As filed with the Securities and Exchange Commission on April 2, 1999
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
PENN LAUREL FINANCIAL CORP.
-------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Pennsylvania 6711 25-1525451
------------------------------ ---------------------------- -------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
Larry W. Brubaker , President
PENN LAUREL FINANCIAL CORP. PENN LAUREL FINANCIAL CORP.
434 State Street 434 State Street
Curwensville, Pennsylvania 16833 Curwensville, Pennsylvania 16833
(814) 236-2550 (814) 236-2552
--------------------------------------------- ----------------------------------------
(Address, including ZIP Code, and telephone (Name, address, including ZIP Code, and
number, including area code, of registrant's telephone number, including area
principal executive offices) code, of agent for service)
With a Copy to: With a Copy to:
Nicholas Bybel, Jr., Esquire William T. Harvey, Esquire
B. Tyler Lincoln, Esquire Tucker Arensberg, P.C.
SHUMAKER WILLIAMS, P.C. 1500 PPG Place
P. O. Box 88 Pittsburgh, Pennsylvania 15222
Harrisburg, Pennsylvania 17108 (412) 594-5550
(717) 763-1121
--------------------------------------------- ----------------------------------------
</TABLE>
Approximate date of commencement of the proposed sale of the securities to
the public: As soon as practicable after the effective date of the Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. _____
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to to be Offering Price Aggregate Registration
be Registered Registered Per Share Offering Price(2) Fee (3)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$5.00 per share 559,505 $ 62.50(1) $34,969,062.50 $9,721.40
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Shares to be issued in the merger (as defined herein) computed in
accordance with Rule 457(f)(1), solely for the purpose of calculating the
registration fee, at March 29, 1999, the latest practicable date prior to
the date of filing of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
<PAGE>
Proxy Statement/ Prospectus
PENN LAUREL FINANCIAL CORP.
PROXY STATEMENT
AND
PROSPECTUS FOR
559,505 SHARES COMMON STOCK
TRADING SYMBOL: PELA
CLEARFIELD BANK & TRUST COMPANY
PROXY STATEMENT
We provide this proxy statement/prospectus to you in connection with the
solicitation of proxies to be used at a Special Meeting of Shareholders of each
of Clearfield Bank & Trust Company and Penn Laurel Financial Corp. to be held on
June 15, 1999, where shareholders will vote on the merger of CSB Bank, a
subsidiary of Penn Laurel Financial Corp., into Clearfield Bank & Trust Company.
If the merger takes place, shareholders of Clearfield Bank & Trust Company
will have the right to receive 0.97 shares of common stock of Penn Laurel
Financial Corp. for each share of Clearfield Bank & Trust Company common stock
they own.
Penn Laurel Financial Corp. common stock is traded on a limited basis in
the over-the- counter market.
Neither the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Board of Governors of the Federal Reserve System nor
any state securities commission has approved or disapproved these securities or
passed upon the accuracy or adequacy of this proxy statement/prospectus. Any
representation to the contrary is a criminal offense.
The shares of Penn Laurel Financial Corp. common stock offered in this
proxy statement/prospectus are not savings accounts, deposits, or other
obligations of a bank or savings association and are not insured by the Federal
Deposit Insurance Corporation or any other governmental agency.
No person has been authorized to give any information or to make any
representation not contained in this proxy statement/prospectus, and if given or
made, any such information or representation should not be relied upon as having
been authorized. This proxy statement/prospectus does not constitute an offer to
any person to exchange or sell, or a solicitation from any person of an offer to
exchange or purchase, the securities offered by this proxy statement/prospectus,
or the solicitation of a proxy from any person, in any jurisdiction in which it
is unlawful to make such an offer or solicitation. Neither the delivery of this
proxy statement/prospectus nor any distribution of the securities to which this
proxy statement/prospectus relates shall, under any circumstances, create any
implication that the information contained herein is correct at any time
subsequent to the date hereof.
The date of this proxy statement/prospectus is April __, 1999.
<PAGE>
TABLE OF CONTENTS
SUMMARY ....................................................................-1-
The Meetings........................................................-1-
Clearfield Bank & Trust Company.....................................-1-
Penn Laurel Financial Corp..........................................-2-
The Merger..........................................................-2-
Certain Terms of the Merger.........................................-2-
Comparison of Shareholder Rights....................................-3-
Federal Income Tax Consequences of the Merger.......................-3-
Accounting Treatment................................................-4-
Dissenters' Rights..................................................-4-
Required Vote.......................................................-4-
Regulatory Approvals................................................-5-
Management and Operations Following the Merger......................-5-
Adjournment of the Meeting..........................................-6-
Opinion of Financial Advisors.......................................-7-
Recommendation of the Board of Directors............................-7-
FORWARD LOOKING STATEMENTS...................................................-8-
COMPARATIVE PER SHARE DATA...................................................-8-
General ...........................................................-8-
Market Value of Securities.........................................-11-
SELECTED FINANCIAL DATA
AND PRO FORMA INFORMATION..........................................-13-
THE MEETINGS................................................................-17-
General ..........................................................-17-
Voting, Revocation and Solicitation of Proxies.....................-17-
Voting Securities and Securities Ownership.........................-19-
Interests of Certain Persons in Matters to be Voted Upon...........-22-
APPROVAL OF THE MERGER......................................................-24-
Background of the Merger, Reasons and Recommendation
of the Boards of Directors......................................-25-
General............................................................-25-
Recommendations....................................................-28-
The Boards' Determination About the Merger.........................-28-
Opinion of Financial Advisor.......................................-29-
General............................................................-29-
Clearfield.........................................................-29-
Penn Laurel........................................................-38-
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Dissenters' Rights.................................................-42-
Terms of the Merger................................................-45-
Business Pending the Merger........................................-46-
Conditions, Amendment and Termination..............................-47-
Effective Date.....................................................-49-
Interests of Certain Persons in the Merger.........................-49-
Management and Operations Following the Merger.....................-50-
Federal Income Tax Consequences....................................-51-
Investment Agreement..............................................-52-
Accounting Treatment...............................................-53-
Restriction on Resale of Stock Held By Affiliates..................-54-
COMPARATIVE STOCK PRICES AND
DIVIDENDS AND RELATED SHAREHOLDER MATTERS..........................-55-
Common Stock of Clearfield.........................................-55-
Common Stock of Penn Laurel........................................-56-
INFORMATION CONCERNING CLEARFIELD BANK & TRUST COMPANY......................-57-
Information Concerning Clearfield..................................-57-
