> 1,384
915
<LOANS-PAST> 788
1,144
<LOANS-TROUBLED> 1,757
2,473
<LOANS-PROBLEM> 0
0
<ALLOWANCE-OPEN> 1,105
1,483
<CHARGE-OFFS> 159
393
<RECOVERIES> 37
76
<ALLOWANCE-CLOSE> 1,483
1,756
<ALLOWANCE-DOMESTIC> 842
1,748
<ALLOWANCE-FOREIGN> 0
0
<ALLOWANCE-UNALLOCATED> 641
8
</TABLE>
EXHIBIT 10-1
BISYS, INC.
11 Greenway Plaza
Houston, Texas 770446-1102
Client The First National Bank of Leesport
Address 133 North Centre Avenue
City Leesport State Pennsylvania Zip Code 19533
1. SCOPE OF AGREEMENT.
BISYS, Inc. ("BISYS") shall provide Client, in accordance with
this Agreement, the services selected by Client from BISYS' then
applicable Standard Services Price List and/or Special Services
Price List (collectively, the "Price Lists") (collectively, the
"Services"). BISYS shall provide the reports listed on the
Standard Reports List and Special Reports List as applicable to
the Services selected by Client. The current Price Lists are
attached hereto and made a part hereof.
2. TERM OF AGREEMENT.
A. The initial term of this Agreement shall commence April 1,
1998 (the "Initiation Date") and end 60 full calendar months
thereafter (the "Initial Period").
B. The Agreement shall automatically continue after the Initial
Period for subsequent consecutive terms of one year each
unless and until it is terminated by either party upon
written notice to the other given at least 90 days prior to
the end of the Initial Period or any additional three year
period.
C. If Client has given BISYS notice pursuant to Paragraph 2(B)
and Client intends to deconvert from the BISYS data
processing system ("BISYS System"), Client may, upon written
notice to BISYS given at any time during the final 120 days
of this Agreement (as determined in accordance with 2(B)
above) or any extension hereof pursuant to this
Paragraph 2(C), extend the termination date to the date
indicated in such notice, which date shall not be, in any
event, less than 120 days after date of such notice.
Commencing at the end of the Initial Period or any renewal
period (as applicable), Client shall pay for Services at the
prices set forth in the then current BISYS Price Lists
notwithstanding the giving of extension notice.
D. Continuing obligations under this Agreement are those
relating to "BISYS Products" (defined in Paragraph 9(A)):
<PAGE 1> "Confidential Information" (defined in
Paragraph 9(F)) and "Client Files" (defined in
Paragraph 7(A)), and which continuing obligations shall
survive any termination of this Agreement.
3. CHARGES.
A. Each month commencing Initiation Date, whether or not Client
actually uses any Services during such month, Client shall
pay a minimum monthly charge equal to the greater of
(i) $16,000.00; (ii) BISYS' charges for the Services
actually used by Client during such month; (iii) 80% of the
charges invoiced to Client during the immediately preceding
month; or (iv) 80% of the charges invoiced to Client for the
month immediately preceding any deconversion by Client if
Client deconverts from the BISYS System.
B. The initial charges for the Services are specified in the
Price Lists, and shall be recorded by the BISYS System or by
any other means used by BISYS of determining Client's usage.
The charges for the Services listed on the Standard Services
Price List as of the date hereof will not be changed by
BISYS until the expiration of the first year following
Initiation Date. Thereafter, during the remaining term of
the Initial Period, the charges for the Services listed on
the Standard Services Price List may be changed by BISYS at
any time and from time to time upon at least 90 days prior
written notice to Client. During the Initial Period, the
charges for the Service listed on the Special Services Price
List as of the date hereof may be changed by BISYS at any
time after the date hereof upon at least 90 days prior
written notice to Client. After the Initial Period, the
charges for the Services listed on the Price Lists shall
automatically, and without notice, be changed to BISYS'
standard (non-discounted) list prices then in effect for the
respective Services; such prices may, thereafter, be changed
by BISYS, at any time and from time to time, upon at least
90 days prior written notice to Client.
C. There shall be added to all charges for the Services
furnished Client hereunder amounts equal to any applicable
taxes levied or based on such Services, exclusive of taxes
based on BISYS' income.
D. No later than the 5th day of each calendar month, BISYS
shall invoice (the "Monthly Invoice") Client: (i) for all
Services projected to be used by Client during the billing
month (the "Billing Month") which charge will be based upon
either actual usage and number of accounts during the month
prior to the Billing Month or the minimum charge pursuant to
Paragraph 3(A); (ii) an amount equal to 100% of the
recurring pass through charges actually utilized by Client
during the prior month as the estimated pass through charges
for the Billing Month; (iii) adjustments (debits/credits) to
<PAGE 2> the prior month's estimated charges set forth in
(i) and; (iv) all other charges incurred by Client during
the prior month. Client agrees to pay all amounts set forth
in the Monthly Invoice by automatic debit by BISYS the last
business day of the Billing Month from a Client bank account
established for this purpose (the "Payment Account").
Client agrees to execute any and all required documentation
to enable BISYS to perform such automatic debiting of the
Payment Account. If Client fails to pay any amounts due
under this Agreement, Client shall, upon demand, pay
interest at the rate of 1-1/2% per month, but in no event
more than the highest interest rate allowable, on such
delinquent amounts from their due date until the date of
payment. Client agrees to reimburse BISYS for any and all
expenses BISYS may incur, including reasonable attorney
fees, in taking action to collect any amounts due BISYS
hereunder. All amounts due must be paid prior to Client's
deconversion from the BISYS System.
4. AVAILABILITY OF THE SERVICES.
A. Hours for accessing Services on an on-line basis ("On-Line
Hours") at the BISYS data center providing Services to
Client ("Data Center") are 7:00 A.M. to 9:00 P.M. Monday
through Friday and 7:00 A.M. to 5:00 P.M. Saturday (Data
Center time) exclusive of BISYS holidays (New Years Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day). A particular Service may also be
available at other than On-Line Hours; in which event Client
may, at its option and subject to any additional charges
therefor, use that Service at such other times.
B. BISYS will make every reasonable effort to have the Services
available during the On-Line Hours. However, BISYS cannot
and does not guarantee such availability. Accordingly,
Client's remedy and BISYS's sole liability to Client or any
third party for claims, notwithstanding the form of such
claims (e.g., contract, negligence or otherwise), arising
out of (i) the unavailability of the BISYS System or
(ii) the interruption in or delay of the Services provided
or to be provided by BISYS hereunder, shall be for BISYS to
use all reasonable efforts to make the BISYS System
available and/or to resume the Services as promptly as
reasonably practicable.
C. Client shall, at its expense, be responsible for delivering
and transmitting to and from Client's offices, the offices
of the acceptable regulatory authorities and any other
location authorized by Client, and the Data Center all data
and information necessary for BISYS to furnish the Services
to Client.
5. USE OF THE SERVICES.
<PAGE 3>
A. Client is exclusively responsible for the consequences of
its own action; for any instructions it gives BISYS; for its
failure to access the Services in the manner prescribed by
BISYS, and for its failure to supply accurate input
information. Client is responsible for auditing, balancing,
verifying the correctness of calculation routines (such as
interest and service charges) and reconciling any out-of-
balance condition, and for notifying BISYS of any errors in
the foregoing within three business days after receipt of
the incorrect information. Client's remedy and BISYS' sole
liability to Client or any third party for any claims,
notwithstanding the form of such claims (e.g., contract,
negligence or otherwise), arising out of errors or omissions
in the Services provided or to be provided by BISYS
hereunder and caused by BISYS shall be for BISYS to furnish
the correct report and/or to correct the applicable Client
Files, provided that Client promptly advises BISYS thereof.
B. Client shall use the Services in accordance with such
reasonable instructions as may be established by BISYS from
time to time as set forth in any written materials furnished
by BISYS to Client.
C. Except as otherwise permitted by BISYS, Client will use the
Services only for its own internal and proper business
purposes and will not sell or otherwise provide, directly or
indirectly, any of the Services or any portion thereof to
any third party.
D. Client shall not make any alteration, change or modification
to any of the computer programs, data bases and/or BISYS
supported files used by BISYS in connection with providing
the Services to Client hereunder, without BISYS' prior
written consent in each instance.
E. BISYS shall give Client written notice of any BISYS system
change which materially affects Client. Nothing herein
shall preclude or limit BISYS' ability to make changes to
its data processing system.
6. COMMUNICATION LINES AND EQUIPMENT.
A. BISYS shall order, on Client's behalf and with Client's
approval, the installation of appropriate telephone lines
and communications equipment to enable Client to access the
Services. Client shall pay all charges relating to the
installation and use of such telephone lines and
communications equipment.
B. BISYS shall not be responsible for the reliability, or
continued availability, of telephone lines and
communications equipment used by Client in accessing the
Services.
<PAGE 4>
7. FILE SECURITY AND RETENTION.
A. Any client data bases and files or other information
provided by Client to BISYS for use with the Services (the
"Client Files") shall remain the confidential property of
Client. BISYS will provide reasonable security provisions
to insure that third parties do not have access to the
Client Files. BISYS reserves the right to issue and change
regulations and procedures from time to time to improve file
security. BISYS will instruct its employees having access
to the Client files to keep the same confidential by using
the same care and discretion that BISYS uses with respect to
its own confidential property.
B. BISYS will take reasonable precautions to prevent the loss
of, or alteration to, Client Files, but BISYS cannot
guarantee against any such loss or alteration. Accordingly,
Client will, to the extent deemed necessary by Client, keep
copies of all source documents of information delivered to
BISYS and will maintain a procedure external to the BISYS
System for the reconstruction of lost or altered Client
Files. In connection with the foregoing, it is understood
that Client shall assume and be responsible for risk of loss
and/or damage to documents and records while they are in
transit to and from the Data Center.
C. During the term of this Agreement, BISYS will retain the
Client Files in accordance with, and to the extent provided
by BISYS' then prevailing records retention policies for the
Services, which policies will be consistent with guidelines
covering the Services established by appropriate regulatory
authorities. BISYS will, upon the expiration of any
retention period for Client Files, dispose of Client Files
in any manner deemed appropriate by BISYS unless Client,
prior to such disposal, furnishes to BISYS written
instructions for the disposition of such Client Files at
Client's expense. Client shall pay for the provision of
Client Files to Client at BISYS' standard rates for such
services and BISYS shall provide such Client Files provided
that BISYS has been paid for all Services provided hereunder
through the date such requested Client Files are returned to
Client.
D. BISYS has a written Disaster Recovery Plan establishing
emergency procedures, including off-premises backup
facility. In connection therewith, BISYS has prepared a
Disaster Recovery Manual. The Disaster Recovery Plan and
Disaster Recovery Manual are available at the Data Center
for examination by bank auditors and examiners and, as they
may be modified from time to time, will remain in existence
during the term of this Agreement. BISYS shall provide
Client, upon written request, with information necessary for
Client to develop a disaster contingency plan which will
work in concert with BISYS' Disaster Recovery Plan.
<PAGE 5>
8. DUTIES UPON TERMINATION; RETURN OF RECORDS.
A. Upon the termination of this Agreement for any reason, BISYS
will dispose of all Client Files still in the BISYS System
in any manner deemed appropriate by BISYS unless Client, not
later than 30 days after such termination, furnishes to
BISYS written instructions for the disposition of such
Client Files at Client's expense as set forth in
Paragraph 8(B).
B. At Client's request as set forth in Paragraph 8(A), BISYS
shall delivery to Client all of the Client Files then
retained by BISYS including file layouts and their
descriptions in BISYS format and shall provide in accordance
with BISYS deconversion policies, reasonable and necessary
assistance with the deconversion from the BISYS System to a
non-BISYS system ("Deconversion"). Client shall pay BISYS
for Deconversion assistance in accordance with BISYS' then
current Deconversion rate schedule. Payment for
Deconversion together with all other payments which are due,
and which will become due pursuant to the provisions of this
Agreement shall be paid to BISYS prior to delivery of such
Client Files.
C. Client Files returned to Client shall be in a standard BISYS
machine readable format.
9. OWNERSHIP, USE AND CONFIDENTIALITY; BISYS PRODUCTS AND
CONFIDENTIAL INFORMATION.
A. All computer programs and related documentation made
available, directly or indirectly, by BISYS to Client as
part of the Services (the "BISYS Products") are the
exclusive and confidential property of BISYS or the third
parties from whom BISYS has secured the right to use such
computer programs and documentation.
B. A personal, non-exclusive, non-transferable right and
license is being granted to Client to use, during the term
of this Agreement, any applications software programs
included in the BISYS Products (the "Application Programs')
which are delivered to Client as part of the Services solely
for Client's own business usage. Client shall not have any
interest in the Applications Programs except for this
limited license.
C. Client shall receive all improvements, enhancements,
modifications and updates to any Applications Programs which
are delivered to Client as part of the Services if, and as,
made available by BISYS to its clients generally. All such
improvements, enhancements, modifications and updates shall
<PAGE 6> be delivered to Client in the form of a computer
media, which computer media shall be provided to Client by
BISYS and shall be installed by Client. If Client fails to
install any such media within 45 days of its receipt from
BISYS, BISYS shall have no further obligation to provide
Client with improvements, enhancements, modifications or
updates to such Application Programs.
D. Client acknowledges that it shall be deemed a sublicensee of
BISYS for any systems software programs included in the
BISYS Products (the "Systems Programs") which are delivered
to Client as part of the Services. Client accepts a
sublicense from BISYS of the Systems Programs on a personal,
non-exclusive, non-transferable basis with the right to use,
during the term of this Agreement, such Systems Programs
solely in connection with the Services.
E. Client shall not copy in whole or in part any BISYS Products
or related documentation, whether in the form of computer
media, printed or in any other form. Client shall not make
any alteration, change or modification to any BISYS
Products.
F. Client shall treat as confidential and will not disclose or
otherwise make available any of the BISYS Products or any
trade secrets, processes, proprietary data, information or
documentation related thereto including, without limitation,
yany flow charts, logic diagrams or source code
(collectively the "Confidential Information"), in any form,
to any person other than employees of Client. Client will
instruct its employees who have access to the BISYS Products
and the Confidential Information to keep the same
confidential by using the same care and discretion that
Client uses with respect to its own confidential property
and trade secrets. Upon the termination of this Agreement
for any reason, Client shall return to BISYS any and all
copies of the BISYS Products and the Confidential
Information which are in its possession.
10. GOVERNMENTAL AGENCIES.
A. Client shall provide all required notices to the appropriate
regulatory authorities concerning the initiation or
termination of this Agreement, or of any substantial changes
in the Services being provided to Client. BISYS agrees that
any and all Client Files maintained by it for the Client
pursuant to this Agreement shall be available for inspection
by the appropriate regulatory authorities and Client's
internal auditors and independent public accountants, upon
prior written notice to BISYS. All costs incurred by BISYS
in the preparation of data for inspection, examination or
audit will be charged to Client at BISYS' then standard
rates for such services.
<PAGE 7>
B. BISYS shall provide annually to the appropriate regulatory
authorities any Third Party Review Reports prepared by
independent public accountants with respect to the Services
performed by BISYS at the Data Center and copies of BISYS'
audited financial statements. By entering into this
Agreement, BISYS agrees that it extends to the Office of
Thrift Supervision ("OTS") the same authority and
responsibility (as applicable to Client) provided to the
other regulatory agencies pursuant to the Bank Service
Corporation Act, 12 U.S.C. 1867(C) relating to services
performed by contract or otherwise.
C. If after the date hereof any modifications to the Services
shall be required by law or by any governmental regulatory
authority, BISYS shall, except to the extent such changes
may be beyond the capability of the BISYS System to
implement, conform the Services to be in compliance with
such modified laws or governmental regulations. BISYS may,
at its discretion, pass on, in whole or in part, on an
equitable basis to all users of the Services (including
Client) affected by any such modification the actual costs
incurred by BISYS in making any such modification to the
Services.
11. WARRANTY.
A. BISYS represents and warrants that the Services will conform
materially to their design specifications and user
documentation which may be changed from time to time. This
warranty shall not extend to any of the computer programs,
data basis and/or BISYS supported files used by BISYS in
connection with providing the Services to Client hereunder
which have been altered, changed or modified in any way,
without BISYS' prior written consent in each instance.
B. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THERE ARE NO
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, ANY IMPLIED WARRANTIES OR MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE.
12. LIMITATION OF LIABILITY.
A. The remedies specified in this Agreement constitute Client's
sole and exclusive remedies in the event of any alleged
defaults by BISYS under this Agreement. BISYS' sole
liability, if any, for damages (monetary or otherwise)
resulting from claims made by Client or any third party
arising from or related to any and all causes not covered by
the foregoing remedies shall be limited to the lesser of
(i) the amount of actual damages incurred by Client or
(ii) an amount which shall not exceed the charges paid by
Client during the six (6) month period immediately preceding
the event from which such liability arose for the Services
performed which gave rise to the claim. <PAGE 8>
B. IN NO EVENT WILL BISYS BE RESPONSIBLE FOR SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES WHICH CLIENT MAY INCUR
OR EXPERIENCE ON ACCOUNT OF ENTERING INTO OR RELYING ON THIS
AGREEMENT, EVEN IF BISYS HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
13. PATENT AND COPYRIGHT INDEMNIFICATION.
BISYS will hold Client harmless and, at its own expense, will
defend any action brought against Client based on a claim that
the Services used within the scope of this Agreement infringe a
United States patent or copyright provided Client notifies BISYS
promptly in writing of the claim, BISYS has sole control of the
defense of the action and all negotiations for its settlement or
compromise, and Client cooperates with BISYS in the defense of
the action. In the event any of the Services becomes, or in
BISYS' opinion is likely to become, the subject of a claim of
infringement of patent or copyright, BISYS, at its option, may
(i) secure for Client the right to continue using such
Service(s), (ii) replace or modify such Services to make it or
them non-infringing, (iii) cease providing the affected
Service(s) or (iv) if none of the foregoing options is
commercially reasonable, in BISYS' opinion, terminate this
Agreement. If BISYS exercises its option hereunder to terminate
this Agreement, such termination shall be at no penalty to BISYS
except that BISYS shall provide the Deconversion assistance
described in Paragraph 8(B) at no charge to Client.
14. INSURANCE.
BISYS shall maintain, during the term of this Agreement,
$10,000,000 of coverage under a Blanket Crime Policy covering
fraudulent and dishonest acts committed by its employees for
which it is legally responsible. BISYS shall maintain, on its
own behalf, insurance coverage for loss from fire, disaster, or
other causes contributing to interruption of normal services.
Client, at its own expense, will maintain all insurance and
fidelity bonds required by the applicable regulatory authorities.
15. DEFAULT; REMEDIES UPON DEFAULT.
A. Any of the following events will constitute an "Event of
Default" under the Agreement: (i) non-payment of any amounts
due hereunder to BISYS by Client; (ii) non-performance of
any of Client's or BISYS' other material obligations
hereunder; (iii) if any representation or warranty of Client
or BISYS is materially breached; (iv) if Client or BISYS
files a petition for bankruptcy or becomes the subject of an
involuntary bankruptcy petition which is not vacated within
60 days of filing, or becomes insolvent; or (v) if any
substantial part of Client's or BISYS' property becomes
subject to any levy, seizure, assignment, application or
sale for or by any creditor or governmental agency.
<PAGE 9>
B. Upon occurrence of an Event of Default under the Agreement,
the non-defaulting party may, at its option, terminate this
Agreement provided at least 30 days (or longer period as may
be required by the applicable regulatory authorities) prior
written notice has been given to the other and such default
has not been cured within such period. Upon such
termination by BISYS, BISYS may declare all amounts due and
to become due hereunder immediately due and payable. The
remedies contained in this Paragraph 15 are cumulative and
in addition to all other rights and remedies available to
the parties under this Agreement or by operation of law or
otherwise.
16. FORCE MAJEURE.
BISYS shall not be liable or deemed to be in default for any
delay or failure to perform under this Agreement or for
interruption of the Services resulting, directly or indirectly,
from any cause beyond BISYS' reasonable control.
17. GENERAL.
A. BISYS shall provide Client upon written request, copies of
The BISYS Group, Inc.'s (BISYS' parent corporation) current
audited financial statements.
B. Client acknowledges that it has not been induced to enter
into this Agreement by any representation or warranty not
set forth in this Agreement. This Agreement contains the
entire agreement of the parties with respect to its subject
matter and supersedes all existing agreements and all other
oral, written or other communications between them
concerning its subject matter. This Agreement shall not be
modified in any way except by a writing signed by both
parties.
C. The failure by either party hereto to insist upon strict
performance of any of the provisions contained herein shall
in no way constitute a waiver of its rights as set forth
herein, at law or equity, or a waiver by either party of any
other provisions or subsequent default by the other party in
the performance of or compliance with any of the terms and
conditions set forth herein.
D. This Agreement may not be assigned by either party, in whole
or in part, without the prior written consent of the other
which consent shall not be unreasonably withheld. It shall
not be deemed an assignment requiring consent if the stock
of either is sold, or all, or substantially all, of the
assets are sold as long as such sale does not materially
negatively affect the basis of the financial bargain upon
which this Agreement is based as of the date hereof and such
sale does not materially negatively affect the provision of
the Services hereunder. If there is such a negative impact,
<PAGE 10> then the sale shall be deemed an assignment
requiring consent as set forth above. This Agreement shall
be binding upon and shall inure to the benefit of BISYS and
Client and their respective successors and permitted
assigns.
E. If any provision of this Agreement (or any portion thereof)
shall be held to be invalid, illegal or unenforceable, the
validity, legality or enforceability of the remainder of
this Agreement shall not in any way be affected or impaired
thereby.
F. The headings in this Agreement are intended for convenience
of reference and shall not affect its interpretation.
G. The individuals executing this Agreement on behalf of BISYS
and Client do each hereby represent and warrant that they
are duly authorized by all necessary action to execute this
Agreement on behalf of their respective principals.
H. Client acknowledges that a breach of any of its obligations
under this Agreement relating to the BISYS Products and/or
the Confidential Information will cause BISYS irreparable
injury and damage and therefore may be enjoined through
injunctive proceedings in addition to any other rights or
remedies which may be available to BISYS, at law or in
equity and BISYS grants Client the same rights with respect
to a breach of BISYS' obligations relating to the
confidentiality of Client Files.
I. During the term of this Agreement, neither party hereto
shall, directly or indirectly, solicit or encourage to
leave, any employee of the other without prior written
consent, which consent shall not be unreasonably withheld.
J. By executing this Agreement, the parties agree to extend the
term of any existing written Additional Services Agreements
or authorizations for specific Services to be coterminous
with the terms of this Agreement and to have such agreements
be covered by the terms and provisions hereof.
BISYS, INC. THE FIRST NATIONAL BANK OF LEESPORT
Agreed to: /s/ James J. Agreed to: /s/ Raymond H.
Guidici Melcher, Jr.
Name: James J. Guidici Name: Raymond H. Melcher, Jr.
Title: Exec. V.P. Title: President/CEO
Date: July 9, 1998 Date: July 3, 1998
<PAGE 11>
- ----------------------------------------------------------------
THIS AGREEMENT SHALL BECOME EFFECTIVE UPON BEING SIGNED BY
AUTHORIZED OFFICERS OF BISYS AND CLIENT. BISYS' MARKETING
REPRESENTATIVES DO NOT HAVE THE AUTHORITY TO BIND BISYS.
- ----------------------------------------------------------------
PAGE 12
<PAGE>
ADDENDUM TO SERVICES AGREEMENT NO. CH-2034-07-96
SERVICES AGREEMENT DATED AS OF APRIL 1, 1998
Reference is made to the above Services Agreement between the
undersigned (the "Agreement") to which this Addendum is attached
and made a part thereof.
The Agreement is hereby amended and supplemented as follows:
1. Except as expressly amended and supplemented hereby, all
terms defined in the Agreement shall have the same meanings
when used herein.
2. Term of Agreement.
2.1 If, after the last day of the thirty-sixth month of the
Initial Period, Client is acquired by or merged into
(and is not the surviving entity), a financial
organization which does not have a valid Services
Agreement with BISYS, Client shall have the option to
terminate this Agreement prior to the end of the
Initial Period and such termination will be effective
provided that:
(a) Client provides written notice of its intention to
terminate this Agreement pursuant to this
Paragraph not later than ninety (90) days after
the date following final regulatory approval of
the acquisition or merger by the appropriate
regulatory bodies;
(b) The effective date of termination in Client's
written notice shall not be less than 180 days
after the date of such notice;
(c) Client shall pay BISYS for all Services provided
by BISYS through the effective date of
termination, including all pass-through charges;
(d) Based on the month during which the effective date
of termination occurs, Client shall pay BISYS an
amount equal to (x) the average one month charges
for Services based on the twelve (12) months
immediately preceding the effective date of
termination, times (y) the number of months
remaining in the Initial Period, times (z) thirty
percent (30%).
(e) Client shall pay for all Deconversion assistance
in accordance with Paragraph 9(B) of the
Agreement; and
<PAGE 13>
(f) All payments must be made prior to delivery of
Client Files.
3. Charges.
3.1 Section 3 of the Agreement is amended by inserting the
following new Paragraphs after Paragraph 3(D):
"E. For purposes of this Agreement, the following
definitions shall apply:
"Client Accounts" shall include, but not be
limited to, deposit and loan accounts on the BISYS
System, including, but not limited to Savings
Accounts-Account Base, Time Deposits/Certificates
of Deposits Accounts-Account Base, Transaction
Accounts-Account Base (including DDA, MMDA, NOW,
SUPER NOW, Money Market), Line of Credit Accounts-
Account Base, Mortgage Loans-Account Base,
Construction Loans-On Line History, Commercial
Loans-Account Base, Installment Loans-Account
Base, Adjustable Installment Loans, Commercial
Loan Processing, Construction/Commercial Loan
Control Accounts - Construction Loans,
Construction/Commercial Loan Control Accounts
Commercial Loans.