Description of Business and Property...............................-57-
Employees..........................................................-58-
Legal Proceedings..................................................-59-
Dividends..........................................................-59-
Information about Directors and Executive Officers.................-59-
Executive Compensation.............................................-60-
Defined Benefit Pension Plan.......................................-61-
Profit Sharing Plan................................................-61-
Director Compensation..............................................-61-
Loans ..........................................................-62-
Description of Clearfield Common Stock.............................-62-
Liquidation........................................................-62-
Anti-takeover Provisions...........................................-62-
Indemnification....................................................-63-
INFORMATION CONCERNING PENN LAUREL FINANCIAL CORP...........................-64-
Information Concerning Penn Laurel.................................-64-
Description of Business and Property...............................-64-
Employees..........................................................-66-
Legal Proceedings..................................................-66-
Dividends..........................................................-66-
Information about Directors and Executive Officers.................-67-
Executive Compensation.............................................-67-
KSOP Plan..........................................................-68-
Employment Contracts...............................................-69-
Executive Supplemental Income Agreement............................-70-
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Compensation of Directors..........................................-70-
Directors' Deferred Compensation Plan..............................-71-
Loans..............................................................-71-
Description of Penn Laurel Common Stock............................-71-
Liquidation........................................................-71-
Anti-takeover Provisions...........................................-72-
Indemnification....................................................-79-
COMPARISON OF SHAREHOLDER RIGHTS............................................-79-
YEAR 2000 ISSUES............................................................-81-
Clearfield.........................................................-81-
Penn Laurel........................................................-82-
CLEARFIELD BANK & TRUST
COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION...................-85-
Balance Sheet Analysis.............................................-86-
Investment Securities..............................................-88-
Loans..............................................................-92-
Allowance for Possible Loan Losses.................................-94-
Premises and Equipment.............................................-95-
Deposits...........................................................-96-
Capital............................................................-97-
Results of Operations..............................................-98-
Net Interest Income................................................-98-
Provision for Loan Losses..........................................-99-
Other Income......................................................-100-
Other Operating Expenses..........................................-100-
Income Tax........................................................-100-
PENN LAUREL FINANCIAL
CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION..................-101-
Balance Sheet Analysis............................................-102-
Investment Securities.............................................-102-
Loans.............................................................-105-
Allowance for Possible Loan Losses................................-106-
Deposits..........................................................-108-
Capital...........................................................-109-
Results of Operations.............................................-110-
Net Interest Income...............................................-110-
Provision for Loan Losses.........................................-111-
Other Income......................................................-111-
Other Operating Expenses..........................................-112-
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<PAGE>
ADJOURNMENT OF THE MEETING.................................................-113-
EXPERTS ..................................................................-113-
LEGAL OPINIONS.............................................................-113-
OTHER MATTERS..............................................................-113-
AVAILABLE INFORMATION......................................................-114-
CLEARFIELD BANK & TRUST COMPANY--INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY FINANCIAL INFORMATION
PENN LAUREL FINANCIAL CORP.--INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY FINANCIAL INFORMATION
ANNEXES
Annex A - Agreement and Plan of Reorganization.
Annex B - Ryan, Beck & Co., Inc. Fairness Opinion.
Annex C - Garland McPherson & Associates, Inc. Fairness Opinion.
Annex D - Statutes Regarding Dissenters' Rights.
Annex E - Restated Articles of Incorporation of Penn Laurel Financial Corp.
Annex F - Amended and Restated Bylaws of Penn Laurel Financial Corp.
This proxy statement/prospectus incorporates important business and
financial information about Penn Laurel Financial Corp. and Clearfield Bank &
Trust Company that is not included or delivered with the document. This
information is available, without charge to shareholders of either company.
Please direct requests for this information to Janice E. Kephart, Secretary,
Penn Laurel Financial Corp., 434 State Street, Post Office Box 29, Curwensville,
Pennsylvania 16833-0029, telephone number (814) 236-2550 or to William A.
Shiner, Senior Vice President-Lending and Secretary, Clearfield Bank & Trust
Company, 11 North Second Street, Post Office Box 171, Clearfield, Pennsylvania
16830-0171, telephone number (814) 765-7551. To ensure timely delivery of the
documents before of the meeting, you should make your request no later than June
8, 1999.
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<PAGE>
SUMMARY
This summary of the transaction does not contain all of the information in
the proxy statement/prospectus. It is a summary of the most significant aspects
of the merger transaction. The remainder of the proxy statement/prospectus and
the attached Annexes contain more detailed information about the merger. We urge
you to read the entire proxy statement/prospectus, including the Annexes, in
order to fully understand the merger transaction.
The Meetings
Clearfield Bank & Trust Company. The Board of Directors of Clearfield Bank
& Trust Company has called a special meeting of shareholders for Tuesday, June
15, 1999, at ___ p.m. at 11 North 2nd Street, Clearfield, Pennsylvania 16830.
Only shareholders whose ownership appears on the records of Clearfield Bank &
Trust Company at the close of business on ______, ________ __ , 1999, will be
able to attend and vote at the meeting. The main purpose of the meeting is to
vote on the merger of CSB Bank, a subsidiary of Penn Laurel Financial Corp. with
and into Clearfield Bank & Trust Company. If we complete the merger,
shareholders of Clearfield Bank & Trust Company will receive 0.97 shares of Penn
Laurel Financial Corp. common stock in exchange for each share of Clearfield
Bank & Trust Company common stock held.
Penn Laurel Financial Corp. The Board of Directors of Penn Laurel Financial
Corp. has called a special meeting of shareholders for Tuesday, June 15, 1999,
at ___ p.m. at 434 State Street, Curwensville, Pennsylvania 16833. Only
shareholders whose ownership appears on the records of Penn Laurel Financial
Corp. at the close of business on ______, ________ __ , 1999, will be able to
attend and vote at the meeting. The main purpose of the meeting is to vote on
the merger of CSB Bank, a subsidiary of Penn Laurel Financial Corp., with and
into Clearfield Bank & Trust Company.
Clearfield Bank & Trust Company
Clearfield Bank & Trust Company is a Pennsylvania chartered bank and trust
company. Clearfield was chartered on December 17, 1901, and is headquartered in
Clearfield, Pennsylvania. The bank conducts business through 6 offices. The
offices are located in Clearfield County, Pennsylvania. The bank's deposits are
insured by the FDIC. As a full-service commercial bank, the bank offers
checking, savings and time deposits and commercial, consumer and mortgage loans.
The bank's executive offices are located at 11 North Second Street, Clearfield,
Pennsylvania 16830, and the telephone number is (814) 765-7551. As of December
31, 1998, the bank had total assets of approximately $185 million, total
deposits of approximately $163 million and shareholders' equity of approximately
$20 million.
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<PAGE>
Penn Laurel Financial Corp.
Penn Laurel Financial Corp. is a Pennsylvania business corporation and a
registered bank holding company. Its principal offices are located at 434 State
Street, Curwensville, Pennsylvania 16833. Penn Laurel Financial Corp. was
incorporated on May 30, 1986. Penn Laurel Financial Corp., through CSB Bank, its
subsidiary, engages in general commercial and retail banking services. CSB Bank
operates 5 banking offices in Clearfield County, Pennsylvania. The bank's
principal office is located at 434 State Street, Clearfield, Pennsylvania 16833,
and the telephone number is (814) 236-2550. As of December 31, 1998, Penn Laurel
Financial Corp. had consolidated total assets of approximately $135 million,
total deposits of approximately $114 million and shareholders' equity of $15
million.
The Merger
The proposed merger provides that CSB Bank will merge into Clearfield Bank
& Trust Company. CSB Bank will cease to exist when the merger is complete.
Clearfield Bank & Trust Company will continue operations after the merger, as a
subsidiary of Penn Laurel Financial Corp. In addition, Clearfield Bank & Trust
Company will change its name to "Penn Laurel Bank & Trust Company." The location
of its principal office will remain at 11 North Second Street, Clearfield,
Pennsylvania 16830. Shareholders of Penn Laurel Financial Corp. will continue to
own Penn Laurel common stock after the merger. Penn Laurel will hold all the
outstanding shares of the combined banks. Shareholders of Clearfield Bank &
Trust Company will receive 0.97 shares of Penn Laurel Financial Corp. common
stock in exchange for each share of Clearfield Bank & Trust Company common stock
they hold, and become shareholders of Penn Laurel Financial Corp.
Clearfield Bank & Trust Company shareholders will not receive any
fractional shares of Penn Laurel Financial Corp. common stock in the merger.
Instead, Penn Laurel Financial Corp. will issue a cash payment for any
fractional share of Penn Laurel common stock that a shareholder would be
entitled to receive in the merger. Penn Laurel Financial Corp. should issue
approximately 559,505 shares of Penn Laurel Financial Corp. common stock in this
transaction.
We attach a copy of the agreement as Annex A to this proxy statement/
prospectus. Please read the agreement carefully.
Certain Terms of the Merger
The merger is subject to various conditions, including, among others:
o approval by Clearfield Bank & Trust Company's shareholders;
o approval by Penn Laurel Financial Corp.'s shareholders; and
o approval by certain banking regulatory agencies.
There are various other conditions to the transaction contained in the
agreement. These conditions include that the merger qualify for a certain type
of accounting treatment. In the event
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that more than 10% of the outstanding shares of Clearfield Bank & Trust Company
exercise dissenters' rights, the accounting condition will not be met. If this
occurs, the merger will not be completed. See "APPROVAL OF THE
MERGER--Accounting Treatment."
Penn Laurel Financial Corp. and Clearfield Bank & Trust Company may agree
to amend the agreement. No amendment, however, can affect the number of shares
to be received by Clearfield Bank & Trust Company shareholders without the
shareholders' approval. The agreement will terminate on October 31, 1999, unless
extended by the mutual agreement of the parties. See "APPROVAL OF THE
MERGER--Business Pending the Merger."
Comparison of Shareholder Rights
On the day the merger is completed, the shareholders of Clearfield Bank &
Trust Company will become shareholders of Penn Laurel Financial Corp. Clearfield
Bank & Trust Company is a Pennsylvania chartered bank and trust company. Penn
Laurel Financial Corp. is a Pennsylvania business corporation. After the merger
is completed, the rights of former shareholders of Clearfield Bank & Trust
Company will be governed by Pennsylvania corporate law, as well as the Articles
of Incorporation and Bylaws of Penn Laurel Financial Corp. Certain differences
exist in the rights of the shareholders of Clearfield Bank & Trust Company and
Penn Laurel Financial Corp. These differences are due, in part, to the
differences in the Articles of Incorporation and Bylaws of Clearfield Bank &
Trust Company and the Articles of Incorporation and Bylaws of Penn Laurel
Financial Corp., as well as, to the differences in Pennsylvania corporate law
and Pennsylvania banking law.
Some of the differences between the rights of the shareholders of
Clearfield and of shareholders of Penn Laurel are:
o Penn Laurel has 2,500,000 authorized shares-Clearfield has 617,600;
o Mergers require approval of 66 2/3% of the outstanding shares at
Clearfield and 75% at Penn Laurel.
See "COMPARISON OF SHAREHOLDER RIGHTS."
Federal Income Tax Consequences of the Merger
Clearfield and Penn Laurel structured the transaction to qualify as a
tax-free reorganization under the Internal Revenue Code of 1986. Under the
Internal Revenue Code, Clearfield Bank & Trust Company shareholders will not
recognize taxable gain or loss upon the receipt of Penn Laurel common stock in
exchange for Clearfield common stock. Clearfield shareholders who receive cash
for fractional shares of Penn Laurel common stock will recognize taxable gain or
loss, based upon the amount of cash received. Clearfield Bank & Trust Company
shareholders who exercise dissenters' rights also will recognize taxable gain or
loss based on the difference between the amount of cash received by the
shareholders in exercise of dissenters' rights and the adjusted tax basis of the
shares as to which dissenters' rights are exercised. Shumaker Williams, P. C.
will provide an opinion, on the date of the merger, confirming these
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<PAGE>
and certain other federal income tax consequences of the merger. You should
consult with your own tax advisers regarding that tax consequences of the merger
with respect to your own particular circumstances. See, "APPROVAL OF THE MERGER
- -- Federal Income Tax Consequences."