"Exhibit A Services" shall mean the Services
identified on attached Exhibit A (both the
Standard Services and Special Services listed on
Exhibit A). The parties agree that included in
the definition of Exhibit A Services are Client
usage of any features associated with the Services
listed on the Standard Services portion of
Exhibit A which features are in existence and
available to Client as of the date of this
Addendum. Neither features, nor Services, listed
on the Price Lists as of the date hereof, but not
set forth on Exhibit A shall be deemed to be part
of the Exhibit A Services and such other Services
and/or fees shall be billed to Client in
accordance with the provisions of Paragraph 3(G)
below, The parties also agree that Exhibit A
Services are recurring Services and do not include
any installation charges, training charges, one-
time license fees or any other one-time charges.
"Exhibit B Services" shall mean the Services
identified on attached Exhibit B.
"One Year Period" shall mean each twelve (12)
calendar month period commencing Initiation Date
and the indication as to which twelve (12) month
period is indicated will be with the addition of
<PAGE 14> an ordinal number preceding the term One
Year period, e.g., First One Year Period, Second
One Year Period, etc.
"F. For any and all Client usage of the Exhibit A
Services, Client shall pay BISYS a fixed monthly
charge (the "Fixed Monthly Charge"), calculated as
follows:
(1) On Initiation Date, BISYS will determine the
average monthly number of Client Accounts
based on the number of Client Accounts on the
BISYS System during the twelve month period
immediately preceding the Initiation Date
(the "Base Accounts"). The Fixed Monthly
Charge for the First One Year Period will be
calculated as follows: (x) the number of Base
Accounts times (y) $0.41 Per Client Account.
(2) At the end of each One Year Period, BISYS
will determine the average monthly number of
Client Accounts during the immediately
preceding One Year Period and compare that
number to the number of Base Accounts to
determine the percentage growth in the number
of Client Accounts (the "Percentage Growth").
BISYS agrees that Client will only be charged
for the number of Client Accounts which
represent the Percentage Growth in five
percent increments in accordance with the
pattern set forth below. Accordingly, the
Fixed Monthly Charge for the next One Year
Period will be calculated as (x) he number of
Client Accounts which represent chargeable
Percentage Growth, times (y) $0.41 (the "Per
Account Fee"), plus (z) the then current
Fixed Monthly Charge.
Percentage Growth Per Account Fee
0 to 5% $0.41
5% to 10% No Charge
10% to 15% $0.41
15% to 20% No Charge
20% to 25% $0.41
(3) The Fixed Monthly Charge may be adjusted at
any time during a One Year Period, if Client
acquires any additional assets, liabilities
or serviced accounts from a financial
organization (the "Acquired Accounts").
Commencing on the first day of the third full
calendar month following the conversion of
the Acquired Accounts to the BISYS System,
BISYS will add the number of Acquired
<PAGE 15> Accounts to the most current number
of Year End Accounts and adjust the Fixed
Monthly Charge to reflect the higher number
of Client Accounts on the BISYS System.
(4) During the first three One Year Periods, the
Per Account Fee will not be changed.
Commencing on the first day of the Fourth One
Year Period, BISYS will increase the Per
Account Fee by an amount equal to the lesser
of (i) four percent (4%) or (ii) the
percentage increase in the United States
Consumer Price index as published by the
Bureau of Labor Statistics, United State
Department of Labor ("CPI"), during the
twelve month period immediately preceding the
date of increase, provided however, that if
on the first day of the Fourth and Fifth One
Year Periods, the Percentage Growth in the
number of Client Accounts compared to the
number of Base Accounts is greater than
twenty percent (20%), then the Per Account
Fee will not be increased.
"G. In addition to the Fixed Monthly Charge, Client
will pay BISYS each month for:
(1) All usage of Services not set forth on
Exhibit A; and
(2) All pass-through charges, including but not
limited to telecommunication charges, courier
charges and postage charges.
"H. The pricing for the Exhibit B Services as set
forth on Exhibit B will be available to Client
provided that Client enters into an Additional
Services Agreement ("ASA") with respect to such
Services and installation of such Services is
completed by the respective dates set forth below.
Installation
Service ASA signed by Complete by
EncorePlus 12/31/98 05/31/99
EasyLender 06/30/98 10/31/98
Internet Home Banking 12/31/98 06/30/98
In the event the conditions set forth above are
not met, the pricing for such Services shall be
the then applicable standard list price."
3.2 During the Initial Period, BISYS agrees to grant Client
a credit in the amount of $150,000.00 to be applied, at
<PAGE 16> Client's discretion, against (x) monthly
recurring charges for Exhibit A and Exhibit B Services
and/or (y) one-time implementation charges or monthly
recurring charges associated with Client's purchase and
utilization of new Services after the Initiation Date,
provided, in each case however, that (i) any
application of this credit against recurring charges
set forth on the Monthly Invoice cannot exceed $1
0,000.00 per month, (ii) any application of this credit
against one-time charges associated with new Services
cannot exceed 50% of such one-time charge, and
(iii) the credit cannot be applied against charges for
hardware, equipment and pass-through charges.
3.3 During the Initial Period, BISYS' Conversion Services
shall be provided to Client at no charge for the
conversion to the BISYS System of Acquired Accounts
associated with future financial organization assets
acquired by Client ("Acquired Assets"), provided that
the data and files from such future merged
organizations are in machine readable form, readable by
BISYS' computers at the BISYS Center. Client does,
however, agree to pay in full all out-of-pocket
conversion related expenses not included in BISYS'
provided standard conversion services, including but
not limited to, data communications, terminal equipment
charges and reasonable travel, lodging and meals
expense.
3.4 During the Initial Period, BISYS agrees to grant Client
a non-cumulative annual credit in the amount of
$1,000.00 to be applied against the charges associated
with Client's attendance at BISYS University training
courses.
3.5 BISYS agrees to grant Client a non-cumulative monthly
credit in the amount of $450.00 to be applied against
the recurring charges associated with Client's
utilization of TargetPlus Report Writer.
3.6 BISYS agrees that the initial charges for the
AddressPlus service will be as follows:
$0.03 per Client Account
$800.00 minimum per run
3.7 During the Initial Period, BISYS agrees to waive the
recurring charges for the services set forth below:
- TOTALPLUS Currency Report
- Annual Updates to Geocodes and Lifestyles
Codes relative to the Total Marketing Manager
Service <PAGE 17>
- TOTALPLUS Manuals (two sets) and Product
Upgrade subscriptions for such sets
3.8 BISYS agrees to waive the registration fees associated
with the attendance of two Client representatives at
the BISYS Annual Client Conference, provided however,
that Client shall be responsible for travel and lodging
expenses it incurs associated with its attendance at
the conference.
4. Total Marketing Manager ("TMM").
4.1 BISYS agrees that the initial recurring charges for
Client's utilization of TMM will be as follows:
Number of Client Accounts Per Account Charge
0 to 25,000 $0.030
25,001 to 75,000 $0.025
More than 75,000 $0.020
5. Showcase Credit.
5.1 During the Initial Period, Client agrees to assist
BISYS in the growth of BISYS by acting as a "showcase"
site for prospective clients, accordingly, BISYS agrees
to give Client a monthly non-cumulative credit in the
amount of $6,000.00. In consideration of such credit,
Client will provide appropriate access to its equipment
and processes used to employ the BISYS System and
appropriate support to BISYS in the sales and marketing
of the BISYS System or the TotalCS System (as defined
below) and related products and services in connection
with any "showcase" visits. For such period as the
termination option described in Section 2.2 hereof
remains in effect and, if exercised, through the
effective termination date of the Agreement, the credit
shall be reduced to $2,400.00.
6. TotalCS.
6.1 If after the Second One Year Period, Client elects to
transition from the BISYS System to an alternative
BISYS provided system (the "TotalCS System"), Client
must provide BISYS with at least 180 days prior written
notice of its intention to convert to the TotalCS
System. BISYS agrees to provide support necessary to
facilitate Client's transition to the TotalCS System,
provided, however, Client pays BISYS for all out-of
pocket costs incurred by BISYS associated with Client's
transition to the TotalCS System. At the time Client
commences utilizing the TotalCS System, BISYS agrees
<PAGE 18> that the Services utilized by Client on the
current BISYS System will be provided to Client by
BISYS on the TotalCS System in accordance with the
terms and conditions set forth in this Agreement.
During the first 180 days following Client's transition
to the TotalCS System, BISYS and Client will review
the terms and conditions of this Agreement and
Addendum to determine if such terms and conditions are
applicable to the delivery of the services by the
TotalCS System.
7. New BISYS Services.
7.1 BISYS agrees to participate in presentations to
Client's senior management, the purpose of which is to
provide Client with an update on new BISYS Services and
Products. These presentations will occur on at least a
quarterly basis during the Initial Period.
8. Year 2000.
8.1 BISYS agrees to perform, at BISYS' expense,
comprehensive tests on the BISYS System to simulate the
actual turning of the century. These tests shall be
intended to identify any operational issues caused by
the century change at midnight December 31, 1999.
BISYS agrees to release by December 31, 1998, all
necessary updates and changes for the BISYS System, if
any, to accommodate the turn of the century. BISYS
agrees to distribute any such change or updates to the
BISYS System when they are generally made available to
its clients. Such distribution may be in the form of
new releases, updates or other similar methods of
distributing software bug fixes as BISYS may see fit.
All modifications, updates or changes made by BISYS
shall be to the BISYS System only and not to any third
party provided software.
8.2 In the event BISYS fails to release by December 31,
1998 all necessary updates and changes for the BISYS
System, if any, to accommodate the turn of the century,
Client shall be entitled to a refund of the $25,000 fee
paid by Client to participate in the BISYS Y2K testing
program and may elect to convert to the TotalCS System
by providing written notice of such election to BISYS
by March 31, 1999. The parties would thereupon use all
commercially reasonable efforts to complete such
conversion by October 1999. The provisions of
Paragraph 6.1 of this Addendum shall apply to such
conversion.
9. Neither BISYS nor Client shall (except to persons on behalf
of such party) disclose, and neither party shall permit any
of its employees or other persons who act or acted in its
<PAGE 19> behalf to disclose, any of the terms and
conditions of the Agreement, including without limitation
any Addendum or pricing terms, except as may be required by
law.
Except as expressly amended and supplemented hereby, the
Agreement shall remain unchanged and continue to be in full force
and effect.
This Addendum supersedes and replaces any prior agreement
(written or oral) as to its subject matter. If there is any
conflict between the terms and conditions of this Addendum and
the terms and conditions of the Agreement or any prior addendum
to this Agreement, the Terms and Conditions of this Addendum
shall prevail.
BISYS, INC. THE FIRST NATIONAL BANK OF LEESPORT
By: /s/ James J. Guidici By: /s/ Raymond H. Melcher, Jr.
Name: James J. Guidici Name: Raymond H. Melcher, Jr.
Title: Executive VP Title: President/CEO
Date: July 9, 1998 Date: July 3, 1998
- ----------------------------------------------------------------
THIS ADDENDUM SHALL BECOME EFFECTIVE UPON BEING SIGNED BY AN
AUTHORIZED OFFICER OF BISYS. BISYS' MARKETING REPRESENTATIVES DO
NOT HAVE THE AUTHORITY TO BIND BISYS.
- ----------------------------------------------------------------
PAGE 20
<PAGE>
THE FIRST NATIONAL BANK OF LEESPORT
EXHIBIT A
Savings, Time Deposits/Certificates of Deposits
On-Line History
Savings and CD Accounts
CDs Term History (term + 1 month or 24 months)
IRA CDs (term + 1 month or 24 months)
Retirement Accounts
Retirement Account Statements
Interest Checks
CD Renewal Confirmation
Currency Reporting
Statement Production
Variable Interest Rate Processing
Interest on Lawyer Trust Accounts
Anniversary Processing
Tax Compliance Withholding
Savings Service Charges
Tenant Rent Processing
Realty Trust Processing
DDA, MMDA, NOW, SUPER NOW, MONEY MARKET
Interactive Exception Handling Items Updated
DDA Accounts
DDA Statement Production
Check Register on Statement
DDA Transactions
Line-of-Credit Processing
Automatic LOC Disbursement
Variable Interest Rate Processing
DDA Statement Production, over 6 months
Statement Rendering Transmissions
Overdraft Reminder Notices
Account Analysis
Combined Statements/Financial Summary
Account Reconciliation Processing (excluding Disc Recon.)
NSF/UCF Qualification Report
Sweep Accounts
Snapshot/Reset Statements
Daily Deposit Activity Accounts
Mortgage Loans
On-Line History (18 months)
Investor Reporting
M/L Accounts with MICR/OCR Coupons
Tax & Insurance System
Adjustable Rate Mortgages/Notices
AML Reminder Notice Worksheet
M/L Deferred Fee/Cost Accounts
Rate Change Notices
Interest on Escrow <PAGE 21>
Extra ML Trial Balance Runs
History Cards
Loan Commitment Processing
Escrow Processing
GL and DDA Investor Transactions
Construction Loans
Installment Loan Processing
Installment Loan Accounts
On-Line Histories (18 months)
Coupon Loans MICR/OCR
Customer Notices and Billings
Dealer Reporting/Floor Planning Accounting
Consumer/Savings Account Loans
IL Deferred Fee/Cost Accounts
Overdraft/LOC Loan Notice
History Cards
Student Loan Processing
Simple Interest Loans by Rate Report
Commercial Loan Processing
Commercial Loan Notes
CL Deferred Fee/Cost Accounts
CIF Processing, including On-Line Memo Processing
Miscellaneous
ACH Transactions
Automatic Withholding Accounts
Credit Bureau Reporting
On-Line File Maintenance
Transaction Processing Notices
Extra M/L Trial Balance Runs
I/L classification Reports
I/L Classification Accounts Reported
Test Bank
Van Wagon Tapes
Annual Purge of Card Management System records
Exception Item Pull
Daily Activity File
Annual Maintenance fee for TIPS Plus
Mortgage Loan Accounts
Automated Letters
Totalmatic Accounts
Totalmatic Paper Drafts
Internal Transfers/External Drafts
ACHIPS
FHLB Collateral Accounts
PAGE 22
<PAGE>
THE FIRST NATIONAL BANK OF LEESPORT
EXHIBIT B
Service One Time Charges
Encore Plus! Base Fee $12,000.00
Encore Plus Workstation Fee $ 100.00 per seat
Internet Home Banking Base Fee $15,000.00
EasyLender for Windows Base License Fee $12,500.00
EasyLender workstation license $ 397.50
(includes up to 6 laptops)
EasyLender database software $ 60.00
(includes up to 6 laptops)
EasyLender Training $ 3,750.00
Monthly
Service Recurring Charges
Encore Plus Teller $ 40.00 per seat
Encore Plus Platform $ 65.00 per seat
Encore Plus Query & Maintenance $ 30.00 per seat
Internet Home Banking Base Fee $500.00
Internet Home Banking $ 3.00 per end user
Internet Home Banking $ 0.29 per bill
payment
transaction
EasyLender for Windows $535.00
(for up to 6 workstations, including)
EasyLender $ 50.00
(workstation connection for upload)
<PAGE 23>
EXHIBIT 10.2
SEVERANCE AGREEMENT
THIS AGREEMENT, made as of the 1st day of January 1991,
between FIRST LEESPORT BANCORP, INC. ("Bancorp"), a Pennsylvania
business corporation having its principal place of business in
Leesport, Pennsylvania, and JOHN T. CONNELLY ("Executive"), an
individual residing at 1203 Independence Drive, Spring Township,
Pennsylvania.
WITNESSETH:
WHEREAS, Executive is presently serving as President
and Chief Executive Officer of Bancorp; and
WHEREAS, Bancorp considers the continued services of
Executive to be in the best interests of Bancorp and desires to
induce Executive to remain in the employ of Bancorp on an
impartial and objective basis in the event of a change in the
management or control of Bancorp.
AGREEMENT:
NOW, THEREFORE, the parties hereto, intending to be
legally bound, agree as follows:
1. Term of Agreement.
(a) This Agreement shall be for a two (2) year
period commencing on January 1, 1991 and ending on December 31,
1992; provided, however, that this Agreement shall be
automatically renewed on January 1, 1992 and on January 1 of each
subsequent year (the "Annual Renewal Date') for a period ending
two (2) years from each Annual Renewal Date unless either party
shall give written notice of nonrenewal to the other party at
least sixty (60) days prior to an Annual Renewal Date, in which
event this Agreement shall terminate at the end of the then
existing term.
(b) Notwithstanding the provisions of Section
l(a) of this Agreement, this Agreement shall terminate
automatically for Cause (as defined herein) upon written notice
from the Board of Directors of Bancorp (the "Board") to
Executive. As used in this Agreement, "Cause" shall mean any of
the following:
(i) Executive's conviction of or plea of
guilty or nolo contendere to a felony, a crime of falsehood,
or a crime involving moral turpitude, or the actual
incarceration of Executive for a period of forty-five (45)
consecutive days or more;
<PAGE 1>
(ii) Executive's failure to follow the good
faith lawful instructions, with respect to Bancorp or its
operations, of the Board, following written notice of such
instructions; or
(iii) Executive's willful failure to
substantially perform Executive's duties to Bancorp, other
than a failure resulting from Executive's incapacity because
of physical or mental illness, which willful failure results
in demonstrable material injury and damage to Bancorp.
If this Agreement is terminated for Cause, Executive's rights
under this Agreement shall cease as of the effective date of such
termination.
(c) Notwithstanding the provisions of Section
l(a) of this Agreement, this Agreement shall terminate
automatically upon Executive's voluntary termination of
employment (other than in accordance with Section 2 of this
Agreement), retirement at Executive's election, or Executive's
death, and Executive's rights under this Agreement shall cease as
of the date of such voluntary termination, retirement at
Executive's election, or death; provided, however, that, if
Executive dies after Executive delivers a Notice of Termination
(as defined in Section 2(a) of this Agreement), the provisions of
Section 8(b) of this Agreement shall apply.
(d) Notwithstanding the provisions of Section
l(a) of this Agreement, this Agreement shall terminate
automatically upon Executive's disability and Executive's rights
under this Agreement shall cease as of the date of such
termination; provided, however, that, if Executive becomes
disabled after Executive delivers a Notice of Termination (as
defined in Section 2(a) of this Agreement), Executive shall
nevertheless be absolutely entitled to receive all of the
compensation and benefits provided for in, and for the term set
forth in, Section 3 of this Agreement. For purposes of this
Agreement, "disability" shall mean Executive's incapacitation by
accident, sickness, or otherwise which renders Executive mentally
or physically incapable of performing the services required of
Executive for three hundred sixty (360) consecutive days.
2. Termination Following Change in Control.
(a) If a Change in Control (as defined in Section
2(b) of this Agreement) shall occur and if thereafter, at any
time during the term of this Agreement, there shall be:
(i) any involuntary termination of
Executive's employment (other than for the reasons set forth
in Section 1(b) or l(d) of this Agreement);
(ii) any reduction in Executive's title,
responsibilities, including reporting responsibilities, or
<PAGE 2> authority, including such title, responsibilities,
or authority as such title, responsibilities, or authority
may be increased from time to time during the term of this
Agreement;
(iii) the assignment to Executive of duties
inconsistent with Executive's office on the date of the
Change in Control or as the same may be increased from time
to time after the Change in Control;
(iv) any reassignment of Executive to a
location greater than twenty-five (25) miles from Leesport,
Pennsylvania;
(v) any reduction in Executive's annual base
salary in effect on the date of the Change in Control or as
the same may be increased from time to time after the Change
in Control;
(vi) any failure to continue Executive's
participation in any of Bancorp's incentive compensation or
bonus plans in which Executive participated at the time of
the Change in Control or any change or amendment to any
provisions of any of such plans which would materially
decrease the potential benefits to Executive under any of
such plans;
(vii) any failure to provide Executive with
benefits at least as favorable as those enjoyed by Executive
under any of Bancorp's retirement or pension, life
insurance, medical, health and accident, disability or other
employee plans in which Executive participated at the time
of the Change in Control, or the taking of any action that
would materially reduce any of such benefits in effect at
the time of the Change in Control;
(viii) any requirement that Executive travel
in performance of his duties on behalf of Bancorp for a
significantly greater period of time during any year than
was required of Executive during the year preceding the year
in which the Change in Control occurred;
(ix) any sustained pattern of interruption
or disruption of Executive for matters substantially
unrelated to Executive's discharge of Executive's duties on
behalf of Bancorp; or
(x) any breach of this Agreement of any
nature whatsoever on the part of Bancorp;
then, at the option of Executive, exercisable by Executive within
one hundred twenty (120) days of the occurrence of any of the
foregoing events, Executive may resign from employment with
Bancorp (or, if involuntarily terminated, give notice of
<PAGE 3> intention to collect benefits under this Agreement) by
delivering a notice in writing (the "Notice of Termination") to
Bancorp and the provisions of Section 3 of this Agreement shall
apply.
(b) As used in this Agreement, "Change in
Control" shall mean the occurrence of any of the following:
(i) (A) a merger, consolidation, or division
involving Bancorp, (B) a sale, exchange, transfer, or other
disposition of substantially all of the assets of Bancorp,
or (C) a purchase by Bancorp of substantially all of the
assets of another entity unless (x) such merger,
consolidation, division, sale, exchange, transfer, purchase
or disposition is approved in advance by eighty percent
(80%) or more of the members of the Board who are not
interested in the transaction and (y) a majority of the
members of the Board of Directors of the legal entity
resulting from or existing after any such transaction and of
the Board of Directors of such entity's parent corporation,
if any, are former members of the Board; or
(ii) any other change in control of Bancorp
similar to any of the foregoing.
3. Rights in Event of Termination Following Change in
Control.
(a) In the event that Executive delivers a Notice
of Termination (as defined in Section 2(a) of this Agreement) to
Bancorp, Executive shall be absolutely entitled to receive the
compensation and benefits set forth below:
(i) If, at the time of termination of
Executive's employment in accordance with Section 2 hereof,
a "Tax Change" (as defined in Section 3(a)(iii) of this
Agreement) has also occurred, Bancorp shall make a lump-sum
cash payment to Executive no later than thirty (30) days
following the date of such termination in an amount ("X")
determined pursuant to the following formula:
X = (2.99A - B) x (1 + C) D.
For the purpose of the foregoing formula,
A = Executive's base amount, determined pursuant to Section
28OG(b)(3)(A) of the Internal Revenue Code of 1986, as
amended (the "Code");
B = the present value of all other amounts which qualify as
parachute payments under Code Section 28OG(b)(2)(A) or
(B) (without regard to the provisions of Code Section
28OG(b)(2)(A)(ii)), such present value to be determined
pursuant to the provisions of Code Section 28OG;
<PAGE 4>
C = 120% times 0.5 times the lowest of the semiannual
applicable federal rates (determined pursuant to Code
Section 1274(d)) in effect on the date of the "Tax
Change"; and
D = the number of whole semiannual periods plus any
fraction of a semiannual period from the later of the
date of the "Tax Change" or the Change in Control to
the date of termination of Executive's employment.
Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, if the amount determined under
"B" above equals or exceeds 2.99 times the amount determined
under "A" above, no payment shall be made to Executive under
this Section 3, nor shall Executive be required to make any
payment to Bancorp.
(ii) If, at the time of termination of
Executive's employment in accordance with Section 2 hereof,
a "Tax Change" has not occurred, Bancorp shall make a lump-
sum cash payment to Executive no later than thirty (30) days
following the date of such termination in an amount equal to
(A) 2.99 times the lesser of (I) Executive's base amount
determined pursuant to the principles set forth in the
regulations promulgated under Code Section 28OG(b)(3)(A) and
as though a "Tax Change" had occurred on the date of
Executive's termination of employment and (II) Executive's
base amount so determined but as though a "Tax Change" will
occur in the calendar year following the date of Executive's
termination of employment, minus (B) any other amounts paid
or payable within thirty (30) days following Executive's
termination of employment which would constitute (or be
presumed to constitute) parachute payments under Code
Section 28OG(b)(2)(A) or (B) (without regard to the
provisions of Code Section 28OG(b)(2)(A)(ii)) if a "Tax
Change" had occurred on the date of such termination of
employment.
(iii) For purposes of this Agreement, "Tax
Change" means a change (A) in the ownership or effective
control of Bancorp or (B) in the ownership of a substantial
portion of the assets of Bancorp, determined pursuant to
regulations promulgated under Section 28OG of the Code.
Such term also means any similar change with respect to
First National Bank of Leesport or an affiliate, to the
extent provided in such regulations.
(iv) To the extent benefits become payable
under Section 3(a)(i) or Section 3(a)(ii) by reason of
Executive's termination of employment on or after his
attainment of age 62-1/2, the following amount, if less than
the amount calculated under the relevant section, shall be
paid within thirty (30) days of such termination in lieu of
the amount otherwise payable: <PAGE 5>
Percentage of Basic
If Termination Occurs Compensation Payable
On or after age 62-1/2 but
before age 63 250%
On or after age 63 but
before age 63-1/2 200%
On or after age 63-1/2 but
before age 64 150%
On or after age 64 but
before age 64-1/2 100%
On or after age 64-1/2 but
before age 65 50%
On or after age 65 0%
For purposes of this paragraph, the term "Basic
Compensation" shall mean the sum of (A) Executive's
highest annualized base salary within the three (3)
years immediately preceding termination of employment,
and (B) Executive's highest amount of bonuses paid or
accrued with respect to the three (3) calendar years
immediately preceding such termination.