Accounting Treatment
Clearfield and Penn Laurel intend to account for the transaction as a
pooling of interests for financial reporting purposes. This means that we will
treat the companies as if they had always been combined for accounting and
financial reporting purposes.
Dissenters' Rights
The Pennsylvania Banking Code of 1965 and the Pennsylvania Business
Corporation Law of 1988 provide Clearfield and Penn Laurel shareholders with the
right to dissent from the merger, and to demand and receive the "fair value" of
their shares of stock rather than enter into the merger. In order to assert
these dissenters' rights, shareholders must:
o file a written notice of intent to dissent with Clearfield or Penn
Laurel prior to the shareholder vote at the meeting;
o not vote in favor of the merger;
o file a written demand for payment and deposit the stock certificates
that represent your shares as requested by the notice to demand
payment that will be sent by Clearfield Bank & Trust Company or Penn
Laurel Financial Corp.; and
o comply with certain other statutory procedures set forth in
Pennsylvania law.
If you sign and return your proxy without voting instructions, your proxy will
be voted in favor of the merger and you will lose any dissenters' rights that
you may have with respect to the merger. A copy of the applicable sections of
the Pennsylvania Banking Code and the Pennsylvania Business Corporation Law are
attached to this proxy statement/prospectus as Annex C. If you do not follow the
procedures set forth in the statutory provisions of the Pennsylvania law, you
may lose your dissenters' rights with respect to the merger. We urge you to read
carefully "APPROVAL OF THE MERGER--Dissenters' Rights" and Annex C to this proxy
statement/prospectus.
Required Vote
In order for the merger to occur, the shareholders of each of Clearfield
Bank & Trust Company and of Penn Laurel Financial Corp. must approve the
agreement. By approving the agreement, shareholders are approving the merger.
Approval of the merger requires the affirmative vote of at least 66 2/3% of the
outstanding Clearfield common stock and 75% of the outstanding Penn Laurel
common stock. On ________, 1999, the directors and officers of Clearfield and
persons or entities that they control own ______ shares of Clearfield common
stock, or ____% of the outstanding shares, and the directors and officers of
Penn Laurel Financial Corp. and persons or entities that they control own ______
shares of Penn Laurel
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<PAGE>
common stock, or ____% of the outstanding shares. Each company expects its
directors and officers to vote these shares "FOR" approval of the merger.
Each share entitled to vote at the meetings is entitled to one vote. At
least a majority of the total number of shares of Clearfield common stock
outstanding as of ______ __, 1999, will be necessary to have a quorum at the
Clearfield meeting. At least a majority of the total number of shares of Penn
Laurel common stock outstanding as of ______ __, 1999, will be necessary to have
a quorum at the Penn Laurel meeting. A quorum is necessary so that actions taken
at the meeting are valid. In addition to voting to approve the merger, you may
also be asked to vote on other matters that may properly come before the
meetings or any adjournments of the meetings.
Regulatory Approvals
The parties will file applications to approve the merger with certain
banking regulatory agencies. These agencies are the Board of Governors of the
Federal Reserve System, the Pennsylvania Department of Banking and the Federal
Deposit Insurance Corporation.
Management and Operations Following the Merger
The agreement states that following the merger, the Board of Directors of
Penn Laurel Financial Corp. and Penn Laurel Bank & Trust Company will consist of
all people who were members of the Boards of Directors on December 31, 1998, and
Wesley M. Weymers. One director from each board, however, has chosen not
continue as a director of his respective company and has chosen, not be on the
board of Penn Laurel Financial Corp. or Penn Laurel Bank & Trust Company. The
rest of the persons will serve until the director's successor is elected and
qualified. In order for Penn Laurel Bank & Trust Company to accommodate 22
persons on its Board of Directors, management intends to amend the Articles of
Incorporation will be amended to increase the permissible size of the Board of
Directors to 25, on the day of merger.
The following table lists the members of the boards following the
merger:
Board of Directors
Penn Laurel Financial Corp. and Penn Laurel Bank & Trust Company
George L. Beard
William L. Bertram
Larry W. Brubaker
D. Stephen Butler
Robert W. Dotts
Donald R. Fezell
Guy A. Graham
Craig L. Hile
Frank J. Hoffman, Jr.
Barbara J. Hugney-Shope
Robert M. Kurtz, Jr.
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<PAGE>
Joseph P. Leyo
Richard L. Lininnger
Michael R. Lytle
Sherwood C. Moody
Laurance B. Seaman
Joseph A. Shaw
Darrell G. Spencer
Ray S. Walker
Wesley M. Weymers
Richard A. Wilkinson
H. Rembrandt Woolridge
After the merger, the following people will hold the following offices at
Penn Laurel Financial Corp. and at Penn Laurel Bank & Trust Company:
William L. Bertram Chairman of the Board of
Directors of Penn Laurel Financial
Corp. and of Penn Laurel Bank &
Trust Company
Larry W. Brubaker President and Chief Executive
Officer of Penn Laurel Financial
Corp. and Penn Laurel Bank &
Trust Company
Sherwood C. Moody Executive Vice President of Penn
Laurel Financial Corp. and Penn
Laurel Bank & Trust Company
Wesley M. Weymers Executive Vice President of Penn
Laurel Financial Corp. and Penn
Laurel Bank & Trust Company
Messrs. Brubaker, Moody and Weymers entered into employment agreements in
connection with the transaction. Mr. Bertram has entered into a consulting
agreement in connection with the transaction. For a description of these
contracts, see "APPROVAL OF THE MERGER--Interests of Certain Persons in the
Merger and --Management and Operations Following the Merger."
Adjournment of the Meeting
If not enough votes are present to approve the merger, at either meeting,
the Boards of Directors intend to postpone or adjourn the meeting to a later
date to obtain additional affirmative votes. The affirmative vote of a majority
of the outstanding shares, present in person or by proxy, is required to approve
an adjournment of the Clearfield meeting or of the Penn Laurel meeting. The
Board of Directors of each of Clearfield and Penn Laurel recommends that
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shareholders vote "FOR" the proposal to adjourn the meeting, if necessary, to
permit additional votes to be obtained to approve the agreement.