(b) Bancorp shall pay to Executive all legal fees
and expenses incurred by Executive as a result of Executive's
delivery of a Notice of Termination (including all such fees and
expenses, if any, incurred in successfully contesting or
disputing any termination of employment or in seeking to obtain
or enforce any right or benefit provided by this Agreement).
(c) Executive shall not be required to mitigate
the amount of any payment provided for in this Section 3 by
seeking other employment or otherwise. The amount of payment or
the benefit provided for in this Section 3 shall not be reduced
by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's
receipt of or right to receive any retirement or other benefits
after the date of termination of employment or otherwise.
4. Notices. Except as otherwise provided in this
Agreement, any notice required or permitted to be given under
this Agreement shall be deemed properly given if in writing and
if mailed by registered or certified mail, postage prepaid with
return receipt requested, to Executive's residence, in the case
of notices to Executive, and to the principal executive office of
Bancorp, in the case of notices to Bancorp.
5. Waiver. No provision of this Agreement may be
modified, waived, or discharged unless such waiver, modification,
or discharge is agreed to in writing and signed by Executive and
an executive officer specifically designated by the Board. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
<PAGE 6> shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time.
6. Assignment. This Agreement shall not be assignable
by either party, except by Bancorp to any successor in interest
to Bancorp's business.
7. Entire Agreement. This Agreement contains the
entire agreement of the parties relating to the subject matter of
this Agreement.
8. Successors; Binding Agreement.
(a) Bancorp will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or
otherwise) to all or substantially all of the business and/or
assets of Bancorp to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Bancorp
would be required to perform it if no such succession had taken
place. Failure by Bancorp to obtain such assumption and
agreement prior to the effectiveness of any such succession shall
constitute a breach of this Agreement and the provisions of
Section 3 of this Agreement shall apply. As used in this
Agreement, "Bancorp" shall mean Bancorp as defined previously and
any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law
or otherwise.
(b) This Agreement shall inure to the benefit of
and be enforceable by Executive's personal or legal
representatives, executors, administrators, heirs, distributees,
devisees, and legatees. If Executive should die after a Notice
of Termination is delivered by Executive and any amounts would be
payable to Executive under this Agreement if Executive had
continued to live, all such amounts shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee,
or other designee, or, if there is no such designee, to
Executive's estate.
9. Arbitration. Bancorp and Executive recognize that,
in the event a dispute should arise between them concerning the
interpretation or implementation of this Agreement, lengthy and
expensive litigation will not afford a practical resolution of
the issues within a reasonable period of time. Consequently,
each party agrees that all disputes, disagreements and questions
of interpretation concerning this Agreement are to be submitted
for resolution, in Reading, Pennsylvania, to the American
Arbitration Association (the "Association"). Bancorp or
Executive may initiate an arbitration proceeding at any time by
giving notice to the other in accordance with the rules of the
Association. The Association shall designate a single arbitrator
to conduct the proceeding, but Bancorp and Executive, may, as a
matter of right, require the substitution of a different
<PAGE 7> arbitrator chosen by the Association. Each such right
of substitution may be exercised only one time. The arbitrator
shall not be bound by the rules of evidence and procedure of the
courts of the Commonwealth of Pennsylvania but shall be bound by
the substantive law applicable to this Agreement. The decision
of the arbitrator, absent fraud, duress, incompetence or gross
and obvious error of fact, shall be final and binding upon the
parties and shall be enforceable in courts of proper
jurisdiction. Following written notice of a request for
arbitration, Bancorp, and Executive shall be entitled to an
injunction restraining all further proceedings in any pending or
subsequently filed litigation concerning this Agreement, except
as otherwise provided herein.
10. Validity. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
11. Applicable Law. This Agreement shall be governed
by and construed in accordance with the domestic, internal laws
of the Commonwealth of Pennsylvania, without regard to its
conflicts of laws principles.
12. Headings. The section headings of this Agreement
are for convenience only and shall not control or affect the
meaning or construction or limit the scope or intent of any of
the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
FIRST LEESPORT BANCORP, INC.
By________________________________
(SEAL)
Attest:___________________________
Secretary
"Bancorp"
Witness:
_____________________________ _____________________________(SEAL)
John T. Connelly
"Executive"
PAGE 8
<PAGE>
ADDENDUM TO SEVERANCE AGREEMENT
The undersigned directors of First Leesport Bancorp,
Inc. ("Bancorp") have reviewed and have approved the execution of
the Severance Agreement between John T. Connelly and Bancorp,
dated as of January 1, 1991, to which this Addendum is attached.
_______________ ___________________________________
Date Louis Bruno
_______________ ___________________________________
Date R. William Eaken
_______________ ___________________________________
Date Lawrence W. Hendrickson
_______________ ___________________________________
Date Paul E. Keim
_______________ ___________________________________
Date William Keller
_______________ ___________________________________
Date David L. Loose
_______________ ___________________________________
Date Arlen R. Mengel
_______________ ___________________________________
Date Harry J. O'Neill III
_______________ ___________________________________
Date Franklin C. Schoch
<PAGE 9>
Exhibit 10.3
October 15, 1997
Mr. John T. Connelly
34 Buckingham Drive
Wyomissing Hills, PA 19610
Dear John:
We are providing this letter agreement to you to confirm the
matters we have been discussing regarding your successor as
President and Chief Executive Officer of First Leesport Bancorp,
Inc. ("Bancorp") and The First National Bank of Leesport
("Bank"), and to assure that your services and experience will be
available to Bancorp and the Bank until your normal retirement at
age 65.
Accordingly, the Boards of Directors of Bancorp and Bank, on
the one hand, and you, on the other hand, intending to be legally
bound, hereby agree as follows:
1. Successor. You will assist the Boards of Directors of
Bancorp and Bank in the process of locating, interviewing and
selecting a qualified candidate to succeed you as President and
Chief Executive Officer of Bancorp and of Bank. This process
will begin immediately, although no specific date or timetable
has been established for the completion of this process.
2. Title and Responsibilities. Concurrently with the
election of the individual referenced in the preceding paragraph
as President and Chief Executive Officer, you agree to
concurrently submit your resignation for such offices and the
Boards of Directors of each of Bancorp and Bank shall elect you
"Chairman of the Board of Directors" of each of Bancorp and Bank.
At that time you will assume the responsibilities of such office
as set forth in the Bylaws of Bancorp and Bank and shall perform
such other duties as may be assigned to you from time to time by
the respective Boards of Directors of Bancorp and Bank, which
shall include acting as a liaison between management and the
Boards of Directors of Bancorp and Bank, and maintaining and
improving relationships between Bank and its customers and the
communities in which the offices of Bank are located. You agree
to perform such duties on a full-time basis until your retirement
and not to be involved in any other business activities (except
for investment of personal assets) during such time.
<PAGE 1>
3. Base Salary. Your base salary through the date of your
retirement shall be $116,000 per year for services as Chairman of
the Board of Directors of Bancorp and Bank, unless increased in
the discretion of the Board of Directors, payable in accordance
with the normal payroll practices of Bancorp and Bank.
4. Performance Bonus. Although you will be ineligible to
participate in Bancorp's executive incentive plan, you will be
eligible for consideration to receive a cash bonus annually in
such discretionary amount as may be determined by the Boards of
Directors of Bancorp and Bank.
5. Other Benefits. Until your retirement you will
continue to participate in all of the employee benefit plans and
be entitled to receive other fringe benefits to the same extent
and in the same manner as other executive officers of Bancorp and
Bank.
6. Term/Termination. The term of your employment under
this letter agreement shall expire on July 31, 2000, unless
sooner terminated upon thirty (30) days prior written notice for
"Cause" or "Disability." For purposes of this letter agreement,
"Cause" and "Disability" shall have the same meanings as set
forth in that certain Severance Agreement, dated January 1, 1991,
between Bancorp and you (the "Severance Agreement").
In the event of termination for "Cause," all of your
rights to continued employment and any further obligations of
either Bancorp or Bank under this letter agreement (except for
vested benefits payable under any employee benefit plan or
amounts payable in accordance with the specific terms of any
other agreement) shall cease as of the date of termination. In
the event of termination for "Disability," all of your rights to
continued employment shall cease and any further obligations of
either Bancorp or Bank under this letter agreement (except for
vested benefits payable under any employee benefit plan or
amounts payable in accordance with the specific terms of any
other agreement) shall be determined in accordance with the
disability plans of Bancorp or Bank then in effect.
7. Severance. In the event that the Board of Directors of
Bancorp and Bank conclude that it would be in the best interests
of the institutions to terminate your relationship with Bancorp
and Bank prior to July 31, 2000, in the absence of a Change in
<PAGE 2> Control, your employment relationship with Bancorp and
Bank may be terminated without cause upon thirty (30) days prior
written notice. If your employment is so terminated, you will be
entitled to continued payments of base salary in effect on the
date of termination through July 31, 2000 as severance payments.
You will also receive a nonqualified benefit actuarially
equivalent to the amount of the benefit lost because of reduced
time of service under any qualified or nonqualified employee
benefit plan in which you participated at the date of termination
as a result of your termination of employment prior to normal
retirement age. Finally, you will be entitled to continued
health insurance coverage or, if you are ineligible to
participate in Bancorp's or Bank's health insurance plan, you
will be provided with the cost to obtain such coverage.
8. Status of Severance Agreement. The Severance Agreement
shall remain in full force and effect on the terms and conditions
stated therein. You agree that your sole and exclusive remedy as
a result of your delivery of a Notice of Termination (as defined
in the Severance Agreement), including as a result of your
involuntary termination of employment following a Change in
Control (as defined in the Severance Agreement), shall be the
payment provided in Section 3 of the Severance Agreement
notwithstanding this agreement or anything contained herein.
_________________________
<PAGE 3>
If you are in agreement with the terms of this letter,
please so indicate by signing the enclosed duplicate copy and
returning it to us.
Very truly yours,
FIRST LEESPORT BANCORP, INC.
By_______________________________
Chair, Executive Committee
THE FIRST NATIONAL BANK OF LEESPORT
By________________________________
Chair, Executive Committee
Accepted and agreed to this
_____ day of October 1997
_________________________
John T. Connelly
<PAGE 4>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 15th day of June 1998,
among FIRST LEESPORT BANCORP, INC. ("Bancorp"), a Pennsylvania
business corporation having a place of business at 133 North
Centre Avenue, Leesport, Pennsylvania, THE FIRST NATIONAL BANK OF
LEESPORT ("Bank"), a national banking association having a place
of business at 133 North Centre Avenue, Leesport, Pennsylvania,
and RAYMOND H. MELCHER, JR. ("Executive"), an individual residing
at 118 Durham Drive, Wyomissing, Pennsylvania.
WITNESSETH:
WHEREAS, Bank is the wholly owned banking subsidiary of
Bancorp;
WHEREAS, Bancorp and Bank desire to employ Executive to
serve in the capacity of President and Chief Executive Officer of
each of Bancorp and Bank on the terms and conditions set forth
herein;
WHEREAS, Executive desires to accept employment with
Bancorp and Bank on the terms and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, the parties hereto, intending to be
legally bound, agree as follows:
1. Employment. Bancorp and Bank each hereby employ
Executive, and Executive hereby accepts employment with Bancorp
and Bank, on the terms and conditions set forth in this
Agreement.
2. Duties of Employee. Executive shall perform and
discharge well and faithfully such duties as an executive officer
of Bancorp and of Bank as may be assigned to Executive from time
to time by the respective Boards of Directors of Bancorp and of
Bank. Executive shall be employed as President and Chief
Executive Officer of Bancorp and of Bank, and shall hold such
other titles as may be given to him from time to time by the
respective Boards of Directors of Bancorp and of Bank. Executive
shall devote his full time, attention and energies to the
business of Bancorp and of Bank during the Employment Period (as
defined in Section 3 of this Agreement); provided, however, that
this Section 2 shall not be construed as preventing Executive
from (a) investing Executive's personal assets in enterprises
that do not compete with Bancorp or Bank or (b) being involved in
<PAGE 1> any other activity with the prior approval of the Board
of Directors of Bancorp and Bank.
3. Term of Agreement.
(a) This Agreement shall be for a three (3) year
period (the "Employment Period") commencing on June 15, 1998 and
ending on June 14, 2001; provided, however, that the Employment
Period shall be automatically extended on June 15, 1999 and on
June 15 of each subsequent year (the "Annual Renewal Date") for a
period ending three (3) years from each Annual Renewal Date
unless either party shall give written notice of nonrenewal to
the other party at least ninety (90) days prior to an Annual
Renewal Date, in which event this Agreement shall terminate at
the end of the then existing Employment Period.
(b) Notwithstanding the provisions of
Section 3(a) of this Agreement, this Agreement shall terminate
automatically for Cause (as defined herein) upon written notice
from the Board of Directors of each of Bancorp and Bank to
Executive. As used in this Agreement, "Cause" shall mean any of
the following:
(i) Executive's conviction of or plea of
guilty or nolo contendere to a felony, a crime of falsehood,
or a crime involving moral turpitude, or the actual
incarceration of Executive for a period of forty-five (45)
consecutive days or more;
(ii) Executive's failure to follow the good
faith lawful instructions of the Board of Directors of
Bancorp or Bank with respect to its operations, following
written notice of such instructions; or
(iii) Executive's willful failure to
substantially perform Executive's duties to Bancorp or Bank,
other than a failure resulting from Executive's incapacity
because of physical or mental illness, which willful failure
results in demonstrable material injury and damage to
Bancorp or Bank.
If this Agreement is terminated for Cause, Executive's rights
under this Agreement shall cease as of the effective date of such
termination.
(c) Notwithstanding the provisions of
Section 3(a) of this Agreement, this Agreement shall terminate
automatically upon Executive's voluntary termination of
employment (other than in accordance with Section 5 of this
Agreement), retirement at Executive's election, or Executive's
death, and Executive's rights under this Agreement shall cease as
of the date of such voluntary termination, retirement at
Executive's election, or death; provided, however, that, if
Executive dies after Executive delivers a Notice of Termination
<PAGE 2> (as defined in Section 5(a) of this Agreement), the
provisions of Section 13(b) of this Agreement shall apply.
(d) Notwithstanding the provisions of
Section 3(a) of this Agreement, this Agreement shall terminate
automatically upon Executive's disability and Executive's rights
under this Agreement shall cease as of the date of such
termination; provided, however, that, if Executive becomes
disabled after Executive delivers a Notice of Termination (as
defined in Section 5(a) of this Agreement), Executive shall
nevertheless be absolutely entitled to receive all of the
compensation and benefits provided for in, and for the term set
forth in, Section 6 of this Agreement. For purposes of this
Agreement, disability shall mean Executive's incapacitation by
accident, sickness, or otherwise which renders Executive mentally
or physically incapable of performing the services required of
Executive for three hundred sixty (360) consecutive days.
(e) Executive agrees that, in the event his
employment under this Agreement is terminated, Executive shall
concurrently resign as a director of Bancorp or Bank, or any
affiliate of Bancorp or Bank, if he is then serving as a director
of any of such entities.
4. Employment Period Compensation.
(a) Salary. For services performed by Executive
under this Agreement, Bancorp and Bank shall pay Executive a
salary, in the aggregate, during the Employment Period, at the
rate of $150,000 per year, payable at the same times as salaries
are payable to other executive employees of Bancorp or of Bank.
Bancorp and/or Bank may, from time to time, increase Executive's
salary, and any and all such increases shall be deemed to
constitute amendments to this Section 4(a) to reflect the
increased amounts, effective as of the date established for such
increases by the Board of Directors of Bancorp or of Bank or any
committee of such Boards in the resolutions authorizing such
increases.
(b) Bonus. For services performed by Executive
under this Agreement, Bancorp and Bank shall pay Executive a
bonus, in the aggregate, during the Employment Period, in such
amounts and at such times, annually, as is provided in such
executive incentive plan for Executive as shall be approved by
the Board of Directors of Bancorp and in effect from time to
time. In addition, Bancorp and/or Bank may, from time to time,
pay such other bonus or bonuses to Executive as Bancorp and/or
Bank, in their sole discretion, deem appropriate. The payment of
any such bonuses shall not reduce or otherwise affect any other
obligation of Bancorp and/or Bank to Executive provided for in
this Agreement. Notwithstanding the foregoing, Executive shall
be entitled to receive a cash bonus relating to Executive's first
full year of employment in an amount not to exceed $25,000 upon
<PAGE 3> the attainment of financial goals mutually agreed upon
by Executive and the Boards of Directors of Bancorp and Bank.
(c) Vacation. During the term of this Agreement,
Executive shall be entitled to paid annual vacation in accordance
with the policies as established from time to time by the Boards
of Directors of Bancorp and Bank plus such other personal or
bonus days as may be set forth in the policies of Bancorp and
Bank. Executive shall not be entitled to receive any additional
compensation from Bancorp and Bank for failure to take a
vacation, nor shall Executive be able to accumulate unused
vacation time from one year to the next, except to the extent
authorized by the Boards of Directors of Bancorp and Bank.
(d) Automobile. During the term of this
Agreement, Bancorp and Bank shall provide Executive with
exclusive use of an automobile. Bancorp and Bank shall be
responsible and shall pay for all costs of insurance coverage,
repairs, maintenance and other operating and incidental expenses,
including license, fuel and oil. Bancorp and Bank shall provide
Executive with a replacement automobile at approximately the time
Executive's automobile reaches three (3) years of age or 50,000
miles, whichever is first, and approximately every three (3)
years or 50,000 miles thereafter, upon the same terms and
conditions.
(e) Employee Benefit Plans. During the term of
this Agreement, Executive shall be entitled to participate in and
receive the benefits of any pension or other retirement benefit
plan, profit sharing, stock option, employee stock ownership, or
other plans, benefits and privileges given to employees and
executives of Bancorp and Bank, to the extent commensurate with
his then existing duties and responsibilities, as fixed by the
Boards of Directors of Bancorp and Bank, including without
limitation enrollment in Bank's Supplemental Executive Retirement
Program (SERP). Bancorp and Bank shall not make any changes in
such plans, benefits or privileges which would adversely affect
Executive's rights or benefits thereunder, unless such change
occurs pursuant to a program applicable to all executive officers
of Bancorp and Bank and does not result in a proportionately
greater adverse change in the rights of or benefits to Executive
as compared with any other executive officer of Bancorp and Bank.
Nothing paid to Executive under any plan or arrangement presently
in effect or made available in the future shall be deemed to be
in lieu of the salary payable to Executive pursuant to
Section 4(a) hereof.
(f) 1999 Stock Options. Bancorp agrees to
prepare and submit to its shareholders, in connection with its
1999 Annual Meeting of Shareholders, a stock option plan
providing for the grant of stock options to employees of Bancorp
and Bank. Executive shall be granted nonqualified stock options
to purchase 3,000 shares of common stock of Bancorp, effective
upon the date of shareholder approval of such plan, at an
<PAGE 4> exercise price qual to the fair market value of such
shares on the date of grant. Such options shall be subject to a
three-year vesting provision, with 1/3 of the total number of
options vesting on the first annual anniversary of your
employment with Bancorp and Bank and an additional 1/3 of the
total number of options vesting on each subsequent annual
anniversary date thereafter. Such options will provide for a
term of ten years.
5. Termination of Employment Following Change in
Control.
(a) If a Change in Control (as defined in
Section 5(b) of this Agreement) shall occur and if thereafter, at
any time during the term of this Agreement, there shall be:
(i) any involuntary termination of
Executive's employment (other than for the reasons set forth
in Section 3(b) or 3(d) of this Agreement);
(ii) any reduction in Executive's title,
responsibilities, including reporting responsibilities, or
authority, including such title, responsibilities, or
authority as such title, responsibilities, or authority may
be increased from time to time during the term of this
Agreement;
(iii) the assignment to Executive of duties
inconsistent with Executive's office on the date of the
Change in Control or as the same may be increased from time
to time after the Change in Control;
(iv) any reassignment of Executive to a
location greater than twenty-five (25) miles from the
location of Executive's office on the date of the Change in
Control;
(v) any reduction in Executive's annual base
salary in effect on the date of the Change in Control or as
the same may be increased from time to time after the Change
in Control;
(vi) any failure to continue Executive's
participation in any of Bancorp's incentive compensation or
bonus plans in which Executive participated at the time of
the Change in Control or any change or amendment to any
provisions of any of such plans which would materially
decrease the potential benefits to Executive under any of
such plans;
(vii) any failure to provide Executive with
benefits at least as favorable as those enjoyed by Executive
under any of Bancorp's retirement or pension, life
insurance, medical, health and accident, disability or other
<PAGE 5> employee plans in which Executive participated at
the time of the Change in Control, or the taking of any
action that would materially reduce any of such benefits in
effect at the time of the Change in Control;
(viii) any requirement that Executive travel
in performance of his duties on behalf of Bancorp or Bank
for a significantly greater period of time during any year
than was required of Executive during the year preceding the
year in which the Change in Control occurred;
(ix) any sustained pattern of interruption
or disruption of Executive for matters substantially
unrelated to Executive's discharge of Executive's duties on
behalf of Bancorp; or
(x) any breach of this Agreement of any
nature whatsoever on the part of Bancorp or Bank;
then, at the option of Executive, exercisable by Executive within
one hundred twenty (120) days of the occurrence of any of the
foregoing events, Executive may resign from employment with
Bancorp and Bank (or, if involuntarily terminated, give notice of
intention to collect benefits under this Agreement) by delivering
a notice in writing (the Notice of Termination") to Bancorp and
Bank and the provisions of Section 6 of this Agreement shall
apply.
(b) As used in this Agreement, "Change in
Control" shall mean the occurrence of any of the following:
(i)(A) a merger, consolidation, or division
involving Bancorp, (B) a sale, exchange, transfer, or other
disposition of substantially all of the assets of Bancorp,
or (C) a purchase by Bancorp of substantially all of the
assets of another entity, unless (x) such merger,
consolidation, division, sale, exchange, transfer, purchase
or disposition is approved in advance by eighty percent
(80%) or more of the members of the Board of Directors of
Bancorp who are not interested in the transaction and (y) a
majority of the members of the Board of Directors of the
legal entity resulting from or existing after any such
transaction and of the Board of Directors of such entity's
parent corporation, if any, are former members of the Board
of Directors of Bancorp; or
(ii) any other change in control of Bancorp
similar in effect to any of the foregoing.
6. Rights in Event of Termination of Employment
Following Change in Control.
(a) In the event that Executive delivers a Notice
of Termination (as defined in Section 5(a) of this Agreement) to
<PAGE 6> Bancorp and Bank, Executive shall be absolutely entitled
to receive the compensation and benefits set forth below:
(i) If, at the time of termination of
Executive's employment, a "Tax Change" (as defined in
Section 6(a)(iii) of this Agreement) has also occurred,
Bancorp and Bank shall make, in the aggregate, a lump-sum
cash payment to Executive no later than thirty (30) days
following the date of such termination in an amount ("X")
determined pursuant to the following formula:
X = (2.99A - B) x (1 + C)D.
For the purpose of the foregoing formula,
A = Executive's base amount, determined pursuant to
Section 28OG(b)(3)(A) of the Internal Revenue Code of
1986, as amended (the "Code");
B = the present value of all other amounts which qualify as
parachute payments under Code Section 28OG(b)(2)(A) or
(B) (without regard to the provisions of Code
Section 28OG(b)(2)(A)(ii)), such present value to be
determined pursuant to the provisions of Code
Section 28OG;
C = 120% times 0.5 times the lowest of the semiannual
applicable federal rates (determined pursuant to Code
Section 1274(d)) in effect on the date of the "Tax
Change"; and
D = the number of whole semiannual periods plus any
fraction of a semiannual period from the later of the
date of the "Tax Change" or the Change in Control to
the date of termination of Executive's employment.
Notwithstanding the foregoing or any other provision of this
Agreement to the contrary, if the amount determined under "B"
above equals or exceeds 2.99 times the amount determined under
"A" above, no payment shall be made to Executive under this
Section 6, nor shall Executive be required to make any payment to
Bancorp or Bank.
(ii) If, at the time of termination of
Executive's employment, a "Tax Change" has not occurred,
Bancorp shall make a lump-sum cash payment to Executive no
later than thirty (30) days following the date of such
termination in an amount equal to (A) 2.99 times the lesser
of (I) Executive's base amount determined pursuant to the
principles set forth in the regulations promulgated under
Code Section 28OG(b)(3)(A) and as though a "Tax Change" had
occurred on the date of Executive's termination of
employment and (II) Executive's base amount so determined
but as though a "Tax Change" will occur in the calendar year
following the date of Executive's termination of employment,
<PAGE 7> minus (B) any other amounts paid or payable within
thirty (30) days following Executive's termination of
employment which would constitute (or be presumed to
constitute) parachute payments under Code
Section 28OG(b)(2)(A) or (B) (without regard to the
provisions of Code Section 28OG(b)(2)(A)(ii)) if a "Tax
Change" had occurred on the date of such termination of
employment.
(iii) For purposes of this Agreement, "Tax
Change" means a change (A) in the ownership or effective
control of Bancorp or (B) in the ownership of a substantial
portion of the assets of Bancorp, determined pursuant to
regulations promulgated under Section 28OG of the Code.
Such term also means any similar change with respect to Bank
or an affiliate, to the extent provided in such regulations.
(iv) To the extent benefits become payable
under Section 6(a)(i) or Section 6(a)(ii) by reason of
Executive's termination of employment on or after his
attainment of age 62-1/2, the following amount, if less than
the amount calculated under the relevant section, shall be
paid within thirty (30) days of such termination in lieu of
the amount otherwise payable:
Percentage of Basic
If Termination Occurs Compensation Payable
On or after age 62-1/2 but
before age 63 250%
On or after age 63 but
before age 63-1/2 200%
On or after age 63-1/2 but
before age 64 150%
On or after age 64 but
before age 64-1/2 100%
On or after age 64-1/2 but
before age 65 50%
On or after age 65 0%
For purposes of this paragraph, the term "Basic
Compensation" shall mean the sum of (A) Executive's highest
annualized base salary within the three (3) years
immediately preceding termination of employment, and (B)
Executive's highest amount of bonuses paid or accrued with
respect to the three (3) calendar years immediately
preceding such termination.
(c) Executive shall not be required to mitigate
the amount of any payment provided for in this Section 6 by
seeking other employment or otherwise. The amount of payment or
the benefit provided for in this Section 6 shall not be reduced
by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's
<PAGE 8> receipt of or right to receive any retirement or other
benefits after the date of termination of employment or
otherwise.
7. Rights in Event of Termination of Employment
Absent Change in Control.
(a) In the event that Executive's employment is
involuntarily terminated by Bancorp and/or Bank without Cause and
no Change in Control shall have occurred at the date of such
termination, Bancorp and Bank shall pay (or cause to be paid), in
the aggregate, to Executive in cash, within thirty (30) days
following termination, an amount equal to [3.0] times the
Executive's base salary in effect on the date of termination plus
(ii) a portion of the bonus otherwise payable to Executive for
the year in which such termination occurs pro-rated for the
period of time Executive is employed during such year.
Notwithstanding the preceding sentence, in the event the lump sum
payment described in the preceding sentence, when added to all
other amounts or benefits provided to or on behalf of the
Executive in connection with his termination of employment, would
result in the imposition of an excise tax under Code
Section 4999, such lump-sum shall be retroactively (if necessary)
reduced to the extent necessary to avoid such imposition. Upon
written notice to Executive, together with calculations of
Bancorp's independent auditors, Executive shall remit to Bancorp
the amount of the reduction plus such interest as may be
necessary to avoid the imposition of such excise tax.
(b) Executive shall not be required to mitigate
the amount of any payment provided for in this Section 7 by
seeking other employment or otherwise. The amount of payment or
the benefit provided for in this Section 7 shall not be reduced
by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's
receipt of or right to receive any retirement or other benefits
after the date of termination of employment or otherwise.
(c) To the extent benefits become payable under
this Section 7 by reason of termination of Executive's employment
on or after his attainment of age 62-1/2, the amounts set forth
in Section 6(a)(iv), if less than the amounts payable under this
Section 7, shall be paid within thirty (30) days of such
termination in lieu of the amount otherwise payable under this
Section 7.
(d) The amounts payable pursuant to this
Section 7 shall constitute Executive's sole and exclusive remedy
in the event of involuntary termination of Executive's employment
by Bancorp and/or Bank in the absence of a Change in Control.
8. Covenant Not to Compete.
<PAGE 9>
(a) Executive hereby acknowledges and recognizes
the highly competitive nature of the business of Bancorp and Bank
and accordingly agrees that, during and for the applicable period
set forth in Section 8(c) hereof, Executive shall not:
(i) be engaged, directly or indirectly,
either for his own account or as agent, consultant,
employee, partner, officer, director, proprietor, investor
(except as an investor owning less than 5% of the stock of a
publicly owned company) or otherwise of any person, firm,
corporation, or enterprise engaged, in (1) the banking
(including bank holding company) or financial services
industry, or (2) any other activity in which Bancorp or any
of its subsidiaries is engaged during the Employment Period,
in any county in which, at any time during the Employment
Period or at the date of termination of the Executive's
employment, a branch, office or other facility of Bancorp or
any of its subsidiaries is located, or in any county
contiguous to such a county, including contiguous counties
located outside of the Commonwealth of Pennsylvania (the
"Non-Competition Area"); or
(ii) provide financial or other assistance
to any person, firm, corporation, or enterprise engaged in
(1) the banking (including bank holding company) or
financial services industry, or (2) any other activity in
which Bancorp or any of its subsidiaries is engaged during
the Employment Period, in the Non-Competition Area.
(b) It is expressly understood and agreed that,
although Executive and Bancorp consider the restrictions
contained in Section 8(a) hereof reasonable for the purpose of
preserving for Bancorp and its subsidiaries their good will and
other proprietary rights, if a final judicial determination is
made by a court having jurisdiction that the time or territory or
any other restriction contained in Section 8(a) hereof is an
unreasonable or otherwise unenforceable restriction against
Executive, the provisions of Section 8(a) hereof shall not be
rendered void but shall be deemed amended to apply as to such
maximum time and territory and to such other extent as such court
may judicially determine or indicate to be reasonable.
(c) The provisions of this Section 8 shall be
applicable commencing on the date of this Agreement and ending on
one of the following dates, as applicable:
(i) if Executive's employment terminates in
accordance with the provisions of Section 3 (other than
Section 3(b) relating to termination for Cause), the
effective date of termination of employment;
(ii) if Executive's employment terminates in
accordance with the provisions of Section 3(b) of this
Agreement (relating to termination for Cause) or the
<PAGE 10> Executive voluntarily terminates his employment
other than in accordance with the provisions of Section 5
hereof, the first anniversary date of the effective date of
termination of employment; or
(iii) if the Executive voluntarily
terminates his employment in accordance with the provisions
of Section 5 hereof, the effective date of termination of
employment.
9. Notices. Except as otherwise provided in this
Agreement, any notice required or permitted to be given under
this Agreement shall be deemed properly given if in writing and
if mailed by registered or certified mail, postage prepaid with
return receipt requested, to Executive's residence, in the case
of notices to Executive, and to the principal executive offices
of Bancorp and Bank, in the case of notices to Bancorp and Bank.
10. Waiver. No provision of this Agreement may be
modified, waived, or discharged unless such waiver, modification,
or discharge is agreed to in writing and signed by Executive and
an executive officer specifically designated by the Boards of
Directors of Bancorp and Bank. No waiver by either party hereto
at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time.
11. Assignment. This Agreement shall not be assignable
by any party, except by Bancorp and Bank to any successor in
interest to their respective businesses.
12. Entire Agreement. This Agreement contains the
entire agreement of the parties relating to the subject matter of
this Agreement.
13. Successors; Binding Agreement.
(a) Bancorp and Bank will require any successor
(whether direct or indirect, by purchase, merger, consolidation,
or otherwise) to all or substantially all of the businesses
and/or assets of Bancorp and Bank to expressly assume and agree
to perform this Agreement in the same manner and to the same
extent that Bancorp and Bank would be required to perform it if
no such succession had taken place. Failure by Bancorp and Bank
to obtain such assumption and agreement prior to the
effectiveness of any such succession shall constitute a breach of
this Agreement and the provisions of Section 3 of this Agreement
shall apply. As used in this Agreement, "Bancorp" and "Bank"
shall mean Bancorp and Bank as defined previously and any
successor to their respective businesses and/or assets as
aforesaid which assumes and agrees to perform this Agreement by
operation of law or otherwise. <PAGE 11>
(b) This Agreement shall inure to the benefit of
and be enforceable by Executive's personal or legal
representatives, executors, administrators, heirs, distributees,
devisees, and legatees. If Executive should die after a Notice
of Termination is delivered by Executive, or following
termination of Executive's employment without Cause, and any
amounts would be payable to Executive under this Agreement if
Executive had continued to live, all such amounts shall be paid
in accordance with the terms of this Agreement to Executive's
devisee, legatee, or other designee, or, if there is no such
designee, to Executive's estate.
14. Arbitration. Bancorp, Bank and Executive recognize
that, in the event a dispute should arise between them concerning
the interpretation or implementation of this Agreement, lengthy
and expensive litigation will not afford a practical resolution
of the issues within a reasonable period of time. Consequently,
each party agrees that all disputes, disagreements and questions
of interpretation concerning this Agreement are to be submitted
for resolution, in Reading, Pennsylvania, to the American
Arbitration Association (the "Association") in accordance with
the Association's National Rules for the Resolution of Employment
Disputes or other applicable rules then in effect ("Rules").
Bancorp and Bank or Executive may initiate an arbitration
proceeding at any time by giving notice to the other in
accordance with the Rules. Bancorp and Bank and Executive, may,
as a matter of right, mutually agree on the appointment of a
particular arbitrator from the Association's pool. The
arbitrator shall not be bound by the rules of evidence and
procedure of the courts of the Commonwealth of Pennsylvania but
shall be bound by the substantive law applicable to this
Agreement. The decision of the arbitrator, absent fraud, duress,
incompetence or gross and obvious error of fact, shall be final
and binding upon the parties and shall be enforceable in courts
of proper jurisdiction. Following written notice of a request
for arbitration, Bancorp, Bank and Executive shall be entitled to
an injunction restraining all further proceedings in any pending
or subsequently filed litigation concerning this Agreement,
except as otherwise provided herein.
15. Validity. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
16. Applicable Law. This Agreement shall be governed
by and construed in accordance with the domestic, internal laws
of the Commonwealth of Pennsylvania, without regard to its
conflicts of laws principles.
17. Headings. The section headings of this Agreement
are for convenience only and shall not control or affect the
meaning or construction or limit the scope or intent of any of
the provisions of this Agreement. <PAGE 12>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
FIRST LEESPORT BANCORP, INC.
By___________________________(SEAL)
Attest:____________________________
"Bancorp"
FIRST NATIONAL BANK OF LEESPORT
By___________________________(SEAL)
Attest:__________________________
"Bank"
Witness:
_________________________ _____________________________(SEAL)
Raymond H. Melcher, Jr.
"Executive"
<PAGE 13>
EXHIBIT 10.9
EXHIBIT "A"
FIRST LEESPORT BANCORP, INC.
1998 EMPLOYEE STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Employee Stock Incentive Plan
(the "Plan") is to advance the development, growth and
financial condition of First Leesport Bancorp, Inc. (the
"Corporation") and each subsidiary thereof, as defined in
Section 424 of the Internal Revenue Code of 1986, as amended
(the "Code"), by providing incentives through participation
in the appreciation of the common stock of the Corporation
to secure, retain and motivate personnel who may be
responsible for the operation and for management of the
affairs of the Corporation and any subsidiary now or
hereafter existing ("Subsidiary").
2. Term. The Plan shall become effective as of the date it is
adopted by the Corporation's Board of Directors (the
"Board"), and shall be presented for approval at the next
meeting of the Corporation's shareholders. Any and all
options and rights awarded under the Plan (the "Awards")
before it is approved by the Corporation's shareholders
shall be conditioned upon and may not be exercised before
receipt of shareholder approval, and shall lapse upon
failure to receive such approval. Unless previously
terminated by the Board, the Plan shall terminate on and no
options shall be granted after the tenth anniversary of the
effective date of the Plan.
3. Stock. Shares of the Corporation's common stock (the
"Stock"), that may be issued under the Plan shall not
exceed, in the aggregate, 200,000 shares, as may be adjusted
pursuant to Section 19 hereof. Shares may be either
authorized and unissued shares or authorized shares issued
by and subsequently reacquired by the Corporation as
treasury stock. Under no circumstances shall any fractional
shares be awarded under the Plan. Except as may be
otherwise provided in the Plan, any Stock subject to an
Award that, for any reason, lapses or terminates prior to
exercise shall again become available for grant under the
Plan. While the Plan is in effect, the Corporation shall
reserve and keep available the number of shares of Stock
needed to satisfy the requirements of the Plan. The
Corporation shall apply for any requisite governmental
authority to issue shares under the Plan. The Corporation's
failure to obtain any such governmental authority deemed
necessary by the Corporation's legal counsel for the lawful
issuance and sale of Stock under the Plan shall relieve the
<PAGE 1> Corporation of any duty or liability for the
failure to issue or sell the Stock.
4. Administration. The ability to control and manage the
operation and administration of the Plan shall be vested in
the Board or in a committee of two or more members of the
Board selected by the Board (the "Committee"). The
Committee shall have the authority and discretion to
interpret the Plan, to establish, amend and rescind any
rules and regulations relating to the Plan, to determine the
terms and provisions of any agreements made pursuant to the
Plan, and to make any and all determinations that may be
necessary or advisable for the administration of the Plan.
Any interpretation of the Plan by the Committee and any
decision made by the Committee under the Plan is final and
binding.
The Committee shall be responsible and shall have full,
absolute and final power of authority to determine what, to
whom, when and under what facts and circumstances Awards
shall be made, the form, number, terms, conditions and
duration thereof (including but not limited to when
exercisable), the number of shares of Stock subject thereto,
and the stock option exercise prices. The Committee shall
make all other determinations and decisions, take all
actions and do all things necessary or appropriate in and
for the administration of the Plan. No member of the
Committee or of the Board shall be liable for any decision,
determination or action made or taken in good faith by such
person under or with respect to the Plan or its
administration.
5. Awards. Awards may be made under the Plan in the form of
(a) "Qualified Options" to purchase Stock, which are
intended to qualify for certain tax treatment as incentive
stock options under Sections 421 and 422 of the Code,
(b) "Non-Qualified Options" to purchase Stock, which are not
intended to qualify under Sections 421 through 424 of the
Code, (c) Stock Appreciation Rights ("SARs"), or
(d) "Restricted Stock". More than one Award may be granted
to an eligible person, and the grant of any Award shall not
prohibit the grant of another Award, either to the same
person or otherwise, or impose any obligation to exercise on
the participant. All Awards and the terms and conditions
thereof shall be set forth in written agreements, in such
form and content as approved by the Committee from time to
time, and shall be subject to the provisions of the Plan
whether or not contained in such agreements. Multiple
Awards for a particular person may be set forth in a single
written agreement or in multiple agreements, as determined
by the Committee, but in all cases each agreement for one or
more Awards shall identify each of the Awards thereby
represented as a Qualified Option, Non-Qualified Option,
<PAGE 2> Stock Appreciation Right or Restricted Stock, as
the case may be.
6. Eligibility. Persons eligible to receive Awards shall be
those key officers and other employees of the Corporation
and each Subsidiary as determined by the Committee. A
person's eligibility to receive an Award shall not confer
upon him or her any right to receive an Award. Except as
otherwise provided, a person's eligibility to receive or
actual receipt of an Award under the Plan shall not limit or
affect his or her benefits under or eligibility to
participate in any other incentive or benefit plan or
program of the Corporation or any of its affiliates.
7. Qualified Options. In addition to other applicable
provisions of the Plan all Qualified Options and Awards
thereof shall be under and subject to the following terms
and conditions:
(a) The maximum number of shares of Stock that may be
issued by options intended to be Qualified Options
shall be 200,000 shares;
(b) No Qualified Option shall be awarded more than ten (10)
years after the date the Plan is adopted by the Board
or the date the Plan is approved by the Corporation's
shareholders, whichever is earlier;
(c) The time period during which any Qualified Option is
exercisable, as determined by the Committee, shall not
commerce before the expiration of six (6) months or
continue beyond the expiration of ten (10) years after
the date the Qualified Option is awarded;
(d) If a participant, who was awarded a Qualified Option,
ceases to be employed by the Corporation or any
Subsidiary for any reason other than his or her death,
the Committee may permit the participant thereafter to
exercise the option during its remaining term for a
period of not more than three months after cessation of
employment to the extent that the Qualified Option was
then and remains exercisable, unless such employment
cessation was due to the participant's disability, as
defined in Section 22(e)(3) of the Code, in which case
the three (3) month period shall be twelve (12) months;
if the participant dies while employed by the
Corporation or a Subsidiary, the Committee may permit
the participant's qualified personal representatives,or
any persons who acquire the Qualified Option pursuant
to his or her Will or laws of descent and distribution,
to exercise the Qualified Option during its remaining
term for a period of not more than twelve (12) months
after the participant's death to the extent that the
Qualified Option was then and remains exercisable; the
<PAGE 3> Committee may impose terms and conditions upon
and for the exercise of a Qualified Option after the
cessation of the participant's employment or his or her
death;
(e) The purchase price of Stock subject to any Qualified
Option shall not be less than the Stock's fair market
value at the time the Qualified Option is awarded and
shall not be less than the Stock's par value; and
(f) Qualified Options may not be sold, transferred or
assigned by the participant except by will or the laws
of descent and distribution.
8. Non-Qualified Options. In addition to other applicable
provisions of the Plan, all Non-Qualified Options and Awards
thereof shall be under and subject to the following terms
and conditions:
(a) The time period during which any Non-Qualified Option
is exercisable shall not commence before the expiration
of six (6) months or continue beyond the expiration of
ten (10) years after the date the Non-Qualified Option
is awarded;
(b) If a participant who was awarded a Non-Qualified Option
ceases to be eligible under the Plan before lapse or
full exercise of the option, the Committee may permit
the participant to exercise the option during its
remaining term, to the extent that the option was then
and remains exercisable, or for such time period and
under such terms and conditions as may be prescribed by
the Committee;
(c) The purchase price of a share of Stock subject to any
Non-Qualified Option shall not be less than the Stock's
par value; and
(d) Except as otherwise provided by the Committee, Non-
Qualified Stock Options granted under the Plan are not
transferable except as designated by the participant by
Will and the laws of descent and distribution.
9. Stock Appreciation Rights. In addition to other applicable
provisions of the Plan, all SARs and Awards thereof shall be
under and subject to the following terms and conditions:
(a) SARs may be granted either alone, or in connection with
another previously or contemporaneously granted Award
(other than another SAR) so as to operate in tandem
therewith by having the exercise of one affect the
right to exercise the other, as and when the Committee
may determine; however, no SAR shall be awarded in
connection with a Qualified Option more than ten (10)
<PAGE 4> years after the date the Plan is adopted by
the Board or the date the Plan is approved by the
Corporation's stockholders, whichever date is earlier;
(b) Each SAR shall entitle the participant to receive upon
exercise of the SAR all or a portion of the excess of
(1) the fair market value at the time of such exercise
of a specified number of shares of Stock as determined
by the Committee, over (ii) a specified price as
determined by the Committee of such number of shares of
Stock that, on a per share basis, is not less than the
Stock's fair market value at the time the SAR is
awarded, or if the SAR is connected with another Award,
such lesser percentage of the Stock purchase price
thereunder as may be determined by the Committee;
(c) Upon exercise of any SAR, the participant shall be paid
either in cash or in Stock, or in any combination
thereof, as the Committee shall determine. If such
payment is to be made in Stock, the number of shares
thereof to be issued pursuant to the exercise shall be
determined by dividing the amount payable upon exercise
by the Stock's fair market value at the time of
exercise;
(d) The time period during which any SAR is exercisable, as
determined by the Committee, shall not commence before
the expiration of six (6) months; however, no SAR
connected with another Award shall be exercisable
beyond the last date that such other connected Award
may be exercised;
(e) If a participant holding a SAR, before its lapse or
full exercise, ceases to be eligible under the Plan,
the Committee may permit the participant thereafter to
exercise such SAR during its remaining term, to the
extent that the SAR was then and remains exercisable,
for such time period and under such terms and
conditions as may be prescribed by the Committee;
(f) No SAR shall be awarded in connection with any
Qualified Option unless the SAR (i) lapses no later
than the expiration date of such connected Option,
(ii) is for not more than the difference between the
Stock purchase price under such connected Option and
the Stock's fair market value at the time the SAR is
exercised, (iii) is transferable only when and as such
connected Option is transferable and under the same
conditions, (iv) may be exercised only when such
connected Option may be exercised, and (v) may be
exercised only when the Stock's fair market value
exceeds the Stock purchase price under such connected
Option.
<PAGE 5>
10. Restricted Stock. In addition to other applicable
provisions of the Plan, all Restricted Stock and Awards
thereof shall be under and subject to the following terms
and conditions:
(a) Restricted Stock shall consist of shares of Stock that
may be acquired by and issued to a participant at such
time, for such or no purchase price, and under and
subject to such transfer, forfeiture and other
restrictions, conditions or terms as shall be
determined by the Committee, including but not limited
to prohibitions against transfer, substantial risks of
forfeiture within the meaning of Section 83 of the
Code, and attainment of performance or other goals,
objectives or standards, all for or applicable to such
time periods as determined by the Committee;
(b) Except as otherwise provided in the Plan or the
Restricted Stock Award, a participant holding shares of
Restricted Stock shall have all the rights as does a
holder of Stock, including without limitation the right
to vote such shares and receive dividends with respect
thereto; however, during the time period of any
restrictions, conditions or terms applicable to such
Restricted Stock, the shares thereof and the right to
vote the same and receive dividends thereon shall not
be sold, assigned transferred, exchanged, pledged,
hypothecated, encumbered or otherwise disposed of
except as permitted by the Plan or the Restricted Stock
Award;
(c) Each certificate issued for shares of Restricted Stock
shall be deposited with the Secretary of the
Corporation, or the officer thereof, and shall bear a
legend in substantially the following form and content:
This Certificate and the shares of Stock
hereby represented are subject to the
provisions of the Corporation's 1998 Stock
Incentive Plan and a certain agreement
entered into between the holder and the
Corporation pursuant to the Plan. The
release of this Certificate and the shares of
Stock hereby represented from such provisions
shall occur only as provided by the Plan and
agreement, a copy of which are on file in the
office of the Secretary of the Corporation.
Upon the lapse or satisfaction of the restrictions,
conditions and terms applicable to the Restricted
Stock, a certificate for the shares of Stock free of
restrictions and without the legend shall be issued to
the participant;
<PAGE 6>
(d) If a participant's employment with the Corporation or a
Subsidiary ceases for any reason prior to the lapse of
the restrictions, conditions or terms applicable to his
or her Restricted Stock, all of the participant's
Restricted Stock still subject to unexpired
restrictions, conditions or terms shall be forfeited
absolutely by the participant to the Corporation
without payment or delivery of any consideration or
other thing of value by the Corporation or its
affiliates, and thereupon and thereafter neither the
participant nor his or her heirs, personal or legal
representatives, successors, assigns, beneficiaries, or
any claimants under the participant's will or laws of
descent and distribution shall have any rights or
claims to or interests in the forfeited Restricted
Stock or any certificates representing shares thereof,
or claims against the Corporation or its affiliates
with respect thereto.
11. Exercise. Except as otherwise provided in the Plan, Awards
may be exercised in whole or in part by giving written
notice thereof to the Secretary of the Corporation, or his
or her designee, identifying the Award to be exercised, the
number of shares of Stock with respect thereto, and other
information pertinent to exercise of the Award. The
purchase price of the shares of Stock with respect to which
an Award is exercised shall be paid with the written notice
of exercise, either in cash or in securities of the
Corporation, including securities issuable hereunder, at its
then current fair market value, or in any combination
thereof, as the Committee shall determine. Funds received
by the Corporation from the exercise of any Award shall be
used for its general corporate purposes.
The number of shares of Stock subject to an Award shall be
reduced by the number of shares of Stock with respect to
which the participant has exercised rights under the Award.
If a SAR is awarded in connection with another Award, the
number of shares of Stock that may be acquired by the
participant under the other connected Award shall be reduced
by the number of shares of Stock with respect to which the
participant has exercised his or her SAR, and the number of
shares of Stock subject to the participant's SAR shall be
reduced by the number of shares of Stock acquired by the
participant pursuant to the other connected award.
The Committee may permit an acceleration of previously
established exercise terms of any Awards as, when, under
such facts and circumstances, and subject to such other or
further requirements and conditions as the Committee may
deem necessary or appropriate.
In addition:
<PAGE 7>
(a) if the Corporation or its shareholders execute an
agreement to dispose of all or substantially all of the
Corporation's assets or stock by means of sale, merger,
consolidation, reorganization, liquidation or
otherwise, as a result of which the Corporation's
shareholders,immediately before the transaction, will
not own at least fifty percent(50%) of the total
combined voting power of all classes of voting stock of
the surviving entity (be it the Corporation or
otherwise) immediately after the consummation of the
transaction, then any and all outstanding Awards shall
immediately become and remain exercisable or, if the
transaction is not consummated , until the agreement
relating to the transaction expires or is terminated,in
which case, all Awards shall be treated as if the
agreement was never executed;
(b) if there is an actual, attempted or threatened change
in the ownership of at least twenty-five percent (25%)
of all classes of voting stock of the Corporation
through the acquisition of, or an offer to acquire such
percentage of the Corporation's voting stock by any
person or entity, or persons or entities acting in
concert or as a group, and such acquisition or offer
has not been duly approved by the Board, then any and
all outstanding Awards shall immediately become and
remain exercisable, or
(c) if during any period of two (2) consecutive years, the
individuals who at the beginning of such period
constituted the Board cease, for any reason, to
constitute at least a majority of the Board (unless the
election of each director of the Board who was not a
director of the Board at the beginning of such period,
was approved by a vote of at least two-thirds of the
directors then still in office who were directors at
the beginning of such period) then any and all Awards
shall immediately become and remain exercisable.
12. Right of First Refusal. Each written agreement for an Award
may contain a provision that requires as a condition to
exercising a Qualified Option or a Non-Qualified Option that
the participant agree prior to selling, transferring or
otherwise disposing of any shares of Stock obtained through
the exercise of the Award to first offer such shares of
Stock to the Corporation for purchase. The terms and
conditions of such right of first refusal shall be
determined by the Committee in its sole and absolute
discretion, provided that the purchase price shall be at
least equal to the Stock's fair market value as determined
under paragraph 14 below, and shall be subject to all
applicable federal and state laws, rules and regulations.