Opinion of Financial Advisors
Clearfield Bank & Trust Company. The Clearfield Board of Directors asked
Ryan, Beck & Co., Inc., its investment banking firm located at 220 South Orange
Avenue, Livingston, New Jersey 07039, to provide investment banking services in
regard to the merger. These services included providing a fairness opinion that
the exchange ratio is "fair" to Clearfield shareholders, from a financial point
of view. In providing its opinion, Ryan, Beck did not approve or disapprove the
financial or other terms of the merger. In writing its opinion, Ryan, Beck
considered various factors, including Clearfield and Penn Laurel's operating
results, current financial condition and perceived future prospects. We
recommend that you read the Ryan, Beck opinion, which is attached to this proxy
statement/prospectus as Annex B. You should read the opinion in its entirety and
pay particular attention to the assumptions made and other matters considered by
Ryan, Beck in rendering its opinion. See "APPROVAL OF THE MERGER--Opinion of
Financial Advisors."
Penn Laurel Financial Corp. The Penn Laurel Board of Directors asked
Garland McPherson & Associates, Inc., its investment banking firm located at
1122 Kenilworth Drive, Suite 508, Baltimore, Maryland 21204-2188, to provide
investment banking services in regard to the merger. These services included
providing a fairness opinion that the value of the Penn Laurel common stock to
be paid by the company to the Clearfield shareholders in the merger is fair,
from a financial point of view. Garland McPherson did not approve or disapprove
the financial or other terms of the merger. In writing its opinion Garland
McPherson considered various factors, including Penn Laurel and Clearfield's
operating results, current financial condition and perceived future prospects.
We recommend that you read the Garland McPherson opinion, which is attached to
this proxy statement/prospectus as Annex C. You should read the opinion in its
entirety and pay particular attention to the assumptions made and other matters
considered by Garland McPherson in rendering its opinion. See "APPROVAL OF THE
MERGER--Opinion of Financial Advisors."
Recommendation of the Board of Directors
The Clearfield Board of Directors believes that the merger is in the best
interests of its shareholders and recommends that the shareholders vote "FOR"
approval of the merger.
The Penn Laurel Board of Directors believes that the merger is in the best
interests of its shareholders and recommends that the shareholders vote "FOR"
approval of the merger.
END OF SUMMARY
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FORWARD LOOKING STATEMENTS
This proxy statement/prospectus contains and incorporates certain
statements that constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements include certain statements regarding intent, belief or current
expectations about matters (including statements as to "beliefs,"
"expectations," "anticipations," "intentions" or similar words). Forward-looking
statements are also statements that are not statements of historical fact.
Forward-looking statements are subject to risks, uncertainties and assumptions.
These include:
o the risk that projected trends for the continued growth of the
business of Penn Laurel and Clearfield will not occur;
o the risk that the combined companies will not realize anticipated
revenues, profitability and cost savings; and
o other risks and uncertainties.
If one or more of these risks or uncertainties occurs or if the underlying
assumptions prove incorrect, actual results, performance or achievements for the
companies in 1999 and beyond could differ materially from those expressed in, or
implied by, the forward-looking statements.
COMPARATIVE PER SHARE DATA
General
The following table contains selected combined and equivalent per share
data for each of Penn Laurel and Clearfield on a historical basis, and selected
unaudited pro forma comparative per share data assuming the transaction had been
consummated as of the beginning of the earliest period presented for earnings
per share and dividends per share and as of the end of the period presented for
book value per share. The information shows how a share of Clearfield stock
would have participated in the income from continuing operations, cash dividends
and book value of Penn Laurel if the merger had been complete in 1998. The pro
forma data is not necessarily indicative of results that would have been
achieved had the transaction been complete in 1998, and should not be construed
as representative of future operations. The information is presented in
conjunction with the historical financial statements, and notes to the financial
statements, of Penn Laurel and Clearfield incorporated by reference or appearing
elsewhere in this proxy statement/prospectus.
-8-
<PAGE>
SELECTED HISTORICAL, PRO FORMA
COMBINED AND EQUIVALENT PER SHARE DATA
<TABLE>
<CAPTION>
As of and for the Years Ended December 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Penn Laurel Financial Corp.
Historical Per Common Share
Average Shares Outstanding:
Basic 346,048 345,932 346,915 346,915 346,915
Diluted 346,048 345,932 346,915 346,915 346,915
Book Value 41.20 38.80 33.21 30.89 26.83
Cash Dividends 1.32 1.26 1.05 .95 .90
Income from Operations
Basic 3.70 3.82 3.16 2.98 2.62
Diluted 3.70 3.82 3.16 2.98 2.62
Clearfield, Penn Laurel
Combined Pro Forma Equivalent
Per Common Share:(*)
Average Shares Outstanding:
Basic 905,553 905,437 906,420 906,420 906,420
Diluted 905,553 905,437 906,420 906,420 906,420
Book Value 38.23 36.11 32.75 31.24 27.22
Cash Dividends 1.32 1.26 1.05 .95 .90
Income from Operations
Basic 3.54 3.44 3.18 3.02 2.96
Diluted 3.54 3.44 3.18 3.02 2.96
</TABLE>
(*) The combined pro forma per share equivalent information is based on average
shares outstanding during the period except for the book value per share
which is based on period end shares outstanding. The number of shares in
each case has been adjusted for stock dividends and stock splits through
the periods. Each share of Clearfield common stock will be exchanged for
0.97 shares of Penn Laurel common stock. The combined pro forma does not
include restructuring charges or estimated expense savings.
-9-
<PAGE>
SELECTED HISTORICAL, PRO FORMA
COMBINED AND EQUIVALENT PER SHARE DATA
<TABLE>
<CAPTION>
As of and for the Years Ended December 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Clearfield Bank & Trust Company
Historical Per Common Share
Average Shares Outstanding:
Basic 576,809 576,809 576,809 576,809 576,809
Diluted 576,809 576,809 576,809 576,809 576,809
Book Value 35.30 33.42 31.49 30.51 26.64
Cash Dividends 1.64 1.60 1.56 1.51 1.45
Income from Operations
Basic 3.33 3.10 3.09 2.96 3.08
Diluted 3.33 3.10 3.09 2.96 3.08
Combined Pro Forma
Equivalent Per Common Share:(*)
Book Value 37.08 35.03 31.77 30.30 26.40
Cash Dividends 1.28 1.22 1.02 .92 .87
Income from Operations
Basic 3.43 3.33 3.08 2.93 2.87
Diluted 3.43 3.33 3.08 2.93 2.87
</TABLE>
(*) The above combined pro forma per share equivalent information is based on
average shares outstanding during the period except for the book value per
share which is based on period end shares outstanding. The number of shares
in each case has been adjusted for stock dividends and stock splits through
the periods. Each share of Clearfield common stock will be exchanged for
0.97 shares of Penn Laurel common stock. The combined pro forma does not
include restructuring charges or estimated expense savings.