<PAGE 8>
13. Withholding. When a participant exercises a stock option or
Stock Appreciation Right awarded under the Plan, the
Corporation, in its discretion and as required by law, may
require the participant to remit to the Corporation an
amount sufficient to satisfy fully any federal, state and
other jurisdictions' income and other tax withholding
requirements prior to the delivery of any certificates for
shares of Stock. At the Committee's discretion, remittance
may be made in cash, shares already held by the participant
or by the withholding by the Corporation of sufficient
shares issuable pursuant to the option to satisfy the
participant's withholding obligation.
14. Value. Where used in the Plan, the "fair market value" of
Stock or any of options or rights with respect thereto,
including Awards, shall mean and be determined by (a) the
average of the highest and lowest reported sales prices
thereof on the principal established domestic securities
exchange on which listed, and if not listed, then (b) the
average of the dealer " bid" and "ask" prices thereof on the
over-the-counter market, as reported by the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") in either case as of the specified or otherwise
required or relevant time, or if not traded as of such
specified, required or relevant time, then based upon such
reported sales or "bid" and "ask" prices before and/or after
such time in accordance with pertinent provisions of and
principles under the Code and the regulations promulgated
thereunder.
15. Amendment. To the extent permitted by applicable law, the
Board may amend, suspend, or terminate the Plan at any time.
The amendment or termination of this Plan shall not, without
the consent of the participants, alter or impair any rights
or obligations under any Award previously granted hereunder.
From time to time, the Committee may rescind, revise and add
to any of the terms, conditions and provisions of the Plan
or of an Award as necessary, or appropriate to have the Plan
and any Awards thereunder be or remain qualified and in
compliance with all applicable laws, rules and regulations,
and the Committee may delete, omit or waive of the terms
conditions or provisions that are no longer required by
reason of changes of applicable laws, rules or regulations,
including but not limited to, the provisions of Sections 421
and 422 of the Code, Section 16 of the Securities Exchange
Act of 1934, as amended, (the "1934 Act") and the rules and
regulations promulgated by the Securities and Exchange
Commission. Without limiting the generality of the preceding
sentence, each Qualified Option shall be subject to such
other and additional terms, conditions and provisions as the
Committee may deem necessary or appropriate in order to
qualify as a Qualified Option under Section 422 of the Code,
including, but not limited to, the following provisions:
<PAGE 9>
(a) At the time a Qualified Option is awarded, the
aggregate fair market value of the Stock subject
thereto and of any Stock or other capital stock with
respect to which incentive stock options qualifying
under Sections 421 and 422 of the Code are exercisable
for the first time by the participant during any
calendar year under the Plan and any other plans of the
Corporation or its affiliates, shall not exceed
$100,000.00; and
(b) No Qualified Option, shall be awarded to any person if,
at the time of the Award, the person owns shares of the
stock of the Corporation possessing more than ten
percent (10%) of the total combined voting power of all
classes of stock of the Corporation or its affiliates,
unless, at the time the Qualified Option is awarded.
the exercise price of the Qualified Option is at least
one hundred and ten percent (110%) of the fair market
value of the Stock on the date of grant and the option,
by its terms, is not exercisable after the expiration
of five (5) years from the date it is awarded.
16. Continued Employment. Nothing in the Plan or any Award
shall confer upon any participant or other persons any right
to continue in the employ of, or maintain any particular
relationship with, the Corporation or its affiliates, or
limit or affect any rights, powers or privileges that the
Corporation or its affiliates may have to supervise,
discipline and terminate the participant. However, the
Committee may require, as a condition of making and/or
exercising any Award, that a participant agree to, and in
fact provide services, either as an employee or in another
capacity, to or for the Corporation or any Subsidiary for
such time period as the Committee may prescribe. The
immediately preceding sentence shall not apply to any
Qualified Option to the extent such application would result
in disqualification of the option under Sections 421 and 422
of the Code.
17. General Restrictions. If the Committee or Board determines
that it is necessary or desirable to: (a) list, register or
qualify the Stock subject to the Award, or the Award itself,
upon any securities exchange or under any federal or state
securities or other laws, (b) obtain the approval of any
governmental authority, or (c) enter into an agreement with
the participant with respect to disposition of any Stock
(including, without limitations an agreement that, at the
time of the participant's exercise of the Award, any Stock
thereby acquired is and will be acquired solely for
investment purposes and without any intention to sell or
distribute the Stock), then such Award shall not be
<PAGE 10> consummated, in whole or in part, unless the
listing, registration, qualification, approval or agreement
as the case may be, shall have been appropriately effected
or obtained to the satisfaction of the Committee and legal
counsel for the Corporation.
18. Rights. Except as otherwise provided in the Plan,
participants shall have no rights as a holder of the Stock
unless and until one or more certificates for the shares of
Stock are issued and delivered to the participants.
19. Adjustments. In the event that the shares of common stock
of the Corporation, as presently constituted, shall be
changed into or exchanged for a different number or kind of
shares of common stock or other securities of the
Corporation or of other securities of the Corporation or of
another corporation (whether by reason of merger,
consolidation, recapitization, reclassification, split-up,
combination of shares or otherwise) or if the number of such
shares of common stock shall be increased through the
payment of a stock dividend, stock split or similar
transaction, then, there shall be substituted for or added
to each share of common stock of the Corporation that was
theretofore appropriated, or which thereafter may become
subject to an option under the Plan, the number and kind of
shares of common stock or other securities into which each
outstanding share of the common stock of the Corporation
shall be so changed or for which each such share shall be
exchanged or to which each such shares shall be entitled, as
the case may be. Each outstanding Award shall be
appropriately amended as to price and other terms as may be
necessary to reflect the foregoing events.
If there shall be any other change in the number or kind of
the outstanding shares of the common stock of the
Corporation, or of any common stock or other securities in
which such common stock shall have been changed, or for
which it shall have been exchanged, and if a majority of the
disinterested members of the Committee shall, in its sole
discretion, determine that such change equitably requires an
adjustment in any Award that was theretofore granted or that
may thereafter be granted under the Plan, then such
adjustment shall be made in accordance with such
determination.
The grant of an Award under the Plan shall not affect in any
way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes
of its capital or business structure, to merge, to
consolidate, to dissolve, to liquidate or to sell or
transfer all or any part of its business or assets.
Fractional shares resulting from any adjustment in Awards
pursuant to this Section 19 may be settled as a majority of
<PAGE 11> the members of the Board of Directors or of the
Committee, as the case may be, shall determine.
To the extent that the foregoing adjustments relate to
common stock or securities of the Corporation, such
adjustments shall be made by a majority of the members of
the Board or of the Committee, as the case may be, whose
determination in that respect shall be final, binding and
conclusive. Notice of any adjustment shall be given by the
Corporation to each holder of an Award that is so adjusted.
20. Forfeiture. Notwithstanding anything to the contrary in
this Plan, if the Committee finds, after full consideration
of the facts presented on behalf of the Corporation and the
involved participant, that he or she has been engaged in
fraud, embezzlement, theft, commission of a felony, or
dishonesty in the course of his or her employment by the
Corporation or by any Subsidiary and such action has damaged
the Corporation or the Subsidiary, as the case may be, or
that the participant has disclosed trade secrets of the
Corporation or its affiliates, the participant shall forfeit
all rights under and to all unexercised Awards, and under
and to all exercised Awards under which the Corporation has
not yet delivered payment or certificates for shares of
Stock (as the case may be), all of which Awards and rights
shall be automatically canceled. The decision of the
Committee as to the cause of the participant's discharge
from employment with the Corporation or any Subsidiary and
the damage thereby suffered shall be final for purposes of
the Plan, but shall not affect the finality of the
participant's discharge by the Corporation or Subsidiary for
any other purposes. The preceding provisions of this
paragraph shall not apply to any Qualified Option to the
extent such application would result in disqualification of
the option as an incentive stock option under Sections 421
and 422 of the Code.
21. Indemnification. In and with respect to the administration
of the Plan, the Corporation shall indemnify each member of
the Committee and/or of the Board, each of whom shall be
entitled, without further action on his or her part, to
indemnification from the Corporation for all damages,
losses, judgments, settlement amounts, punitive damages,
excise taxes, fines, penalties, costs and expenses
(including without limitation attorneys' fees and
disbursements) incurred by the member in connection with any
threatened, pending or completed action, suit or other
proceedings of any nature, whether civil, administrative
investigative or criminal, whether formal or informal, and
whether by or in the right or name of the Corporation, any
class of its security holders, or otherwise, in which the
member may be or may have been involved, as a party or
otherwise, by reason of his or her being or having been a
member of the Committee and/or of the Board, whether or not
<PAGE 12> he or she continues to be a member of the
Committee or of the Board. The provisions, protection and
benefits of this Section shall apply and exist to the
fullest extent permitted by applicable law to and for the
benefit of all present and future members of the Committee
and/or of the Board and their respective heirs, personal and
legal representatives, successors and assigns, in addition
to all other rights that they may have as a matter of law,
by contract, or otherwise, except (a) to the extent there is
entitlement to insurance proceeds under insurance coverages
provided by the Corporation on account of the same matter
or proceeding for which indemnification hereunder is
claimed, or (b) to the extent there is entitlement to
indemnification from the Corporation, other that under this
Section, on account of the same matter or proceeding for
which indemnification hereunder is claimed.
22. Taxes. The issuance of shares of Common Stock under the
Plan shall be subject to any applicable taxes or other laws
or regulations of the United States of America and any state
or local authority having jurisdiction there over.
23. Miscellaneous.
(a) Any reference contained in this Plan to particular
section or provision of law, rule or regulation,
including but not limited to the Code and the 1934 Act,
shall include any subsequently enacted or promulgated
section or provision of law, rule or regulation as the
case may be. With respect to persons subject to
Section 16 of the 1934 Act, transactions under this
Plan are intended to comply with all applicable
conditions of Section 16 and the rules and regulations
promulgated thereunder, or any successor rules and
regulations that may be promulgated by the Securities
and Exchange Commission, and to the extent any
provision of this Plan or action by the Committee falls
to so comply, it shall be deemed null and void, to the
extent permitted by applicable law and deemed advisable
by the Committee.
(b) Where used in this Plan: the plural shall include the
singular, and unless the context otherwise clearly
requires, the singular shall include the plural; and
the term "affiliates" shall mean each and every
Subsidiary and any parent of the Corporation.
(c) The captions of the numbered Sections contained in this
Plan are for convenience only, and shall not limit or
affect the meaning, interpretation or construction of
any of the provisions of the Plan.
------------
<PAGE 13>
END
------------
<PAGE 14>
EXHIBIT 10.10
EXHIBIT "B"
FIRST LEESPORT BANCORP, INC.
1998 INDEPENDENT DIRECTORS STOCK OPTION PLAN
1. Purpose. The 1998 Independent Directors Stock Option
Plan (the "Plan") was established to advance the development,
growth and financial condition of First Leesport Bancorp, Inc
(the "Corporation") and its subsidiaries, by providing an
incentive, through participation in the appreciation of the
capital stock of the Corporation, and thereby securing, retaining
and motivating members of the Corporation's Board of Directors
who are not officers or employees of the Corporation or any
subsidiary thereof (the "non-employee directors").
2. Term. The plan shall become effective as of the date
it is adopted by the Corporation's Board of Directors (the
"Board"), and shall be presented for approval at the next meeting
of the Corporation's shareholders. Any and all options awarded
under the Plan before it is approved by the Corporation's
shareholders shall be conditioned upon, and may not be exercised
before, receipt of shareholder approval, and shall lapse upon
failure to receive such approval. Unless previously terminated
by the Board, the Plan shall terminate on, and no options shall
be granted after the sixth anniversary of the effective date of
the Plan.
3. Stock. The shares of the Corporation's common stock
(the "Common Stock") issuable under the Plan shall not exceed
50,000 shares. The amount of the Common Stock issuable under the
Plan may be adjusted pursuant to Section 10 hereof. The Common
Stock issuable hereunder may either be authorized and unissued
shares of Common Stock, or authorized shares of Common Stock
issued by the Corporation and subsequently reacquired by it as
treasury stock, or shares purchased in open market transactions.
Under no circumstances shall fractional shares be issued under
the Plan. The Corporation's failure to obtain any governmental
authority deemed necessary by the Corporation's legal counsel for
the proper grant of the stock options under this Plan and/or the
issuance of Common Stock under the Plan shall relieve the
Corporation of any duty or liability for the failure to grant
stock options under the Plan and/or issue Common Stock under the
Plan as to which such authority has not been obtained.
4. Stock Options. Options will be granted under the Plan
period as determined by the Board with no commitment annually or
otherwise. Each non-employee director who is a member of the
Corporation's Board of Directors on the grant date shall be
awarded stock options to purchase shares of Common Stock (the
"Stock Options") under the following terms and conditions:
<PAGE 1>
(a) The time period during which any Stock Option is
exercisable shall be ten (10) years after the date of the grant.
(b) If a director, who has received an award pursuant
to the Plan, ceases to be a member of the Board of Directors for
any reason, then the director may exercise the Stock Option not
more than three (3) months after such cessation. If a director,
who has received an award pursuant to the Plan dies, the
director's qualified personal representative, or any person who
acquires a Stock Option pursuant to the director's Will or the
laws of descent and distribution, may exercise such stock Option
during its remaining term for a period of not more than twelve
(12) months after the director's death to the extent that the
Stock Option would then be and remains exercisable.
(c) The purchase price of a share of Common Stock
subject to a Stock Option shall be the fair market value of the
Common Stock on the date of grant, as determined under Section 6
thereof.
(d) The Stock Option shall be made by a written
agreement in accordance with the terms of this Plan, and pursuant
to additional terms as may be determined by the Committee (as
such term is defined in Section 12 hereof) (the "Stock Option
Agreement").
5. Exercise. Except as otherwise provided in the Plan, a
Stock Option may be exercised in whole or in part by giving
written notice thereof to the Secretary of the Corporation, or
his designee, identifying the Stock Option being exercised, the
number of shares of Common Stock with respect thereto, and other
information pertinent to the exercise of the Stock Option. The
purchase price of the shares of Common Stock with respect to
which a Stock Option is exercised shall be paid with the written
notice of exercise, either in cash or in Common Stock, including
Common Stock issuable hereunder, at its then current fair market
value, or any combination of cash or Common Stock. Funds
received by the Corporation from the exercise of any Stock Option
shall be used for its general corporate purposes. The number of
shares of Common Stock subject to a Stock Option shall be reduced
by the number of shares of Common Stock with respect to which the
director has exercised rights under the related Stock Option
Agreement.
If the Corporation or its shareholders execute an agreement
to dispose of all or substantially all of the Corporation's
assets or capital stock by means of sale, merger, consolidation,
reorganization, liquidation or otherwise, as a result of which
the Corporation's shareholders as of immediately before such
transaction will not own at least fifty percent (50%) of the
total combined voting power of all classes of voting capital
stock of the surviving entity (be it the Corporation or
otherwise) immediately after the consummation of such
transaction, thereupon any and all outstanding Stock Options
<PAGE 2> shall immediately become exercisable until the
consummation of such transaction, or if not consummated, until
the agreement therefor expires or is terminated, in which case
thereafter all Stock Options shall be treated as if the agreement
never had been executed. If during any period of two (2)
consecutive years, the individuals, who at the beginning of such
period, constituted the Board of Directors, cease for any reason
to constitute at least a majority of the Board of Directors
(unless the election of each director of the Board of Directors,
who was not a director of the Board of Directors at the beginning
of such period, was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the
beginning of such period) thereupon any and all outstanding Stock
Options shall immediately become exercisable. If there is an
actual, attempted or threatened change in the ownership of at
least twenty-five percent (25%) of any class of voting stock of
the Corporation through the acquisition of, or an offer to
acquire, such percentage of the Corporation's voting stock by any
person or entity, or persons or entities acting in concert or as
a group, and such acquisition or offer has not been duly approved
by the Board of Directors, thereupon any and all outstanding
Stock Options shall immediately become exercisable.
6. Value. Where used in the Plan, the "fair market value"
of Stock or any options or rights with respect thereto, including
Awards, shall mean and be determined by (a) the average of the
highest and lowest reported sales prices thereof on the principal
established domestic securities exchange on which listed, and if
not listed, then (b) the average of the dealer (bid" and "ask"
prices thereof on the over-the-countermarket, as reported by the
National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), in either case as of the specified or
otherwise required or relevant time, or if not traded as of such
specified, required or relevant time, then based on such reported
sales or "bid" and "ask" prices before and/or after such time in
accordance with pertinent provisions of and principles under the
Code and the regulations promulgated thereunder.
7. Continued Relationship. Nothing in the Plan or in any
Stock Option shall confer upon any director any right to continue
his relationship with the Corporation as a director, or limit or
affect any rights, powers or privileges that the Corporation or
its shareholders may have with respect to the director's
relationship with the Corporation.
8. General Restrictions. The Board of Directors may
require, in its discretion, (a) the listing, registration or
qualification of the Common Stock issuable pursuant to the Plan
on any securities exchange or under any federal or state
securities or other laws, (b) the approval of any governmental
authority, or (c) an execution of agreement by any director with
respect to disposition of any Common Stock (including, without
limitation, that at the time of the director's exercise of the
Stock Option, any Common Stock thereby acquired is being and will
<PAGE 3> be acquired solely for investment purposes and without
any intention to sell or distribute the Common Stock). If the
Board of Directors so requires, then Stock Options shall not be
exercised, in whole or in part, unless such listing,
registration, qualification, approval or agreement has been
appropriately effected or obtained to the satisfaction of the
Board of Directors and legal counsel for the Corporation.
Notwithstanding anything to the contrary herein, a director shall
not sell, transfer or otherwise dispose of any shares of Common
Stock acquired pursuant to a Stock Option unless at least six (6)
months have elapsed from the date the Stock Option was granted
and, in any event, the transfer or disposition is made in
accordance with Section 16 of the Securities Exchange Act of
1934, as amended, and as the same may be amended from time to
time.
9. Rights. Except as otherwise provided in the Plan, a
director shall have no rights as a holder of the Common Stock
subject to a Stock Option unless and until one or more
certificates for the shares of Common Stock are issued and
delivered to the director. No Stock Option, or the grant
thereof, shall limit or affect the right or power of the
Corporation or its affiliates to adjust, reclassify,
recapitalize, reorganize or otherwise change its or their capital
or business structure, or to merge, consolidate, dissolve,
liquidate or sell any or all of its or their business, property
or assets.
10. Adjustments. In the event that the shares of Common
Stock of the Corporation, as presently constituted, shall be
changed into or exchanged for a different number or kind of
shares of Common Stock or other securities of the Corporation or
of another corporation (whether by reason of merger,
consolidation, recapitalization, reclassification, split-up,
combination of shares or otherwise) or if the number of shares of
Common Stock shall be increased through the payment of a stock
dividend, stock split or similar transaction, then, there shall
be substituted for or added to each share of Common Stock of the
Corporation that was theretofore appropriated, or that thereafter
may become subject to a Stock Option under the Plan, the number
and kind of shares of Common Stock or other securities into which
each outstanding share of the Common Stock of the Corporation
shall be so changed or for which each such share shall be
exchanged or to which each share shall be entitled, as the case
may be. Each outstanding Stock Option shall be appropriately
amended as to price and other terms, as may be necessary to
reflect the foregoing events.
If there shall be any other change in the number or kind of
the outstanding shares of Common Stock of the Corporation, or of
any Common Stock or other securities into which such Common Stock
shall have been changed, or for which it shall have been
exchanged, and if a majority of the members of the Board of
Directors shall, in their sole discretion, determine that the
<PAGE 4> change equitably requires an adjustment in any Stock
Option that was theretofore granted or that may thereafter be
granted under the Plan, then such adjustment shall be made in
accordance with the determination.
The grant of a Stock Option pursuant to the Plan shall not
affect, in any way, the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structure, to merge, to consolidate, to
dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.
Fractional shares resulting from any adjustment in a Stock
Option pursuant to this Section 10 may be settled as a majority
of the members of the Board of Directors or of the Committee, as
the case may be, shall determine.
To the extent that the foregoing adjustments relate to
Common Stock or securities of the Corporation, such adjustments
shall be made by a majority of the members of the Board of
Directors or of the Committee, as the case may be, whose
determination in that respect shall be final, binding and
conclusive. Notice of any adjustment shall be given by the
Corporation to each holder of a Stock Option that is so adjusted.
11. Forfeiture. Notwithstanding anything to the contrary
in this Plan, if any option holder is engaged in fraud,
embezzlement, theft, commission of a felony, or dishonesty in the
course of his relationship with the Corporation or its
affiliates, or has disclosed trade secrets of the Corporation or
its affiliates, the option holder shall forfeit all rights under
and to all unexercised Stock Options, and all exercised Stock
Options for which the Corporation has not yet delivered
certificates for shares of Common Stock, and all rights to
receive Stock Options shall be automatically canceled.
12. Administration. The ability to control and manage the
operation and administration of the Plan shall be vested in the
Board of Directors or in a committee of two or more members of
the Board of Directors, selected by the Board of Directors (the
"Committee"). The Committee shall have the authority and
discretion to interpret the Plan, to establish, amend and rescind
any rules and regulations relating to the Plan, to determine the
terms and provisions of any agreements made pursuant to the Plan,
and to make any and all determinations that may be necessary or
advisable for the administration of the Plan. Any interpretation
of the Plan by the Committee and any decision made by it under
the Plan is final and binding.
13. Miscellaneous. Any reference contained in this Plan to
a particular section or provision of law, rule or regulation
shall include any subsequently enacted or promulgated section or
provision of law, rule or regulation, as the case may be. With
respect to the persons subject to Section 16 of the Securities
<PAGE 5> Exchange Act of 1934, as amended, transactions under
this Plan are intended to comply with all applicable conditions
of the Rule and the regulations promulgated thereunder or any
successor rule that may be promulgated by the Securities and
Exchange Commission. To the extent any provision of this Plan
fails to so comply, it shall be deemed null and void, to the
extent permitted by applicable law, subject to the provisions of
Section 15, below. Where used in this Plan, the plural shall
include the singular, and, unless the context otherwise clearly
requires, the singular shall include the plural and the masculine
shall include the feminine. The captions of the numbered
Sections contained in this Plan are for convenience only, and
shall not limit or affect the meaning, interpretation or
construction of any of the provisions of the Plan.
14. Transferability. Except as otherwise provided by the
Board of Directors, Stock Options granted under the Plan are not
transferable except as designated by the participant by will and
the laws of descent and distribution.
15. Amendment. The Plan may be amended, suspended or
terminated, without notice, by a majority vote of the Board of
Directors of the Corporation.
16. Taxes. The issuance of shares of Common Stock under
the Plan shall be subject to any applicable taxes or other laws
or regulations of the United States of American and any state or
local authority having jurisdiction there over.
----------
END
----------
<PAGE 6>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 17th day of September,
1998, among FIRST LEESPORT BANCORP, INC. ("Bancorp"), a
Pennsylvania business corporation having a place of business at
133 North Centre Avenue, Leesport, Pennsylvania, ESSICK & BARR,
INC. ("E&B"), a Pennsylvania corporation having a place of
business at 108 South Fifth Street, Reading, Pennsylvania 19612
and CHARLES J. HOPKINS ("Executive"), an individual residing at
80 Cheltenham Drive, Wyomissing, Pennsylvania 19610.
WITNESSETH:
WHEREAS, Bancorp and E&B have entered into an Agreement
and Plan of Reorganization dated September 17, 1998 (the "Merger
Agreement");
WHEREAS, The First National Bank of Leesport ("Bank")
is a wholly owned banking subsidiary of Bancorp;
WHEREAS, pursuant to the Merger Agreement, E&B will be
a wholly owned subsidiary of Bancorp on the Effective Date as set
forth in Section 2.02 of the Agreement;
WHEREAS, E&B desires to employ Executive to serve in
the capacity of President and Chief Executive Officer of E&B on
the terms and conditions set forth herein;
WHEREAS, Executive desires to accept employment with
E&B on the terms and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, the parties hereto, intending to be
legally bound, agree as follows:
1. Employment. E&B hereby employs Executive and
Executive hereby accepts employment with E&B, on the terms and
conditions set forth in this Agreement. It is expressly agreed
that this Agreement will become null and void, and the parties
shall have no obligation or responsibility to each other, if the
Merger Agreement does not become effective.
2. Duties of Employee. Executive shall perform and
discharge well and faithfully such duties as an executive officer
of E&B as may be assigned to Executive from time to time by the
Board of Directors of E&B. Executive shall be employed as
President and Chief Executive Officer of E&B, and shall hold such
other titles as may be given to him from time to time by the
Board of Directors of E&B. Executive shall devote his full time,
attention and energies to the business of E&B during the
Employment Period (as defined in Section 3 of this Agreement);
<PAGE 1> provided, however, that this Section 2 shall not be
construed as preventing Executive from (a) investing Executive's
personal assets in enterprises that do not compete with Bancorp,
Bank or E&B or (b) being involved in any other activity with the
prior approval of the Board of Directors of E&B.
3. Term of Agreement.
(a) This Agreement shall be for a five (5) year
period (the "Employment Period") beginning on the Effective Date
as set forth in Section 2.02 of the Merger Agreement and ending
five (5) years later. The Employment Period shall be
automatically extended on the first anniversary date of the
Effective Date as set forth in the Merger Agreement and on the
same date of each subsequent year (the "Annual Renewal Date") for
a period ending five (5) years from each Annual Renewal Date
unless either party shall give written notice of nonrenewal to
the other party at least ninety (90) days prior to an Annual
Renewal Date, in which event this Agreement shall terminate at
the end of the then existing Employment Period.