-10-
<PAGE>
Market Value of Securities
The last reported sale of Clearfield common stock before public
announcement of the agreement and related merger was a trade of 400 shares at
$55.50 per share on December 9, 1998. The last reported sale of Clearfield
common stock, prior to the date of this proxy statement/prospectus, reported to
Clearfield management, was ___ shares at $__ per share on _____________, 1999.
The last reported sale of Penn Laurel common stock before public
announcement of the agreement and related merger was a trade of ___ shares at
$_____ per share on ________, 1998. The last reported sale of Penn Laurel common
stock, prior to the date of this proxy statement/prospectus, reported to Penn
Laurel management, was ___ shares at $____ per share on _________, 1998.
On December 30, 1998, the last trading date before public announcement of
the agreement and related merger, the per share closing bid and asked quotations
for Clearfield common stock were $54.00 and $55.50 as reported by the OTC
Bulletin Board and the per share closing bid and asked quotations for Penn
Laurel common stock were $45.25 and $46.25, as reported by the OTC Bulletin
Board. The following table of Comparative Stock Prices shows, in the first
column, the bid and asked prices of Clearfield common stock and Penn Laurel
common stock on December 30, 1998, the day before the merger was announced.
The pro forma equivalent price per share of common stock for each company
for December 30, 1998 (the day before the merger) has been calculated as if:
o The merger had taken place on December 30; and
o Shares of Clearfield common stock were exchanged for Penn Laurel
common stock at a rate of 1 share of Clearfield stock for .97 shares
of Penn Laurel stock.
The Clearfield pro forma equivalent price per share has been calculated by
multiplying:
o the price of the Penn Laurel common stock on December 30, by
o the exchange ratio between the shares.
The Penn Laurel equivalent price per share has been calculated by dividing:
o the price of the Clearfield common stock on December 30, by
o the exchange ratio between the shares.
The pro forma equivalent per share closing bid and asked quotations for
that date for each share of Clearfield common stock are $__ and $__. The pro
forma equivalent per share closing bid and asked quotations for that date for
each share of Penn Laurel common stock are $__ and $__.
-11-
<PAGE>
Both the Penn Laurel common stock and the Clearfield common stock have
historically traded on a limited basis in the over-the-counter market and are
quoted, and transactions are reported, on the OTC Bulletin board and in
privately negotiated transactions. Consequently, the stock prices may not
reflect fair market value.
-12-
<PAGE>
SELECTED FINANCIAL DATA AND
PRO FORMA INFORMATION
We provide the following financial information to aid you in your analysis
of the financial aspects of the merger. These tables contain certain selected
historical and pro forma summary financial data, for the periods and as of the
dates indicated, for Penn Laurel and for Clearfield. This data is derived from
and should be read in conjunction with, and is qualified by the financial
statements of Clearfield and Penn Laurel, including the notes to those financial
statements, incorporated by reference or appearing elsewhere in this proxy
statement/prospectus. The pro forma data is not necessarily indicative of
results that would have been achieved had the transaction been consummated and
should not be construed as representative of future operations. The pro forma
data also does not include the impact of merger-related cost savings or
expenses.
-13-
<PAGE>
CLEARFIELD BANK & TRUST COMPANY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) December 31
-------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income & Expense:
Interest income $ 12,165 $ 11,957 $ 10,472 $ 9,990 $ 9,670
Interest expense 5, 985 5,866 5,024 4,733 3,918
--------- --------- --------- --------- ---------
Net interest income 6,180 6,091 5,448 5,257 5,752
Loan loss provision (341) (257) (140) (81) (210)
--------- --------- --------- --------- ---------
Net interest income after loan loss
provision 5,839 5,834 5,308 5,176 5,542
Noninterest income 1,018 972 836 978 831
Noninterest expense 4,376 4,489 3,818 3,906 3,888
--------- --------- --------- --------- ---------
Income before income taxes 2,481 2,317 2,326 2,248 2,485
Income taxes 559 527 545 543 621
Cumulative Effect of Change in Accounting
Principles 0 0 0 0 (88)
--------- --------- --------- --------- ---------
Net income $ 1,922 $ 1,790 $ 1,781 $ 1,705 $ 1,776
========= ========= ========= ========= =========
Per share:
Basic $ 3.33 $ 3.10 $ 3.09 $ 2.96 $ 3.08
Diluted 3.33 3.10 3.09 2.96 3.08
Cash dividends paid 1.64 1.60 1.56 1.51 1.45
Weighted average number of common
shares:
Basic 576,809 576,809 576,809 576,809 576,809
Diluted 576,809 576,809 576,809 576,809 576,809
Book Value 35.30 33.42 31.49 30.51 26.64
Average Balance Sheet:
Total Assets $ 179,688 $ 173,492 $ 155,463 $ 146,821 $ 146,316
Investments & Money Market Investments 55,677 62,359 66,010 62,282 61,525
Federal Funds Sold 2,170 1,265 1,122 1,197 410
Loans (Net of Unearned Income) 108,763 97,655 77,955 72,722 73,110
Deposits 157,775 151,101 136,367 128,475 127,968
Borrowings 412 2,117 165 882 1,819
Shareholders' equity 19,999 18,889 17,791 16,560 15,839
Balance Sheet at Period End:
Total Assets $ 184,703 $ 175,115 $ 162,654 $ 151,660 $ 147,407
Investments & Money Market Investments 50,761 57,690 63,883 63,783 61,896
Federal Funds Sold 3,481 2,700 0 4,900 0
Loans (Net of Unearned Income) 114,689 102,575 89,168 73,007 72,286
Deposits 162,806 153,251 140,399 132,713 127,468
Borrowings 0 1,000 2,700 0 2,000
Shareholders' equity 20,362 19,278 18,164 17,600 15,365
Selected Operating Ratios:
Return on average assets 1.07% 1.03% 1.14% 1.16% 1.21%
Return on average shareholders' equity 9.61% 9.29% 9.98% 10.30% 11.21%
Leverage (shareholders' equity/assets) 10.38% 10.31% 11.48% 11.50% 11.17%
Average total loans as a percentage of
average deposits 68.93% 64.63% 57.17% 56.60% 57.13%
Net interest margin* 3.99% 4.05% 4.16% 4.05% 4.52%
Net interest spread* 3.79% 3.86% 3.94% 3.87% 4.40%
Selected Asset Quality Ratios:
Nonperforming Assets/Total loans & OREO .43% .42% .54% .43% .34%
Nonperforming loans/Gross loans .41% .42% .54% .41% .31%
Net Charge-offs/Average loans .18% .11% .07% .04% .32%
Loan Loss Reserve/Total loans .96% 1.07% 1.06% 1.19% 1.13%
Loan Loss Reserve/Nonperforming loans 233.05% 252.18% 216.17% 287.42% 366.37%
</TABLE>
* Tax Equivalent Basis
-14-
<PAGE>
PENN LAUREL FINANCIAL CORP.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) December 31
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income & Expense:
Interest income $ 9,973 $ 9.375 $ 8,536 $ 8,154 $ 7,053
Interest expense 4,827 4,426 3,961 3,897 2,935
--------- --------- --------- --------- ---------
Net interest income 5,146 4,949 4,575 4,257 4,118
Loan loss provision (319) (300) (232) (161) (178)
--------- --------- --------- --------- ---------
Net interest income after loan loss 4,827 4,649 4,343 4,096 3,940
provision
Noninterest income 1,247 586 517 565 477
Noninterest expense 4,365 3,465 3,404 3,306 3,167
--------- --------- --------- --------- ---------
Income before income taxes 1,709 1,770 1,456 1,355 1,250
Income taxes 427 448 359 322 340
--------- --------- --------- --------- ---------
Net income $ 1,282 $ 1,322 $ 1,097 $ 1,033 $ 910
========= ========= ========= ========= =========
Per share:
Basic $ 3.70 $ 3.82 $ 3.16 $ 2.98 $ 2.62
Diluted 3.70 3.82 3.16 2.98 2.62
Cash dividends paid 1.32 1.26 1.05 .95 .90
Weighted average number of common shares:
Basic 346,048 345,932 346,915 346,915 346,915
Diluted 346,048 345,932 346,915 346,915 346,915
Book Value 41.20 38.80 33.21 30.89 26.83
Average Balance Sheet:
Total assets $ 128,362 $ 119,196 $ 109,032 $ 101,655 $ 94,667
Investments & Money Market Investments 33,852 31,998 28,268 26,590 27,947
Loans (Net of Unearned Income) 87,244 80,163 74,184 68,383 60,186
Deposits 110,390 104,649 95,318 89,687 84,083
Borrowings 2,269 682 614 546 531
Shareholders' equity 14,010 12,467 11,118 10,012 8, 971
Balance Sheet at Period End:
Total assets $ 135,181 $ 121,543 $ 114,245 $ 103,819 $ 99,490
Investments & Money Market Investments 35,093 32,611 30,857 25,679 27,501
Loans (Net of Unearned Income) 91,369 81,880 77,197 71,170 65,595
Deposits 113,845 105,587 99,770 90,866 88,508
Borrowings 4,307 486 1,127 565 527
Shareholders' equity 14,718 13,414 11,520 10,717 9,306
Selected Operating Ratios:
Return on average assets 1.00% 1.11% 1.01% 1.02% .96%
Return on average shareholders' equity 9.15% 10.60% 9.87% 10.32% 10.14%
Leverage (shareholders' equity/assets) 10.87% 11.04% 10.08% 10.32% 9.35%
Average total loans as a percentage of 79.03% 76.60% 77.83% 76.25% 71.58%
average deposits
Net interest margin* 4.48% 4.64% 4.66% 4.68% 4.90%
Net interest spread* 4.19% 4.38% 4.40% 4.46% 4.76%
Selected Asset Quality Ratios:
Nonperforming Assets/total loans & OREO .12% .91% .37% .21% .04%
Nonperforming loans/Gross loans .12% .86% .37% .21% .04%
Net Charge-offs/Average loans .38% .29% .33% .11% .09%
Loan Loss Reserve/Total loans .84% .96% .93% 1.01% .96%
Loan Loss Reserve/Nonperforming loans 713.89% 157.49% 550.38% -- --
</TABLE>
*Tax Equivalent Basis
-15-
<PAGE>
SELECTED PRO FORMA COMBINED
(In Thousands)
December 31, 1998
<TABLE>
<CAPTION>
Clearfield
Bank & Trust Penn Laurel Pro Forma
Company Financial Corp. Adjustments Combined
------------ --------------- ----------- ---------
<S> <C> <C> <C> <C>
Average Balance Sheet Totals:
Total Assets $179,688 $128,362 $- $308,050
Investment Securities and Money
Market Investments 55,677 33,852 - 89,529
Loans and Leases (Net of Unearned
Income) 108,763 87,244 - 196,007
Total Deposits 157,775 110,390 - 268,165
Borrowings 412 2,269 - 2,681
Shareholders' Equity 19,999 14,010 - 34,009
Period End:
Total Assets $184,703 $135,181 - $319,884
Investment Securities and Money
Market Investments 50,761 35,093 - 85,854
Loans and Leases (Net of unearned
Income) 114,689 91,369 - 206,058
Total Deposits 162,806 113,845 - 276,651
Borrowings 0 4,307 - 4,307
Shareholders' Equity 20,362 14,718 - 35,080
</TABLE>
<TABLE>
<CAPTION>
As of and for the Years Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Summary of Consolidated Statement
of Income:
Interest Income $ 22,138 $ 21,332 $ 19,008 $ 18,144 $ 16,723
Interest Expense 10,812 10,292 8,985 8,630 6,853
-------- -------- -------- -------- --------
Net Interest Income $ 11,326 $ 11,040 $ 10,023 $ 9,514 $ 9,870
Provision for Possible Loan
Losses (660) (557) (372) (242) (388)
Total Other Income 2,265 1,558 1,353 1,543 1,308
Total Other Expense 8,741 7,954 7,222 7,212 7,055
-------- -------- -------- -------- --------
Income Before Income Taxes $ 4,190 $ 4,087 $ 3,782 $ 3,603 $ 3,735
Income Taxes 986 975 904 865 961
Cumulative Effect of Change in
Accounting Principles 0 0 0 0 (88)
-------- -------- -------- -------- --------
Net Income $ 3,204 $ 3,112 $ 2,878 $ 2,738 $ 2,686
======== ======== ======== ======== ========
Diluted Earnings Per Share
Income before cumulative effect
of change in accounting
principles $ 3.54 $ 3.44 $ 3.18 $ 3.02 $ 3.06
Cumulative effect of change in
accounting principles 0.00 0.00 0.00 0.00 .10
-------- -------- -------- -------- --------
Net Income $ 3.54 $ 3.44 $ 3.18 $ 3.02 2.96%
======== ======== ======== ======== ========
</TABLE>
-16-
<PAGE>
THE MEETINGS
General
The Board of Directors of Clearfield provides this joint proxy
statement/prospectus to Clearfield's shareholders for a meeting that will be
held at ____________________________, Pennsylvania _____ on ________, June 15,
1999, at ____ p.m.