(b) Notwithstanding the provisions of
Section 3(a) of this Agreement, this Agreement shall terminate
automatically for Cause (as defined herein) upon written notice
from the Board of Directors of E&B to Executive. As used in this
Agreement, "Cause" shall mean any of the following:
(i) Executive's conviction of or plea of
guilty or nolo contendere to a felony, a crime of falsehood
or a crime involving moral turpitude, or the actual
incarceration of Executive for a period of at least thirty
(30) days;
(ii) Executive's failure to follow the good
faith lawful instructions of the Board of Directors of E&B
with respect to its operations following written notice of
such instructions; or
(iii) Executive's failure to perform
Executive's duties to E&B (other than a failure resulting
from Executive's incapacity because of physical or mental
illness, as provided in subsection (d) of this Section 3),
after notice from E&B or Bancorp and a failure to cure such
violation within ten (10) days of said notice, unless it is
apparent under the circumstances that Executive is unable to
cure such violation, which failure results in injury to
Bancorp, Bank or E&B, monetarily or otherwise.
(iv) Executive's intentional violation of
the provisions of this Agreement; or
(v) dishonesty or gross negligence of the
Executive in the performance of his duties;
<PAGE 2>
(vi) conduct on the part of the Executive
which brings public discredit to the Bancorp, Bank or E&B;
(vii) Executive's breach of fiduciary duty
involving personal profit; or
(viii) Executive's loss or non-renewal of
insurance license.
(ix) Executive's removal or prohibition from
being an institutional-affiliated party by a final order of
an appropriate federal banking agency pursuant to
Section 8(e) of the Federal Deposit Insurance Act or by the
Pennsylvania Department of Banking Commission pursuant to
state law.
If this Agreement is terminated for Cause, Executive's rights
under this Agreement shall cease as of the effective date of such
termination.
(c) Notwithstanding the provisions of
Section 3(a) of this Agreement, this Agreement shall terminate
automatically upon Executive's voluntary termination of
employment (other than in accordance with Section 5 of this
Agreement), retirement at Executive's election, or Executive's
death, and Executive's rights under this Agreement shall cease as
of the date of such voluntary termination, retirement at
Executive's election, or death; provided, however, that if
Executive dies after Executive delivers a Notice of Termination
(as defined in Section 5(a) of this Agreement), the provisions of
Section 13(b) of this Agreement shall apply.
(d) Notwithstanding the provisions of
Section 3(a) of this Agreement, this Agreement shall terminate
automatically upon Executive's disability and Executive's rights
under this Agreement shall cease as of the date of such
termination; provided, however, that if Executive becomes
disabled after Executive delivers a Notice of Termination (as
defined in Section 5(a) of this Agreement), Executive shall
nevertheless be absolutely entitled to receive all of the
compensation and benefits provided for in, and for the term set
forth in, Section 6 of this Agreement. For purposes of this
Agreement, disability shall mean Executive's incapacitation by
accident, sickness or otherwise which renders Executive mentally
or physically incapable of performing the services required of
Executive for the entire period of six (6) consecutive months.
(e) Executive agrees that in the event his
employment under this Agreement is terminated, Executive shall
resign as a director of E&B and Bancorp, or any affiliate or
subsidiary thereof, if he is then serving as a director of any of
such entities.
<PAGE 3>
4. Employment Period Compensation.
(a) Salary. For services performed by Executive
under this Agreement, E&B shall pay Executive an Annual Base
Salary in the aggregate during the Employment Period at the rate
of Two Hundred Thirty Thousand ($230,000) Dollars per year,
payable at the same times as salaries are payable to other
executive employees of E&B. E&B may, from time to time, increase
Executive's Annual Base Salary, and any and all such increases
shall be deemed to constitute amendments to this Section 4(a) to
reflect the increased amounts, effective as of the date
established for such increases by the Board of Directors of E&B
or any committee of such Board in the resolutions authorizing
such increases.
(b) Commission. Executive shall receive
scheduled commission payments based on the formula as set forth
in Exhibit A hereto. It is strictly understood and agreed that
any commissions earned by Executive shall not be offset by any
salary payments received under subsection (a) of this Section 4.
In the event of termination of Executive for any reason
whatsoever, any commissions earned up to the date of termination
will be paid to Executive on the same commission schedule.
Notwithstanding the foregoing, if it is determined by Bancorp or
E&B, in their sole discretion, that there are misrepresentations
or other material defects in an insurance transaction by
Executive which would disqualify the insurance transaction, the
Executive shall forfeit any and all commissions earned on such
insurance transaction.
(c) Bonus. For services performed by Executive
under this Agreement, Executive shall be entitled to receive a
bonus based upon the attainment of certain goals which such goals
will be agreed upon annually by the Executive and the Board of
Directors of E&B and Bancorp. The payment of any such bonuses
shall not reduce or otherwise affect any other obligation of E&B
to Executive provided for in this Agreement.
(d) Vacations. During the term of this
Agreement, Executive shall be entitled to paid annual vacation in
accordance with the policies established for senior executives at
Bancorp. However, Executive shall not be entitled to receive any
additional compensation from E&B for failure to take a vacation,
nor shall Executive be able to accumulate unused vacation time
from one year to the next, except to the extent authorized by the
Board of Directors of E&B.
544 Automobile. During the term of this
Agreement, E&B shall provide Executive with exclusive use of an
automobile mutually agreed upon by Bank and E&B. E&B shall be
responsible and shall pay for all costs of insurance coverage,
repairs, maintenance and other operating and incidental expenses,
including license, fuel and oil. E&B shall provide Executive
<PAGE 4> with a replacement automobile at approximately the time
Executive's automobile reaches three (3) years of age or 50,000
miles, whichever is first, and approximately every three (3)
years or 50,000 miles thereafter, upon the same terms and
conditions.
(f) Employee Benefit Plans. During the term of
this Agreement, Executive shall be entitled to participate in and
receive the benefits of any Employee Benefit Plan currently in
effect at E&B, until such time that the Board of Directors of E&B
authorize a change in such benefits. Nothing paid to Executive
under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the
salary payable to Executive pursuant to Section 4(a) hereof.
(g) 1999 Stock Options. Bancorp agrees to
prepare and submit to its shareholders, in connection with its
1999 Annual Meeting of Shareholders, a stock option plan
providing for the grant of stock options to key employees of Bank
and E&B. Executive shall be granted stock options to purchase
such number of whole shares of the Common Stock of Bancorp equal
to the quotient of (x) $700,000 divided by (y) the Closing Market
Price of the Common Stock of Bancorp as defined in
Section 2.01(d) of the Merger Agreement, effective upon the date
of shareholder approval of such plan, at an exercise price equal
to the fair market value of such shares on the date of grant.
Such options shall be subject to a five (5) year vesting
provision, with 1/5 of the total number of options vesting on the
first annual anniversary of your employment with Bank and E&B and
an additional 1/5 of the total number of options vesting on each
subsequent annual anniversary date thereafter. Such options will
provide for a term of ten years. Notwithstanding the foregoing,
in the event of a Change in Control as defined in Section 5(b) of
this Agreement, the stock options will automatically become fully
vested.
5. Termination of Employment Following Change in
Control.
(a) If a Change in Control (as defined in
Section 5(b) of this Agreement) shall occur and if thereafter at
any time during the term of this Agreement there shall be:
(i) any involuntary termination of
Executive's employment (other than for the reasons set forth
in Section 3(b) or 3(d) of this Agreement);
(ii) any reduction in Executive's title,
responsibilities, including reporting responsibilities, or
authority, including such title, responsibilities or
authority as such title, responsibilities or authority may
be increased from time to time during the term of this
Agreement;
<PAGE 5>
(iii) the assignment to Executive of duties
inconsistent with Executive's office on the date of the
Change in Control or as the same may be increased from time
to time after the Change in Control;
(iv) any reassignment of Executive to a
location greater than fifty (50) miles from the location of
Executive's office on the date of the Change in Control;
(v) any reduction in Executive's Annual Base
Salary in effect on the date of the Change in Control or as
the same may be increased from time to time after the Change
in Control;
(vi) any failure to continue Executive's
participation in any of E&B's commission compensation or
bonus plans in which Executive participated at the time of
the Change in Control or any change or amendment to any
provisions of any of such plans which would materially
decrease the potential benefits to Executive under any of
such plans;
(vii) any failure to provide Executive with
benefits at least as favorable as those enjoyed by Executive
under any of E&B's retirement or pension, life insurance,
medical, health and accident, disability or other employee
plans in which Executive participated at the time of the
Change in Control, or the taking of any action that would
materially reduce any of such benefits in effect at the time
of the Change in Control;
(viii) any requirement that Executive travel
in performance of his duties on behalf of E&B for a
significantly greater period of time during any year than
was required of Executive during the year preceding the year
in which the Change in Control occurred; or
(ix) any sustained pattern of interruption
or disruption of Executive for matters substantially
unrelated to Executive's discharge of Executive's duties on
behalf of E&B.
then, at the option of Executive, exercisable by Executive within
one hundred twenty (120) days of the occurrence of any of the
foregoing events, Executive may resign from employment with E&B
(or, if involuntarily terminated, give notice of intention to
collect benefits under this Agreement) by delivering a notice in
writing (the "Notice of Termination") to Bank and E&B and the
provisions of Section 6 of this Agreement shall apply.
(b) As used in this Agreement, "Change in
Control" shall mean the occurrence of any of the following:
<PAGE 6>
(i) (A) a merger, consolidation or division
involving Bancorp, (B) a sale, exchange, transfer or other
disposition of substantially all of the assets of Bancorp,
or (C) a purchase by Bancorp of substantially all of the
assets of another entity, unless (x) such merger,
consolidation, division, sale, exchange, transfer, purchase
or disposition is approved in advance by seventy percent
(70%) or more of the members of the Board of Directors of
Bancorp who are not interested in the transaction and (y) a
majority of the members of the Board of Directors of the
legal entity resulting from or existing after any such
transaction and of the Board of Directors of such entity's
parent corporation, if any, are former members of the Board
of Directors of Bancorp; or
(ii) any other change in control of Bancorp
similar in effect to any of the foregoing.
6. Rights in Event of Termination of Employment
Following Change in Control.
(a) In the event that Executive delivers a Notice
of Termination (as defined in Section 5(a) of this Agreement) to
Bancorp and E&B, Executive shall be absolutely entitled to
receive the compensation and benefits set forth below:
(i) If, at the time of termination of
Executive's employment, a "Tax Change" (as defined in
Section 6(a)(iii) of this Agreement) has also occurred, E&B
shall make, in the aggregate, a lump sum cash payment to
Executive no later than thirty (30) days following the date
of such termination in an amount equal to and no greater
than two [2.0] times the Executive's Annual Base Salary, as
defined in subsection (a) of Section 4, in effect on the
date of termination of employment.
(ii) If, at the time of termination of
Executive's employment, a "Tax Change" has not occurred, E&B
shall make a lump sum cash payment to Executive no later
than thirty (30) days following the date of such termination
in an amount equal to and no greater than two [2.0] times
the Executive's Annual Base Salary, as defined in
subsection (a) of Section 4, in effect on the date of
termination of employment.
(iii) For purposes of this Agreement, "Tax
Change" means a change (A) in the ownership or effective
control of Bancorp or (B) in the ownership of a substantial
portion of the assets of Bancorp, determined pursuant to
regulations promulgated under Section 28OG of the Code.
Such term also means any similar change with respect to Bank
or E&B or an affiliate, to the extent provided in such
regulations.
<PAGE 7>
(iv) To the extent benefits become payable
under Section 6(a)(i) or Section 6(a)(ii) by reason of
Executive's termination of employment on or after his
attainment of age 621/2, the following amount, if less than
the amount calculated under the relevant section, shall be
paid within thirty (30) days of such termination in lieu of
the amount otherwise payable.
(v) Notwithstanding the foregoing, if any
portion of the payment due pursuant to this Section 6 is
found to violate any of the proscriptions in Section 359 of
the Federal Deposit Insurance Corporation Rules and
Regulations, then E&B shall not be obligated to make such
payment found to be violated.
If Termination Occurs Percentage of Annual
Base Salary Payable
On or after 62-1/2 but before age 63 200%
On or after 63 but before age 63-1/2 200%
On or after age 63-1/2 but before age 64 150%
On or after 64 but before age 641/2 100%
On or after age 641/2 but before age 65 50%
On or after age 65 0%
For purposes of this paragraph, the term "Annual Base Salary"
shall mean the Executive's annual salary, as defined in
subsection (a) of Section 4, in effect on the date of termination
of employment.
(b) Executive shall not be required to mitigate
the amount of any payment provided for in this Section 6 by
seeking other employment or otherwise. The amount of payment or
the benefit provided for in this Section 6 shall not be reduced
by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's
receipt of or right to receive any retirement or other benefits
after the date of termination of employment or otherwise.
7. Rights in Event of Termination of Employment
Absent Change in Control.
(a) In the event that Executive's employment is
involuntarily terminated by E&B without Cause and no Change in
Control shall have occurred at the date of such termination, E&B
shall pay (or cause to be paid), in the aggregate, to Executive
in cash, in an amount equal to the Executive's Annual Base Salary
in effect on the date of termination for the remainder of the
then existing Employment Term, paid at the same intervals as the
<PAGE 8> salary is payable under Subsection (a) of Section 4.
Notwithstanding the preceding sentence, in the event that the
payment described in the preceding sentence, when added to all
other amounts or benefits provided to or on behalf of the
Executive in connection with his termination of employment, would
result in the imposition of an excise tax under Code
Section 4999, such sum would be retroactively (if necessary)
reduced to the extent necessary to avoid such imposition. Upon
written notice to Executive, together with calculations of E&B's
independent auditors, Executive shall remit to E&B the amount of
the reduction plus such interest as may be necessary to avoid the
imposition of such excise tax.
(b) Executive shall not be required to mitigate
the amount of any payment provided for in this Section 7 by
seeking other employment or otherwise. The amount of payment or
the benefit provided for in this Section 7 shall not be reduced
by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's
receipt of or right to receive any retirement or other benefits
after the date of termination of employment or otherwise.
(c) To the extent benefits become payable under
this Section 7 by reason of termination of Executive's employment
on or after his attainment of age 621/2 , the amounts set forth
in
Section 6(a)(iv), if less than the amounts payable under this
Section 7, shall be paid within thirty (30) days of such
termination in lieu of the amount otherwise payable under this
Section 7.
(d) The amounts payable pursuant to this
Section 7 shall constitute Executive's sole and exclusive remedy
in the event of involuntary termination of Executive's employment
by E&B in the absence of a Change in Control.
8. Covenant Not to Compete.
(a) Executive hereby acknowledges and recognizes
the highly competitive nature of the business of Bancorp, Bank
and E&B and accordingly agrees that, during and for the
applicable period set forth in Section 8(c) hereof, Executive
shall not:
(i) be engaged, directly or indirectly,
either for his own account or as agent, consultant,
employee, partner, officer, director, proprietor, investor
(except as an investor owning less than 5% of the stock of a
publicly owned company) or otherwise of any person, firm,
corporation or enterprise engaged in (1) the banking
(including bank holding company) or financial services
industry, or (2) the insurance agency or brokerage industry,
or (3) any other activity in which Bancorp, Bank or E&B or
any of its subsidiaries is engaged during the Employment
Period, in any county in which, at any time during the
<PAGE 9> Employment Period or at the date of termination of
the Executive's employment, a branch, office or other
facility of Bancorp, Bank or E&B or any of its subsidiaries
is located, or in any county contiguous to such a county,
including contiguous counties located outside of the
Commonwealth of Pennsylvania (the "Non-Competition Area");
or
(ii) provide financial or other assistance
to any person, firm, corporation, or enterprise engaged in
(1) the banking (including bank holding company) or
financial services industry, or (2) the insurance agency or
brokerage industry, or (3) any other activity in which Bank
or E&B or any of their subsidiaries are engaged during the
Employment Period, in the Non-Competition Area; or
(iii) solicit current and former customers
of Bancorp, Bank or E&B in the NonCompetition Area.
(b) It is expressly understood and agreed that,
although Executive and Bancorp, Bank and E&B consider the
restrictions contained in Section 8(a) hereof reasonable for the
purpose of preserving for Bancorp, Bank and E&B and their
subsidiaries their good will and other proprietary rights, if a
final judicial determination is made by a court having
jurisdiction that the time or territory or any other restriction
contained in Section 8(a) hereof is an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of
Section 8(a) hereof shall not be rendered void but shall be
deemed amended to apply as to such maximum time and territory and
to such other extent as such court may judicially determine or
indicate to be reasonable.
(c) The provisions of this Section 8 shall be
applicable commencing on the date of this Agreement and ending on
one of the following dates, as applicable:
(i) if Executive's employment terminates in
accordance with the provisions of Section 3 (other than
Section 3(b) relating to termination for Cause), the same
date as the ending date of the then existing Employment
Period;
(ii) if Executive's employment terminates in
accordance with the provisions of Section 3(b) of this
Agreement (relating to termination for Cause), the second
anniversary date of the effective date of termination of
employment; or
(iii) if the Executive voluntarily
terminates his employment in accordance with the provisions
of Section 5 hereof, the second anniversary date of the
effective date of termination of employment.
<PAGE 10>
(iv) If the Executive's employment is
involuntarily terminated in accordance with the provisions
of Section 7, the same date as the ending date of the then
existing Employment Period.
9. Unauthorized Disclosure. During the term of his
employment hereunder, or at any later time, the Executive shall
not, without the written consent of the Board of Directors of the
Bancorp, Bank and E&B or a person authorized thereby, knowingly
disclose to any person, other than an employee of the Bancorp and
E&B or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive
of his duties as an executive of E&B, any material confidential
information obtained by him while in the employ of E&B with
respect to any of Bancorp's, Bank's and E&B's services, products,
improvements, formulas, designs or styles, processes, customers,
methods of business or any business practices the disclosure of
which could be or will be damaging to Bancorp, Bank or E&B;
provided, however, that confidential information shall not
include any information known generally to the public (other than
as a result of unauthorized disclosure by the Executive or any
person with the assistance, consent or direction of the
Executive) or any information of a type not otherwise considered
confidential by persons engaged in the same business of a
business similar to that conducted by Bancorp, Bank or E&B or any
information that must be disclosed as required by law.
10. Notices. Except as otherwise provided in this
Agreement, any notice required or permitted to be given under
this Agreement shall be deemed properly given if in writing and
if mailed by registered or certified mail, postage prepaid with
return receipt requested, to Executive's residence, in the case
of notices to Executive, and to the principal executive offices
of Bancorp and E&B, in the case of notices to Bancorp and E&B.
11. Waiver. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by Executive and
an executive officer specifically designated by the Board of
Directors of E&B. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with,
any condition or provision of this Agreement to similar or
dissimilar provisions or conditions at the same or at any prior
or subsequent time.
12. Assignment. This Agreement shall not be
assignable by any party, except by Bancorp, Bank and E&B to any
successor in interest to their respective businesses.
13. Entire Agreement. This Agreement contains the
entire agreement of the parties relating to the subject matter of
this Agreement.
<PAGE 11>
14. Successors, Binding Agreement.
(a) Bancorp, Bank and E&B will require any
successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of the
businesses and/or assets of Bancorp, Bank and E&B to expressly
assume and agree to perform this Agreement in the same manner and
to the same extent that Bancorp, Bank and E&B would be required
to perform it if no such succession had taken place. Failure by
Bancorp and E&B to obtain such assumption and agreement prior to
the effectiveness of any such succession shall constitute a
breach of this Agreement and the provisions of Section 3 of this
Agreement shall apply. As used in this Agreement, "Bancorp",
"Bank" and "E&B" shall mean Bancorp, Bank and E&B as defined
previously and any successor to their respective businesses
and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law or otherwise.
(b) This Agreement shall inure to the benefit of
and be enforceable by Executive's personal or legal
representatives, executors, administrators, heirs, distributees,
devisees and legatees. If Executive should die after a Notice of
Termination is delivered by Executive, or following termination
of Executive's employment without Cause, and any amounts would be
payable to Executive under this Agreement if Cause, and any
amounts would be payable to Executive under this Agreement if
Executive had continued to live, all such amounts shall be paid
in accordance with the terms of this Agreement to Executive's
devisee, legatee, or other designee, or, if there is no such
designee, to Executive's estate.
15. Damages for Breach of Contract. In the event of a
breach of this Agreement by either the Bancorp, E&B or Executive
resulting in damages to another party to this Agreement, that
party may recover from the party breaching the Agreement only
those damages as set forth herein. In the event any dispute
arises regarding this Agreement, each party shall bear its own
attorney's fees and costs.
16. Validity. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
17. Applicable Law. This Agreement shall be governed
by and construed in accordance with the domestic, internal laws
of the Commonwealth of Pennsylvania, without regard to its
conflicts of laws principles.
<PAGE 12>
18. Headings. The section headings of this Agreement
are for convenience only and shall not control or affect the
meaning or construction or limit the scope or intent of any
of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
ATTEST: FIRST LEESPORT BANCORP, INC.
__________________________ By_________________________________
"Bancorp"
ESSICK & BARR, INC.
__________________________ By_________________________________
"E&B"
WITNESS:
_________________________ __________________________________
Charles J. Hopkins
"Executive"
<PAGE 13>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 17th day of September,
1999, among FIRST LEESPORT BANCORP, INC. ("Bancorp"), a
Pennsylvania business corporation having a place of business at
133 North Centre Avenue, Leesport, Pennsylvania, ESSICK & BARR,
INC. ("E&B"), a Pennsylvania corporation having a place of
business at 108 South Fifth Street, Reading, Pennsylvania 19612
and MICHAEL D. HUGHES ("Executive"), an individual residing at
411 Elm Avenue, Reading, Pennsylvania 19605.
WITNESSETH:
WHEREAS, Bancorp and E&B have entered into an Agreement
and Plan of Reorganization dated September 17, 1998 (the "Merger
Agreement");
WHEREAS, The First National Bank of Leesport ("Bank")
is a wholly owned banking subsidiary of Bancorp;
WHEREAS, pursuant to the Merger Agreement, E&B will be
a wholly owned subsidiary of Bancorp on the Effective Date as set
forth in Section 2.02 of the Agreement;
WHEREAS, E&B desires to employ Executive to serve in
the capacity of Vice President of E&B on the terms and conditions
set forth herein;
WHEREAS, Executive desires to accept employment with
E&B on the terms and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, the parties hereto, intending to be
legally bound, agree as follows:
1. Employment. E&B hereby employs Executive and
Executive hereby accepts employment with E&B, on the terms and
conditions set forth in this Agreement. It is expressly agreed
that this Agreement will become null and void, and the parties
shall have no obligation or responsibility to each other, if the
Merger Agreement does not become effective.
2. Duties of Employee. Executive shall perform and
discharge well and faithfully such duties as an executive officer
of E&B as may be assigned to Executive from time to time by the
Board of Directors and the President and Chief Executive Officer
of E&B. Executive shall be employed as Vice President of E&B,
and shall hold such other titles as may be given to him from time
to time by the Board of Directors and the President and Chief
Executive Officer of E&B. Executive shall devote his full time,
attention and energies to the business of E&B during the
<PAGE 1> Employment Period (as defined in Section 3 of this
Agreement); provided, however, that this Section 2 shall not be
construed as preventing Executive from (a) investing Executive's
personal assets in enterprises that do not compete with Bancorp,
Bank or E&B or (b) being involved in any other activity with the
prior approval of the Board of Directors of E&B.
3. Term of Agreement.
(a) This Agreement shall be for a five (5) year
period (the "Employment Period") beginning on the Effective Date
as set forth in Section 2.02 of the Merger Agreement and ending
five (5) years later. The Employment Period shall be
automatically extended on the first anniversary date of the
Effective Date as set forth in the Merger Agreement and on the
same date of each subsequent year (the "Annual Renewal Date") for
a period ending five (5) years from each Annual Renewal Date
unless either party shall give written notice of nonrenewal to
the other party at least ninety (90) days prior to an Annual
Renewal Date, in which event this Agreement shall terminate at
the end of the then existing Employment Period.
(b) Notwithstanding the provisions of
Section 3(a) of this Agreement, this Agreement shall terminate
automatically for Cause (as defined herein) upon written notice
from the Board of Directors of E&B to Executive. As used in this
Agreement, "Cause" shall mean any of the following:
(i) Executive's conviction of or plea of
guilty or nolo contendere to a felony, a crime of falsehood
or a crime involving moral turpitude, or the actual
incarceration of Executive for a period of at least thirty
(30) days;
(ii) Executive's failure to follow the good
faith lawful instructions of the Board of Directors of E&B
with respect to its operations, following written notice of
such instructions; or
(iii) Executive's failure to perform
Executive's duties to E&B (other than a failure resulting
from Executive's incapacity because of physical or mental
illness, as provided in subsection (d) of this Section 3),
after notice from E&B or Bancorp and a failure to cure such
violation within ten (10) days of said notice, unless it is
apparent under the circumstances that Executive is unable to
cure such violation, which failure results in injury to
Bancorp, Bank or E&B, monetarily or otherwise.
(iv) Executive's intentional violation of
the provisions of this Agreement; or
(v) dishonesty or gross negligence of the
Executive in the performance of his duties; <PAGE 2>
(vi) conduct on the part of the Executive
which brings public discredit to Bancorp, Bank or E&B;
(vii) Executive's breach of fiduciary duty,
involving personal profit; or
(viii) Executive's loss or non-renewal of
insurance license.
(ix) Executive's removal or prohibition from
being an institutional-affiliated party by a final order of
an appropriate federal banking agency pursuant to
Section 8(e) of the Federal Deposit Insurance Act or by the
Pennsylvania Department of Banking Commission pursuant to
state law.
If this Agreement is terminated for Cause, Executive's rights
under this Agreement shall cease as of the effective date of such
termination.
(c) Notwithstanding the provisions of
Section 3(a) of this Agreement, this Agreement shall terminate
automatically upon Executive's voluntary termination of
employment (other than in accordance with Section 5 of this
Agreement), retirement at Executive's election, or Executive's
death, and Executive's rights under this Agreement shall cease as
of the date of such voluntary termination, retirement at
Executive's election, or death; provided, however, that if
Executive dies after Executive delivers a Notice of Termination
(as defined in Section 5(a) of this Agreement), the provisions of
Section 13(b) of this Agreement shall apply.
(d) Notwithstanding the provisions of
Section 3(a) of this Agreement, this Agreement shall terminate
automatically upon Executive's disability and Executive's rights
under this Agreement shall cease as of the date of such
termination; provided, however, that if Executive becomes
disabled after Executive delivers a Notice of Termination (as
defined in Section 5(a) of this Agreement), Executive shall
nevertheless be absolutely entitled to receive all of the
compensation and benefits provided for in, and for the term set
forth in, Section 6 of this Agreement. For purposes of this
Agreement, disability shall mean Executive's incapacitation by
accident, sickness or otherwise which renders Executive mentally
or physically incapable of performing the services required of
Executive for the entire period of six (6) consecutive months.
(e) Executive agrees that in the event his
employment under this Agreement is terminated, Executive shall
resign as a director of E&B and Bancorp, or any affiliate or
subsidiary thereof, if he is then serving as a director of any of
such entities.
<PAGE 3>
4. Employment Period Compensation.
(a) Salary. For services performed by Executive
under this Agreement, E&B shall pay Executive an Annual Base
Salary in the aggregate during the Employment Period at the rate
of One Hundred Thousand Dollars ($100,000) per year, payable at
the same times as salaries are payable to other executive
employees of E&B. E&B may, from time to time, increase
Executive's Annual Base Salary, and any and all such increases
shall be deemed to constitute amendments to this Section 4(a) to
reflect the increased amounts, effective as of the date
established for such increases by the Board of Directors of E&B
or any committee of such Board in the resolutions authorizing
such increases.
(b) Commission. Executive shall receive
scheduled commission payments based on the formula as set forth
in Exhibit A hereto. It is strictly understood and agreed that
any commissions earned by Executive shall not be offset by any
salary payments received under subsection (a) of this Section 4.
In the event of termination of Executive for any reason
whatsoever, any commissions earned up to the date of termination
be paid to Executive on the same commission schedule.
Notwithstanding the foregoing, if it is determined by Bancorp or
E&B, in their sole discretion, that there are misrepresentations
or other material defects in an insurance transaction by
Executive which would disqualify the insurance transaction, the
Executive shall forfeit any and all commissions earned on such
sale.
(c) Bonus. For services performed by Executive
under this Agreement, Executive shall be entitled to receive a
bonus based upon the attainment of certain goals which such goals
will be agreed upon annually by the Executive and the Board of
Directors of E&B and approved by Bancorp. The payment of any
such bonuses shall not reduce or otherwise affect any other
obligation of E&B to Executive provided for in this Agreement.
(d) Vacations. During the term of this
Agreement, Executive shall be entitled to paid annual vacation in
accordance with the policies established for senior executives at
Bancorp. However, Executive shall not be entitled to receive any
additional compensation from E&B for failure to take a vacation,
nor shall Executive be able to accumulate unused vacation time
from one year to the next, except to the extent authorized by the
Board of Directors of E&B.
254 Automobile. During the term of this
Agreement, E&B shall provide Executive with exclusive use of an
automobile mutually agreed upon by Bank and E&B. E&B shall be
responsible and shall pay for all costs of insurance coverage,
repairs, maintenance and other operating and incidental expenses,
including license, fuel and oil. E&B shall provide Executive
<PAGE 4> with a replacement automobile at approximately the time
Executive's automobile reaches three (3) years of age or 50,000
miles, whichever is first, and approximately every three (3)
years or 50,000 miles thereafter, upon the same terms and
conditions.
(f) Employee Benefit Plans. During the term of
this Agreement, Executive shall be entitled to participate in and
receive the benefits of any Employee Benefit Plan currently in
effect at E&B, until such time that the Board of Directors of E&B
authorize a change in such benefits. Nothing paid to Executive
under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the
salary payable to Executive pursuant to Section 4(a) hereof.
(g) 1999 Stock Options. Bancorp agrees to
prepare and submit to its shareholders, in connection with its
1999 Annual Meeting of Shareholders, a stock option plan
providing for the grant of stock options to key employees of Bank
and E&B. Executive shall be granted stock options to purchase
such number of whole shares of the Common Stock of Bancorp equal
to the quotient of (x) $300,000 divided by (y) the Closing Market
Price of the Common Stock of Bancorp as defined in
Section 2.01(d) of the Merger Agreement, effective upon the date
of shareholder approval of such plan, at an exercise price equal
to the fair market value of such shares on the date of grant.
Such options shall be subject to a five (5) year vesting
provision, with 1/5 of the total number of options vesting on the
first annual anniversary of your employment with Bank and E&B and
an additional 1/5 of the total number of options vesting on each
subsequent annual anniversary date thereafter. Such options will
provide for a term of ten years. Notwithstanding the foregoing,
in the event of a Change in Control as defined in Section 5(b) of
this Agreement, the stock options will automatically become fully
vested.
5. Termination of Employment Following Change in
Control.
(a) If a Change in Control (as defined in
Section 5(b) of this Agreement) shall occur and if thereafter at
any time during the term of this Agreement there shall be:
(i) any involuntary termination of
Executive's employment (other than for the reasons set forth
in Section 3(b) or 3(d) of this Agreement);
(ii) any reduction in Executive's title,
responsibilities, including reporting responsibilities, or
authority, including such title, responsibilities or
authority as such title, responsibilities or authority may
be increased from time to time during the term of this
Agreement;
<PAGE 5>
(iii) the assignment to Executive of duties
inconsistent with Executive's office on the date of the
Change in Control or as the same may be increased from time
to time after the Change in Control;
(iv) any reassignment of Executive to a
location greater than fifty (50) miles from the location of
Executive's office on the date of the Change in Control;
(v) any reduction in Executive's Annual Base
Salary in effect on the date of the Change in Control or as
the same may be increased from time to time after the Change
in Control;
(vi) any failure to continue Executive's
participation in any of E&B's commission compensation or
bonus plans in which Executive participated at the time of
the Change in Control or any change or amendment to any
provisions of any of such plans which would materially
decrease the potential benefits to Executive under any of
such plans;
(vii) any failure to provide Executive with
benefits at least as favorable as those enjoyed by Executive
under any of E&B's retirement or pension, life insurance,
medical, health and accident, disability or other employee
plans in which Executive participated at the time of the
Change in Control, or the taking of any action that would
materially reduce any of such benefits in effect at the time
of the Change in Control;
(viii) any requirement that Executive travel
in performance of his duties on behalf of E&B for a
significantly greater period of time during any year than
was required of Executive during the year preceding the year
in which the Change in Control occurred;
(ix) any sustained pattern of interruption
or disruption of Executive for matters substantially
unrelated to Executive's discharge of Executive's duties on
behalf of E&B; or
then, at the option of Executive, exercisable by Executive within
one hundred twenty (120) days of the occurrence of any of the
foregoing events, Executive may resign from employment with E&B
(or, if involuntarily terminated, give notice of intention to
collect benefits under this Agreement) by delivering a notice in
writing (the "Notice of Termination") to Bank and E&B and the
provisions of Section 6 of this Agreement shall apply.
(b) As used in this Agreement, "Change in
Control" shall mean the occurrence of any of the following:
<PAGE 6>
(i) (A) a merger, consolidation or division
involving Bancorp, (B) a sale, exchange, transfer or other
disposition of substantially all of the assets of Bancorp,
or (C) a purchase by Bancorp of substantially all of the
assets of another entity, unless (x) such merger,
consolidation, division, sale, exchange, transfer, purchase
or disposition is approved in advance by seventy percent
(70%) or more of the members of the Board of Directors of
Bancorp who are not interested in the transaction and (y) a
majority of the members of the Board of Directors of the
legal entity resulting from or existing after any such
transaction and of the Board of Directors of such entity's
parent corporation, if any, are former members of the Board
of Directors of Bancorp; or
(ii) any other change in control of Bancorp
similar in effect to any of the foregoing.
6. Rights in Event of Termination of Employment
Following Change in Control.
(a) In the event that Executive delivers a Notice
of Termination (as defined in Section 5(a) of this Agreement) to
Bancorp and E&B, Executive shall be absolutely entitled to
receive the compensation and benefits set forth below:
(i) If, at the time of termination of
Executive's employment, a "Tax Change" (as defined in
Section 6(a)(iii) of this Agreement) has also occurred, E&B
shall make, in the aggregate, a lump sum cash payment to
Executive no later than thirty (30) days following the date
of such termination in an amount equal to and no greater
than two [2.0] times the Executive's Annual Base Salary, as
defined in subsection (a) of Section 4, in effect on the
date of termination of employment.
(ii) If, at the time of termination of
Executive's employment, a "Tax Change" has not occurred, E&B
shall make a lump sum cash payment to Executive no later
than thirty (30) days following the date of such termination
in an amount equal to and no greater than two [2.0] times
the Executive's Annual Base Salary, as defined in
subsection (a) of Section 4, in effect on the date of
termination of employment.
(iii) For purposes of this Agreement, "Tax
Change" means a change (A) in the ownership or effective
control of Bancorp or (B) in the ownership of a substantial
portion of the assets of Bancorp, determined pursuant to
regulations promulgated under Section 28OG of the Code.
Such term also means any similar change with respect to Bank
or E&B or an affiliate, to the extent provided in such
regulations.
<PAGE 7>
(iv) To the extent benefits become payable
under Section 6(a)(i) or Section 6(a)(ii) by reason of
Executive's termination of employment on or after his
attainment of age 621/2, the following amount, if less than
the amount calculated under the relevant section, shall be
paid within thirty (30) days of such termination in lieu of
the amount otherwise payable.
(v) Notwithstanding the foregoing, if any
portion of the payment due pursuant to this Section 6 is
found to violate any of the proscriptions in Section 359 of
the Federal Deposit Insurance Corporation Rules and
Regulations, then E&B shall not be obligated to make such
payment found to be violated.
If Termination Occurs Percentage of Annual
Base Salary Payable
On or after 621/2 but before age 63 200%
On or after 63 but before age 631/2 200%
On or after age 631/2 but before age 64 150%
On or after 64 but before age 64-1/2 100%
On or after age 641/2 but before age 65 50%
On or after age 65 0%
For purposes of this paragraph, the term "Annual Base Salary"
shall mean the Executive's annual salary, as defined in
subsection (a) of Section 4, in effect on the date of termination
of employment.
(b) Executive shall not be required to mitigate
the amount of any payment provided for in this Section 6 by
seeking other employment or otherwise. The amount of payment or
the benefit provided for in this Section 6 shall not be reduced
by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's
receipt of or right to receive any retirement or other benefits
after the date of termination of employment or otherwise.
7. Rights in Event of Termination of Employment
Absent Change in Control.
(a) In the event that Executive's employment is
involuntarily terminated by E&B without Cause and no Change in
Control shall have occurred at the date of such termination, E&B
shall pay (or cause to be paid), in the aggregate, to Executive
in cash, in an amount equal to the Executive's Annual Base Salary
in effect on the date of termination for the remainder of the
then existing Employment Term, paid at the same intervals as the
<PAGE 8> salary is payable under Subsection (a) of Section 4.
Notwithstanding the preceding sentence, in the event that the
payment described in the preceding sentence, when added to all
other amounts or benefits provided to or on behalf of the
Executive in connection with termination of employment, would
result in the imposition of an excise tax under Code
Section 4999, such sum would be retroactively (if necessary)
reduced to the extent necessary to avoid such imposition. Upon
written notice to Executive, together with calculations of E&B's
independent auditors, Executive shall remit to E&B the amount of
the reduction plus such interest as may be necessary to avoid the
imposition of such excise tax.
(b) Executive shall not be required to mitigate
the amount of any payment provided for in this Section 7 by
seeking other employment or otherwise. The amount of payment or
the benefit provided for in this Section 7 shall not be reduced
by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's
receipt of or right to receive any retirement or other benefits
after the date of termination of employment or otherwise.
(c) To the extent benefits become payable under
this Section 7 by reason of termination of Executive's employment
on or after his attainment of age 621/2 , the amounts set forth
in
Section 6(a)(iv), if less than the amounts payable under this
Section 7, shall be paid within thirty (30) days of such
termination in lieu of the amount otherwise payable under this
Section 7.
(d) The amounts payable pursuant to this
Section 7 shall constitute Executive's sole and exclusive remedy
in the event of involuntary termination of Executive's employment
by E&B in the absence of a Change in Control.
8. Covenant Not to Compete.
(a) Executive hereby acknowledges and recognizes
the highly competitive nature of the business of Bancorp, Bank
and E&B and accordingly agrees that, during and for the
applicable period set forth in Section 8(c) hereof, Executive
shall not:
(i) be engaged, directly or indirectly,
either for his own account or as agent, consultant,
employee, partner, officer, director, proprietor, investor
(except as an investor owning less than 5% of the stock of a
publicly owned company) or otherwise of any person, firm,
corporation or enterprise engaged in (1) the banking
(including bank holding company) or financial services
industry, or (2) the insurance agency or brokerage industry,
or (3) any other activity in which Bancorp, Bank or E&B or
any of its subsidiaries is engaged during the Employment
Period, in any county in which, at any time during the
<PAGE 9> Employment Period or at the date of termination of
the Executive's employment, a branch, office or other
facility of Bancorp, Bank or E&B or any of its subsidiaries
is located, or in any county contiguous to such a county,
including contiguous counties located outside of the
Commonwealth of Pennsylvania (the "Non-Competition Area");
or
(ii) provide financial or other assistance
to any person, firm, corporation, or enterprise engaged in
(1) the banking (including bank holding company) or
financial services industry, or (2) the insurance agency or
brokerage industry, or (3) any other activity in which
Bancorp, Bank or E&B or any of their subsidiaries are
engaged during the Employment Period, in the Non-Competition
Area; or
(iii) solicit current and former customers
of Bancorp, Bank or E&B in the Non-Competition Area.
(b) It is expressly understood and agreed that,
although Executive and Bancorp, Bank and E&B consider the
restrictions contained in Section 8(a) hereof reasonable for the
purpose of preserving for Bancorp, Bank and E&B and their
subsidiaries their good will and other proprietary rights, if a
final judicial determination is made by a court having
jurisdiction that the time or territory or any other restriction
contained in Section 8(a) hereof is an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of
Section 8(a) hereof shall not be rendered void but shall be
deemed amended to apply as to such maximum time and territory and
to such other extent as such court may judicially determine or
indicate to be reasonable.
(c) The provisions of this Section 8 shall be
applicable commencing on the date of this Agreement and ending on
one of the following dates, as applicable:
(i) if Executive's employment terminates in
accordance with the provisions of Section 3 (other than
Section 3(b) relating to termination for Cause), the same
date as the ending date of the then existing Employment
Period;
(ii) if Executive's employment terminates in
accordance with the provisions of Section 3(b) of this
Agreement (relating to termination for Cause), the second
anniversary date of the effective date of termination of
employment; or
(iii) if the Executive voluntarily
terminates his employment in accordance with the provisions
of Section 5 hereof, the second anniversary date of the
effective date of termination of employment. <PAGE 10>
(iv) If the Executive's employment is
involuntarily terminated in accordance with the provisions
of Section 7, the same date as the ending date of the then
existing Employment Period.
9. Unauthorized Disclosure. During the term of his
employment hereunder, or at any later time, the Executive shall
not, without the written consent of the Board of Directors of
Bancorp, Bank and E&B or a person authorized thereby, knowingly
disclose to any person, other than an employee of Bancorp and E&B
or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive
of his duties as an executive of E&B, any material confidential
information obtained by him while in the employ of E&B with
respect to any of Bancorp's, Bank's and E&B's services, products,
improvements, formulas, designs or styles, processes, customers,
methods of business or any business practices the disclosure of
which could be or will be damaging to Bancorp, Bank or E&B;
provided, however, that confidential information shall not
include any information known generally to the public (other than
as a result of unauthorized disclosure by the Executive or any
person with the assistance, consent or direction of the
Executive) or any information of a type not otherwise considered
confidential by persons engaged in the same business of a
business similar to that conducted by Bancorp, Bank or E&B or any
information that must be disclosed as required by law.
10. Notices. Except as otherwise provided in this
Agreement, any notice required or permitted to be given under
this Agreement shall be deemed properly given if in writing and
if mailed by registered or certified mail, postage prepaid with
return receipt requested, to Executive's residence, in the case
of notices to Executive, and to the principal executive offices
of Bank and E&B, in the case of notices to Bancorp and E&B.
11. Waiver. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by Executive and
an executive officer specifically designated by the Board of
Directors of E&B. No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with,
any condition or provision of this Agreement to similar or
dissimilar provisions or conditions at the same or at any prior
or subsequent time.
12. Assignment. This Agreement shall not be
assignable by any party, except by Bancorp, Bank and E&B to any
successor in interest to their respective businesses.
13. Entire Agreement. This Agreement contains the
entire agreement of the parties relating to the subject matter of
this Agreement.
<PAGE 11>
14. Successors, Binding Agreement.
(a) Bancorp, Bank and E&B will require any
successor (whether direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of the
businesses and/or assets of Bancorp, Bank and E&B to expressly
assume and agree to perform this Agreement in the same manner and
to the same extent that Bancorp, Bank and E&B would be required
to perform it if no such succession had taken place. Failure by
Bancorp, Bank and E&B to obtain such assumption and agreement
prior to the effectiveness of any such succession shall
constitute a breach of this Agreement and the provisions of
Section 3 of this Agreement shall apply. As used in this
Agreement, "Bancorp", "Bank" and "E&B" shall mean Bancorp, Bank
and E&B as defined previously and any successor to their
respective businesses and/or assets as aforesaid which assumes
and agrees to perform this Agreement by operation of law or
otherwise.
(b) This Agreement shall inure to the benefit of
and be enforceable by Executive's personal or legal
representatives, executors, administrators, heirs, distributees,
devisees and legatees. If Executive should die after a Notice of
Termination is delivered by Executive, or following termination
of Executive's employment without Cause, and any amounts would be
payable to Executive under this Agreement if Cause, and any
amounts would be payable to Executive under this Agreement, if
Executive had continued to live, all such amounts shall be paid
in accordance with the terms of this Agreement to Executive's
devisee, legatee, or other designee, or, if there is no such
designee, to Executive's estate.
15. Damages for Breach of Contract. In the event of a
breach of this Agreement by either the Bancorp, E&C or the
Executive resulting in damages to another party to this Agreement
that party may recover from the party breaching the Agreement
only those damages as set forth herein. In the event any dispute
arises regarding this Agreement, each party shall bear its own
attorney's fees and costs.
16. Validity. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
17. Applicable Law. This Agreement shall be governed
by and construed in accordance with the domestic, internal laws
of the Commonwealth of Pennsylvania, without regard to its
conflict of laws principles.
<PAGE 12>
18. Headings. The section headings of this
Agreement are for convenience only and shall not control or
affect the meaning or construction or limit the scope or intent
of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
ATTEST: FIRST LEESPORT BANCORP, INC.
__________________________ By________________________________
"Bancorp"
ESSICK & BARR, INC.
__________________________ By_________________________________
"E&B"
WITNESS:
__________________________ __________________________________
Michael D. Hughes
"Executive"
<PAGE 13>
ARTICLES OF INCORPORATION
OF
FIRST LEESPORT BANCORP, INC.,
AS AMENDED
1. The Name of the Corporation is: First Leesport Bancorp,
Inc.
2. The Address of its Registered Office in Pennsylvania is:
133 North Centre Avenue, Leesport, Pennsylvania 19533.
3. The Purpose or Purposes of the Corporation: To have
unlimited power to engage in and do any lawful act
concerning any or all lawful business for which corporations
may be incorporated under the provisions of the Business
Corporation Law of the Commonwealth of Pennsylvania. The
Corporation is incorporated under the provisions of the
Business Corporation Law of the Commonwealth of Pennsylvania
(Act of May 5, 1933, P.L. 364 as amended).
4. The Term of Existence is: Perpetual.
5. The total number of Common Shares that the Corporation shall
have the authority to issue is 2,000,000 shares of the par
value of $5.00 per share.
6. The Name and Address of Each Incorporator, and the Number
and Class of Shares Subscribed to by Each Incorporator:
John T. Connelly 1203 Independence Drive 1 share common
Reading, PA 19609 stock
Paul E. Keim R.D. #1, Box 145 1 share common
Leesport, PA 19533 stock
Sherwood C. Rieser R.D. #1, Box 145 1 share common
Leesport, PA 19533 stock
7. Cumulative Voting Rights. Cumulative voting rights shall
not exist with respect to the election of directors.
8. Opposition of Tender (or other offer). The Board of
Directors may, if it deems it advisable, oppose a tender, or
other offer for the corporation's securities, whether the
offer is in cash or in securities of a corporation or
otherwise. When considering whether to oppose an offer, the
Board of Directors may, but it is not legally obligated to,
consider any pertinent issues; by way of illustration, but
not of limitation, the Board of Directors may, but shall not
be legally obligated to, consider any and all of the
following:
<PAGE 1>
8.1 Whether the offer price is acceptable based on the
historical and present operating results or financial
condition of the corporation.
8.2 Whether a more favorable price could be obtained for
the corporation's securities in the future.
8.3 The impact which an acquisition of the corporation
would have on its employees, depositors and customers
of the corporation and its subsidiaries in the
community which they service.
8.4 The reputation and business practices of the offeror
and its management and affiliates as they would affect
the employees, depositors and customers of the
corporation and its subsidiaries and the future value
of the corporation's stock.
8.5 The value of the securities, if any, which the offeror
is offering in exchange for the corporation's
securities, based on an analysis of the worth of the
corporation as compared to the corporation or other
entity whose securities are being offered.
8.6 Any antitrust or other legal and regulatory issues that
are raised by the offer.
If the Board of Directors determines that an offer should be
rejected, it may take any lawful action to accomplish its
purpose including, but not limited to, any and all of the
following: advising shareholders not to accept the offer;
litigation against the offeror; filing complaints with all
governmental and regulatory authorities; acquiring the
authorized but unissued securities or treasury stock or
granting options with respect thereto; acquiring a company
to create an antitrust or other regulatory problem for the
offeror; and obtaining a more favorable offer from another
individual or entity.
9. Classification of Directors. The Board of Directors of the
Corporation shall be divided into three classes, the
respective terms of office of which shall end in successive
years. The number of directors in each class shall be
specified in the Bylaws and shall be nearly as equal as
possible. Unless they are elected to fill vacancies, the
directors in each class shall be elected to hold office
until the third successive annual meeting of shareholders
after their election and until their successors shall have
been elected and qualified. At each annual meeting of
shareholders the directors of only one class shall be
elected, except directors who may be elected to fill
vacancies.
<PAGE 2>
10. Preemptive Rights. No holder of shares of any class or of
any series of any class shall have any preemptive right to
subscribe for, purchase or receive any shares of the
corporation, whether now or hereafter authorized, or any
obligations or other securities convertible into or carrying
options to purchase any such shares of the corporation, or
any options or rights to purchase any such shares or
securities, issued or sold by the corporation for cash or
any other form of consideration, and any such shares,
securities or rights may be issued or disposed of by the
Board of Directors to such persons and on such terms as the
Board in its discretion shall deem advisable.
11. Indebtedness. The corporation shall have authority to
borrow money and the Board of Directors, without the
approval of the shareholders and acting within their sole
discretion, shall have the authority to issue debt
instruments of the corporation upon such terms and
conditions and with such limitation as the Board of
Directors deems advisable. The authority of the Board of
Directors shall include, but not be limited to, the power to
issue convertible debentures.
12. Shareholder Action. No merger, consolidation, liquidation
or dissolution of the Corporation nor any action that would
result in the sale or other disposition of all or
substantially all of the assets of the Corporation shall be
valid unless first approved by the affirmative vote of the
holders of at least seventy percent (70%) of the outstanding
shares of Common Stock. This Article may not be amended
unless first approved by the affirmative vote of the holders
of at least seventy percent (70%) of the outstanding shares
of Common Stock.
13. If any corporation, person, entity, or group becomes the
beneficial owner, directly or indirectly, of shares of
capital stock of the Corporation having the right to cast in
the aggregate 30% or more of all votes entitled to be cast
by all issued and outstanding shares of capital stock of the
Corporation entitled to vote, such corporation, person,
entity or group shall within 30 days thereafter offer to
purchase all shares of capital stock of the Corporation
issued, outstanding and entitled to vote. Such offer to
purchase shall be at a price per share equal to the highest
price paid for shares of the respective class or series of
capital stock of the Corporation purchased by such
corporation, person, entity or group within the preceding
twelve months. If such corporation, person, entity or group
did not purchase any shares of capital stock of the
Corporation within the preceding twelve months, such offer
to purchase shall be at a price per share equal to the fair
market value of such capital stock on the date on which such
corporation, person, entity or group becomes the beneficial
owner, directly or indirectly, of shares of capital stock of
<PAGE 3> the Corporation having the right to cast in the
aggregate 30% or more of all votes entitled to be cast by
all issued and outstanding capital stock of the Corporation.
Such offer shall provide that the purchase price for such
shares shall be payable in cash. The provisions of this
ARTICLE THIRTEENTH shall not apply if 80% or more of the
members of the Board of Directors of the Corporation approve
in advance the acquisition of beneficial ownership by such
corporation, person, entity or group of shares of capital
stock of the Corporation having the right to cast in the
aggregate 30% or more of all votes entitled to be cast by
all issued and outstanding shares of capital stock of the
Corporation. The provisions of this ARTICLE THIRTEENTH
shall be in addition to and not in lieu of any rights
granted under Section 910 of the Pennsylvania Business
Corporation Law and any amendment or restatement of such
section ("Section 910"); provided, however, that if the
provisions of this ARTICLE THIRTEENTH and Section 910 are
both applicable in any given instance, the price per share
to be paid for shares of capital stock of the Corporation
issued, outstanding and entitled to vote shall be the higher
of the price per share determined in accordance with this
ARTICLE THIRTEENTH or the price per share determined in
accordance with the provisions of Section 910."
<PAGE 4>
INDEX
TO BYLAWS OF
FIRST LEESPORT BANCORP, INC.
ARTICLE I. - MEETINGS OF SHAREHOLDERS
Section 101. Place of Meetings
Section 102. Annual Meetings
Section 103. Special Meetings
Section 104. Conduct of Shareholders' Meetings
ARTICLE II. - DIRECTORS AND BOARD MEETINGS
Section 201. Management by Board of Directors
Section 202. Nomination for Directors
Section 203. Certain Director Qualifications
Section 204. Eligibility and Mandatory Retirement
Section 205. Number of Directors
Section 206. Classification of Directors
Section 207. Vacancies
Section 208. Compensation of Directors
Section 209. Regular Meetings
Section 210. Special Meetings
Section 211. Reports and Records
Section 212. Liability of Directors; Indemnification
ARTICLE III. - COMMITTEES
Section 301. Committees
Section 302. Executive Committee
Section 303. Appointment of Committee Members
Section 304. Organization and Proceedings
ARTICLE IV. - OFFICERS
Section 401. Officers
Section 402. Chairman of the Board
Section 403. Vice Chairman of the Board
Section 404. President
Section 405. Vice Presidents
Section 406. Secretary
Section 407. Treasurer
Section 408. Assistant Officers
Section 409. Compensation
Section 410. General Powers
ARTICLE V. - INDEMNIFICATION
Section 501. Mandatory Indemnification
Section 502. Optional Indemnification
ARTICLE VI. - SHARES OF CAPITAL STOCK
Section 601. Authority to Sign Share Certificates
Section 602. Lost or Destroyed Certificates
ARTICLE VII. - GENERAL <PAGE 1>
Section 701. Fiscal Year
Section 702. Record Date
Section 703. Absentee Participation in Meeting
Section 704. Emergency Bylaws
Section 705. Severability
ARTICLE VIII. - AMENDMENT OR REPEAL
Section 801. Amendment or Repeal by the Board of
Directors
Section 802. Recording Amendments and Repeals
ARTICLE IX. - APPROVALS OF AMENDED BYLAWS AND RECORD
OF AMENDMENTS AND REPEALS
Section 901. Approval and Effective Date
PAGE 2
<PAGE>
BYLAWS
OF
FIRST LEESPORT BANCORP, INC.
RESTATED
These Bylaws are supplemental to the Pennsylvania Business
Corporation Law and other applicable provisions of law, as
the same shall from time to time be in effect.
ARTICLE I. MEETINGS OF SHAREHOLDERS.
Section 101. Place of Meetings. All meetings of the
shareholders shall be held at such place or places, within or
without the Commonwealth of Pennsylvania, as shall be determined
by the Board of Directors from time to tine.
Section 102. Annual Meetings. The annual meeting of the
shareholders for the election of Directors or the transaction of
such other business as may properly come before the meeting shall
be held at such date or hour as may be fixed by the Board of
Directors. Any business which is a proper subject for
shareholder action may be transacted at the annual meeting,
irrespective of whether the notice of said meeting contains any
reference thereto, except as otherwise provided by applicable
law.
Section 103. Special Meetings. Special meetings of the
shareholders may be called at any time by the Board of Directors,
or by the shareholders entitled to cast at least twenty percent
(20%) of the vote which all shareholders are entitled to cast at
the particular meeting.
Section 104. Conduct of Shareholders' Meetings. The
Chairman of the Board shall preside at all shareholders'
meetings. In the absence of the Chairman of the Board, the
Senior Vice Chairman shall preside or, in his/her absence, the
Vice Chairman. The officer presiding over the shareholders'
meeting may establish such rules and regulations for the conduct
of the meeting as he/she may deem to be reasonably necessary or
desirable for the orderly and expeditious conduct of the meeting.
Unless the officer presiding over the shareholders' meeting
otherwise requires, shareholders need not vote by ballot on any
question.
ARTICLE II. DIRECTORS AND BOARD MEETINGS.
Section 201. Management by Board of Directors. The
business and affairs of the Corporation shall be managed by its
Board of Directors. The Board of Directors may exercise all such
powers of the Corporation and do all such lawful acts and things
as are not by statute, regulation, the Articles of Incorporation
<PAGE 3> or these Bylaws directed or required to be exercised or
done by the shareholders.
Section 202. Nomination for Directors. Nominations for
directors to be elected at an annual meeting of shareholders,
except those made by Management of the Corporation, must be
submitted to the Secretary of the Corporation in writing not
later than the close of business on the twentieth (20th) day
immediately preceding the date of the meeting. Such notification
shall contain the following information to the extent known to
the notifying shareholder: (a) name and address of each proposed
nominee; (b) the principal occupation of each proposed nominee;
(c) the total number of shares of capital stock of the
Corporation that will be voted for each proposed nominee; (d) the
name and residence address of the notifying shareholder; and
(e) the number of shares of capital stock of the Corporation
owned by the notifying shareholder. Nominations not made in
accordance herewith may, in his/her discretion, be disregarded by
the Presiding Officer of the meeting, and upon his/her
instruction, the vote tellers may disregard all votes cast for
each such nominee. In the event the same person is nominated by
more than one shareholder, the nomination shall be honored, and
all shares of capital stock of the Corporation shall be counted
if at least one nomination for that person complies herewith.
Section 203. Certain Director Qualifications. Every
Director must be a shareholder of the Corporation and shall own
in his/her own right the number of shares (if any) required by
law in order to qualify as such Director. Any Director shall
forwith cease to be a Director when he/she no longer holds such
shares, which fact shall be reported to the Board of Directors by
the Secretary, whereupon the Board of Directors shall declare the
seat of such Director vacated. No person who was not a Director
of the corporation on December 31, 1985, shall be eligible for
election as a Director who does not have, and for at least one
year prior to the time of election has not had, his principal
residence in Berks County, Pennsylvania.
Section 204. Eligibility and Mandatory Retirement.
Commencing with the annual meeting of shareholders of the
Corporation to be held in 1994, no person shall be eligible for
nomination or for election to the Board of Directors of the
Corporation if such person would attain the age of seventy (70)
years at any time during such person's term as a Director, if
elected. The Board of Directors may designate one or more
persons who have retired from the Board as honorary members of
the Board of Directors. Such honorary members of the Board of
Directors may attend meetings of the Board of Directors, but
shall have no authority to vote or receive compensation.
Section 205. Number of Directors. The Board of Directors
shall consist of not less than five (5) nor more than twenty-five
(25) shareholders, the exact number to be fixed and determined
from time to time by resolution of a majority of the full Board
<PAGE 4> of Directors or by resolution of the shareholders at any
annual or special meeting thereof.
Section 206. Classification of Directors. The Directors
shall be divided into three (3) classes, as nearly equal in
number as possible, known as Class 1, consisting of not more than
eight (8) Directors; Class 2, consisting of not more than eight
(8) Directors; and Class 3, consisting of not more than nine (9)
Directors. The initial Directors of Class I shall serve until
the third (3rd) annual meeting of shareholders. At the third
(3rd) annual meeting of the shareholders, the Directors of Class
I shall be elected for a term of three (3) years and, after
expiration of such term, shall thereafter be elected every three
(3) years for three (3) year terms. The initial Directors of
Class 2 shall serve until the second (2nd) annual meeting of
shareholders. At the second (2nd) annual meeting of
shareholders, the Directors of Class 2 shall be elected for a
term of three (3) years and, after the expiration of such term,
shall thereafter be elected every three (3) years for three (3)
year terms. The initial Directors of Class 3 shall serve until
the first (1st) annual meeting of shareholders. At the first
(1st) annual meeting of shareholders, the Directors of Class 3
shall be elected for a term of three (3) years and, after the
expiration of such term, shall thereafter be elected every three
(3) years for three (3) year terms. Each Director shall serve
until his/her successor shall have been elected and shall
qualify, even though his/her term of office as herein provided
has otherwise expired, except in the event of his/her earlier
resignation, removal or disqualification.
Section 207. Vacancies. Vacancies in the Board of
Directors, including vacancies resulting from an increase in the
number of Directors, may be filled by the remaining members of
the Board even though less than a quorum. Any Director elected
to fill a vacancy in the Board of Directors shall become a member
of the same Class of Directors in which the vacancy existed; but
if the vacancy is due to an increase in the number of Directors a
majority of the members of the Board of Directors shall designate
such directorship as belonging to Class 1, Class 2 or Class 3 so
as to maintain the three (3) classes of Directors as nearly equal
in number as possible. Each Director so elected shall be a
Director until his/her successor is elected by the shareholders,
who may make such election at the next annual meeting of the
shareholders or at any special meeting duly called for that
purpose and held prior thereto.
Section 208. Compensation of Directors. No Director shall
be entitled to any salary as such, but the Board of Directors may
fix, from time to time, a reasonable annual fee for acting as a
Director and a reasonable fee to be paid each Director for
his/her services in attending meetings of the Board and meetings
of committees appointed by the Board. The Corporation may
reimburse Directors for expenses related to their duties as a
member of the Board. <PAGE 5>
Section 209. Regular Meetings. Regular meetings of the
Board of Directors shall be held on such day, at such hour, and
at such place, consistent with applicable law, as the Board shall
from time to time designate or as may be designated in any notice
from the Secretary calling the meeting. The Board of Directors
shall meet for reorganization at the first regular meeting
following the annual meeting of shareholders at which the
Directors are elected. Notice need not be given of regular
meetings of the Board of Directors which are held at the time and
place designated by the Board of Directors. If a regular meeting
is not to be held at the time and place designated by the Board
of Directors, notice of such meeting, which need not specify the
business to be transacted thereat and which may be either verbal
in writing, shall be given by the Secretary to each member of the
Board at least twenty-four (24) hours before the time of the
meeting.
Directors shall attend a minimum of fifty percent (50%) of
the regular meetings held in any calendar year unless such
absences shall be excused by the Board of Directors in a manner
prescribed by them from time to time. Failure to attend a minimum
of fifty percent (50%) of the regular meetings of the Directors
in any calendar year, without sufficient excuse, shall subject
the Director to removal from the Board of Directors in such
manner as the Board of Directors shall prescribe from time to
time.
A majority of the members of the Board of Directors shall
constitute a quorum for the transaction of business. If at the
time fixed for the meeting, including the meeting to organize the
new Board following the annual meeting of shareholders, a quorum
is not present, the directors in attendance may adjourn the
meeting from time to time until a quorum is obtained.
Except as otherwise provided herein, a majority of those
directors present and voting at any meeting of the Board of
Directors, shall decide each matter considered. A director
cannot vote by proxy, or otherwise act by proxy at a meeting of
the Board of Directors.
Section 210. Special Meetings. Special meetings of the
Board of Directors may be called by the President or at the
request of three (3) or more members of the Board of Directors.
A special meeting of the Board of Directors shall be deemed to be
any meeting other than the regular meeting of the Board of
Directors. Notice of the time and place of every special
meeting, which need not specify the business to be transacted
thereat and which may be either verbal or in writing, shall be
given by the Secretary to each member of the Board at least
twenty-four (24) hours before the time of such meeting excepting
the Organization meeting following the election of the Directors.
Section 211. Reports and Records. The reports of officers
and Committees and the records of the proceedings of all
<PAGE 6> Committees shall be filed with the Secretary of the
Corporation and presented to the Board of Directors, if
practicable, at its next regular meeting. The Board of Directors
shall keep complete records of its proceedings in a minute book
kept for that purpose. When a Director shall request it, the
vote of each Director upon a particular question shall be
recorded in the minutes.
Section 212. Liability of Directors; Indemnification.
Section 212.1 To the fullest extent permitted by the
Directors' Liability Act (42 Pa. C.S. Section 8361 et seq.) and
the Business Corporation Law of the Commonwealth of Pennsylvania,
a director of the corporation shall not be personally liable to
the corporation, its stockholders or others for monetary damages
for any action taken or any failure to take any action unless the
director has breached or failed to perform the duties of his or
her office as set forth in the Directors' Liability Act and such
breach or failure constitutes self-dealing, willful misconduct,
or recklessness. The provisions of this Section 212 shall not
apply with respect to the responsibility or liability of a
director under any criminal statute or the liability of a
director for the payment of taxes pursuant to local, state or
federal law.
Section 212.2 (a) The corporation shall indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or
investigative by reason of the fact that such person is or was a
director, officer, employee, or agent of the corporation, or is
or was serving at the request of the corporation as a director,
officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys' fees), amounts paid in settlement,
judgments, and fines actually and reasonably incurred by such
person in connection with such action, suit, or proceeding;
provided, however, that no indemnification shall be made in any
case where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted
willful misconduct or recklessness.
(b) Expenses (including attorneys' fees) incurred in
defending a civil or criminal action, suit, or proceeding shall
be paid by the corporation in advance of the final disposition of
such action, suit, or proceeding upon receipt of an undertaking
by or on behalf of the director, officer, employee, or agent to
repay such amount if it shall be ultimately determined that he is
not entitled to be indemnified by the corporation as authorized
in this Section 212.
(c) The indemnification and advancement of expenses
provided by this Section 212 shall not be deemed exclusive of any
other right to which persons seeking indemnification and
<PAGE 7> advancement of expenses may be entitled under any
agreement, vote of shareholders or disinterested directors, or
otherwise, both as to actions in such persons' official capacity
and as to their actions in another capacity while holding office,
and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such
person.
(d) The corporation may purchase and maintain
insurance on behalf of any person, may enter into contracts of
indemnification with any person, may create a fund of any nature
(which may, but need not be, under the control of a trustee) for
the benefit of any person, and may otherwise secure in any manner
its obligations with respect to indemnification and advancement
of expenses, whether arising under this Section 212 or otherwise,
to or for the benefit of any person, whether or not the
corporation would have the power to indemnify such person against
such liability under the provisions of this Section 212.
Section 212.3 The limitation of liability provided in
Section 212.1 and the right to indemnification and advancement of
expenses provided in Section 212.2 shall apply to any action or
failure to take any action occurring on or after January 27,
1987.
Section 212.4 Notwithstanding anything herein contained to
the contrary, this Section 212 may not be amended or repealed
except by the affirmative vote of 75% of the members of the
entire Board of Directors or by the affirmative vote of
shareholders of the corporation entitled to cast at least 75% of
all votes which shareholders of the corporation are then entitled
to cast, except that, if the Business Corporation Law or the
Directors' Liability Act is amended or any other statute is
enacted so as to decrease the exposure of directors to liability
or to increase the indemnification rights available to directors,
officers, or others, then this Section 212 and any other
provision of these By-Laws inconsistent with such decreased
exposure or increased indemnification rights shall be amended,
automatically and without any further action on the part of
shareholders or directors, to reflect such decreased exposure or
to include such increased indemnification rights, unless such
legislation expressly requires otherwise. Any repeal or
modification of this Section 212 by the stockholders of the
corporation shall be prospective only, and shall not adversely
affect any limitation on the personal liability of a director of
the corporation or any right to indemnification from the
corporation for any action taken or any failure to take any
action occurring prior to the time of such repeal or
modification.
Section 212.5 If, for any reason, any provision of this
Section 212 shall be held invalid, such invalidity shall not
affect any other provision not held so invalid, and each such
<PAGE 8> other provision shall, to the full extent consistent
with law, continue in full force and effect. If any provision of
this Section 212 shall be held invalid in part, such invalidity
shall in no way affect the remainder of such provision, and the
remainder of such provision, together with all other provisions
of this Section 212 shall, to the full extent consistent with
law, continue in full force and effect.
ARTICLE III. COMMITTEES.
Section 301. Committees. The following Committees of the
Board of Directors shall be established by the Board of Directors
in addition to any other Committee the Board of Directors may in
its discretion establish.
Section 302. Executive Committee. The Executive Committee
shall consist of any three (3) or more Directors. A majority of
the members of the Executive Committee shall constitute a quorum,
and actions of a majority of those present at a meeting at which
a quorum is present shall be actions of the Committee. Meetings
of the Committee may be called at any time by the Chairman or
Secretary of the Committee, and shall be called whenever two (2)
or more members of the Committee so request in writing. The
Executive Committee shall have and exercise the authority of the
Board of Directors in the management of the business of the
Corporation between the dates of regular meetings of the Board.
Section 303. Appointment of Committee Members. The Board
of Directors shall elect the members of the Committees and the
Chairman and Vice Chairman of each such Committee to serve until
the next annual meeting of shareholders. The President shall
appoint or shall establish a method of appointing, subject to the
approval of the Board of Directors, the members of any other
Committees established by the Board of Directors, and the
Chairman and Vice Chairman of such Committee, to serve until the
next annual meeting of shareholders. The Board of Directors may
appoint, from time to time, other committees, for such purposes
and with such powers as the Board may determine.
Section 304. Organization and Proceedings. Each Committee
of the Board of Directors shall effect its own organization by
the appointment of a Secretary and such other Officers, except
the Chairman and Vice Chairman, as it may deem necessary. A
record of proceedings all of committees shall be kept by the
Secretary of such Committee and filed and presented as provided
in Section 211 of these Bylaws.
ARTICLE IV. OFFICERS.
Section 401. Officers. The Officers of the Corporation
shall be a President, who shall be a member of the Board of
Directors, one or more Vice Presidents, a Secretary, a Treasurer
and such other Officers and Assistant Officers as the Board of
Directors may from time to time deem advisable. The Board may
<PAGE 9> also elect a Chairman of the Board and so many Vice
Chairman as deemed advisable. All officers of the corporation
shall be elected by the Board of Directors for such terms as the
Board of Directors shall determine from time to time. Any
Officer may be removed at any time with or without cause, and
regardless of the term for which such Officer was elected, but
without prejudice to any contract right of such Officer. Each
Officer shall hold his or her office for the current year for
which he or she was elected or appointed by the Board unless such
Officer shall resign, become disqualified or be removed at the
pleasure of the Board of Directors.
Section 402. Chairman of the Board. The Board of
Directors may elect one of its members to be Chairman of the
Board at the first regular meeting of the Board following each
annual meeting of shareholders at which Directors are elected.
The Chairman of the Board shall be an ex-officio member of all
committees, shall preside at the meetings of the Board and the
shareholders, and shall perform such other duties as may be
prescribed by the Board of Directors.
Section 403. Vice Chairman of the Board. In the absence
of the Chairman, a Vice Chairman, if elected, shall preside at
meetings of shareholders and of the directors and shall perform
such other duties as may from time to time be prescribed by the
Board, by law, or these Bylaws.
Section 404. President. The President shall be the Chief
Executive Officer of the Bank and oversee all facets of its
operation and shall report directly to the Board of Directors, be
responsible to it and carry out those duties as directed by the
Board. In the absence of a Chairman of the Board, the President
shall serve as chairman of the Board. The President shall be an
ex-officio member of all Committees of the Board of Directors,
except the Audit Committee.
Section 405. Vice Presidents. The Vice Presidents shall
perform such duties, do such acts and be subject to such
supervision as may be prescribed by the Board of Directors or the
President. In the event of the absence or disability of the
President and his/her refusal to act, the Vice Presidents, in the
order of their rank, and within the same rank and in the order of
their authority, shall perform the duties and have the powers and
authorities of the President, except to the extent inconsistent
with applicable law.
Section 406. Secretary. The Secretary shall keep accurate
minutes of the proceedings of all meetings of the shareholders
and the directors in a book provided for that purpose. He/she
shall keep a record of the attendance at all meetings of
shareholders and directors and shall perform such other duties as
may from time to time be prescribed by the Board, by law, or
these Bylaws.
<PAGE 10>
Section 407. Treasurer. The Treasurer shall act under the
supervision of the President or such other officer as the
President may designate. The Treasurer shall have custody of the
Corporation's funds and such other duties as may be prescribed by
the Board of Directors, President or such other Supervising
Officer as the President may designate.
Section 408. Assistant Officers. Unless otherwise
provided by the Board of Directors, each Assistant Officer shall
perform such duties as shall be prescribed by the Board of
Directors, the President or the officer to whom he/she is an
Assistant. In the event of the absence or disability of an
Officer or his/her refusal to act, his/her Assistant Officer
shall, in the order of their rank, and within the same rank in
the order of their seniority, have the powers and authorities of
such officer.
Section 409. Compensation. Unless otherwise provided by
the Board of Directors, the salaries and compensation of all
Officers and Assistant Officers, except the President shall be
fixed by or in the manner designated by the President.
Section 410. General Powers. The Officers are authorized
to do and perform such corporate acts as are necessary in the
carrying on of the business of the Corporation, subject always to
the direction of the Board of Directors.
ARTICLE V. INDEMNIFICATION.
Section 501. Mandatory Indemnification. The Corporation
shall, to the full extent permitted by the Pennsylvania Business
Corporation Law, as amended from time to time, indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he/she is or was a
Director, Officer or Employee of the Corporation or of any of its
subsidiaries.
Section 502. Optional Indemnification. In all situations
in which indemnification is not mandatory under Section 501
hereof, the Corporation may, to the full extent permitted by the
Pennsylvania Business Corporation Law, as amended from time to
time, indemnify all persons whom it is empowered to indemnify
pursuant thereto.
ARTICLE VI. SHARES OF CAPITAL STOCK.
Section 601. Authority to Sign Share Certificates. Every
share certificate of the Corporation shall be signed by the
President and by the Secretary or one of the Assistant
Secretaries. Certificates may be signed by a facsimile signature
of the President and the Secretary or one of the Assistant
Secretaries of the Corporation. <PAGE 11>
Section 602. Lost or Destroyed Certificates. Any person
claiming a share certificate to be lost, destroyed or wrongfully
taken shall receive a replacement certificate if such person
shall have: (a) requested such replacement certificate before
the Corporation has notice that the shares have been acquired by
a bona fide purchaser; (b) provided the Corporation with an
indemnity agreement satisfactory in form and substance to the
Board of Directors, or the President or the Secretary; and
(c) satisfied any other reasonable requirements (including
providing an affidavit and a surety bond) fixed by the Board of
Directors, or the President or the Secretary.
ARTICLE VII. GENERAL.
Section 701. Fiscal Year. The fiscal year of the
Corporation shall begin on the first (1st) day of January in each
year and end on the thirty-first (31st) day of December in each
year.
Section 702. Record Date. The Board of Directors may fix
any time whatsoever (but not more than fifty (50) days) prior to
the date of any meeting of shareholders, or the date for the
payment of any dividend or distribution, or the date for the
allotment of rights, or the date when any change or conversion or
exchange of shares will be made or will go into effect, as a
record date for the determination of the shareholders entitled to
notice of, or to vote at, any such meetings, or entitled to
receive payment of any such dividend or distribution, or to
receive any such allotment of rights, or to exercise the rights
in respect to any such change, conversion or exchange of shares.
Section 703. Absentee Participation in Meeting. One (1)
or more Directors may participate in a meeting of the Board of
Directors, or of a Committee of the Board, by means of a
conference telephone or similar communications equipment, by
means of which all persons participating in the meeting can hear
each other.
Section 704. Emergency Bylaws. In the event any emergency
resulting from a nuclear attack or similar disaster, and during
the continuance of such emergency, the following Bylaw provisions
shall be in effect, notwithstanding any other provisions of the
Bylaws:
(a) A meeting of the Board of Directors or of any
Committee thereof may be called by any Officer or Director upon
one (1) hour's notice to all persons entitled to notice whom, in
the sole judgement of the notifier, it is feasible to notify;
(b) The Director or Directors in attendance at the
meeting of the Board of Directors or of any Committee thereof
shall constitute a quorum; and
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(c) These Bylaws may be amended or repealed, in whole
or in part, by a majority vote of the Directors attending any
meeting of the Board of Directors, provided such amendment or
repeal shall only be effective for the duration of such
emergency.
Section 705. Severability. If any provision of these
Bylaws is illegal or unenforceable as such, such illegality or
unenforceability shall not affect any other provision of these
Bylaws and such other provisions shall continue in full force and
effect.
ARTICLE VIII. AMENDMENT OR REPEAL.
Section 801. Amendment or Repeal by the Board of
Directors. These Bylaws may be amended or repealed, in whole or
in part, by a majority vote of members of the Board of Directors
at any regular or special meeting of the Board duly convened.
Notice need not be given of the purpose of the meeting of the
Board of Directors at which the amendment or repeal is to be
considered.
Section 802. Recording Amendments and Repeals. The text
of all amendments and repeals to these Bylaws shall be attached
to the Bylaws with a notation of the date and vote of such
amendment or repeal.
ARTICLE IX. APPROVALS OF AMENDED BYLAWS AND RECORD OF
AMENDMENTS AND REPEALS.
Section 901. Approval and Effective Date. These Bylaws
have been approved as the Bylaws of the Corporation this ______
day of ___________ and shall be effected as of said date.
__________________________________
Secretary
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