The Board of Directors of Penn Laurel provides this joint proxy
statement/prospectus to Penn Laurel's shareholders for a meeting that will be
held at ____________________________, Pennsylvania _____ on ________, June 15,
1999, at ____ p.m.
At the meetings, shareholders of each company will consider and vote on:
o the approval and adoption of the agreement that provides for the
merger;
o the approval of the adjournment or postponement of the meetings, in
the event there are not enough votes to approve the agreement; and
o other matters that properly come before the meetings or any
adjournments of the meetings.
If shareholders approve the merger, CSB Bank, Penn Laurel's subsidiary
bank, will merge into Clearfield. When the merger is completed, CSB Bank will
cease to exist and Clearfield's shareholders will receive 0.97 shares of Penn
Laurel common stock in exchange for each share of Clearfield common stock that
they hold. A vote for approval of the agreement is a vote for approval of the
merger of CSB Bank into Clearfield and for the exchange of Clearfield common
stock for Penn Laurel common stock.
To complete the merger, at least 66 2/3% of the outstanding shares of
Clearfield must approve the agreement and at least 75% of the outstanding shares
of Penn Laurel must vote to approve the agreement.
Voting, Revocation and Solicitation of Proxies
Clearfield Bank & Trust Company. At least a majority of the total number of
shares of Clearfield common stock outstanding on_________, 1999, is required for
a quorum at the meeting. These shares may be represented by a shareholder in
person or by completing and returning the enclosed proxy.
Penn Laurel Financial Corp. At least a majority of the total number of
shares of Penn Laurel common stock outstanding on_________, 1999, is required
for a quorum at the meeting. These shares may be represented by a shareholder in
person or by completing and returning the enclosed proxy.
-17-
<PAGE>
Revocation. If you execute a proxy, you can revoke it at any time until
after shareholders vote on the merger. Unless revoked, shares represented by
proxies will be voted at the meeting and at all adjournments or postponements of
the meeting. Your attendance at the meeting, will not revoke your proxy. Proxies
may be revoked by:
o delivery of a notice of revocation or of a later-dated proxy to :
William A. Shiner, Senior Vice President-Lending and Secretary
of Clearfield Bank & Trust Company, at 11 North Second Street,
Post Office Box 171, Clearfield, Pennsylvania 16830-0171, if you
are a shareholder of Clearfield; or
Janice E. Kephart, Secretary of Penn Laurel Financial Corp., at 434
State Street, Post Office Box 29, Curwensville, Pennsylvania
16833-0029, if you are a shareholder of Penn Laurel; or
o your attendance at the meeting and your notification to the person in
charge of the meeting that you wish to vote your shares in person.
If a quorum is not present at the beginning of either meeting, the Board of
Directors of Clearfield or of Penn Laurel, as the case may be, intends to
adjourn the meeting to another place and time without further notice to the
shareholders. If for any other reason the Board of Directors of one of the
companies believes additional time should be allowed to obtain proxies, the
Board may adjourn the meeting with a vote of a majority of the shares present at
the meeting. If there is a proposal to adjourn, the persons named in the
enclosed proxy will vote all shares for which they have voting authority in
favor of the adjournment. A proxy that withholds authority or that is voted
against the merger will not be voted in favor of any adjournment or postponement
of a meeting.
Voting. The proxyholders will vote signed and returned proxies as
instructed by the shareholders. If no instructions are indicated, the
proxyholders will vote the proxies in favor of the merger and in favor of
adjournment, if necessary. A proxy also gives the persons named as proxyholders
the right to vote on other matters incidental to the conduct of the meeting. If
any other matters are properly brought before the meeting, any proxy given by
you will be voted in accordance with the recommendations of the management of
the company. Proxies marked as abstentions will not be counted as votes cast.
Shares held by brokerage companies or in street name that have been designated
by brokers on proxy cards as not voted will not be counted as votes cast.
Proxies marked as abstentions or as broker no-votes:
o will be treated as shares present for purposes of determining whether
a quorum is present; and
o will have the same effect as a vote against the merger.
-18-
<PAGE>
In connection with the solicitation of proxies, each company will:
o bear the cost of soliciting proxies;
o reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable expenses; and
o may, if they so decide, solicit proxies personally or by telegraph or
telephone.
Voting Securities and Securities Ownership
Clearfield. Only those shareholders whose ownership appears on the
shareholder record of Clearfield Bank & Trust Company as of the close of
business on __________, 1999, are entitled to vote at the meeting. Each share of
Clearfield common stock is entitled to one vote. On March __, 1999, there were
576,809 shares of Clearfield common stock outstanding. Common stock is the only
issued and outstanding class of stock of Clearfield. Except as shown in the
table below, Clearfield's Board of Directors is not aware of any individual,
entity or group that owns more than 10% of the Clearfield common stock.
The following table sets forth, as of December 31, 1998, the name and
address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner of more than 5% of Clearfield's outstanding
common stock, the number of shares beneficially owned by the person and the
percentage of Clearfield's common stock so owned.
Beneficial Ownership Table
<TABLE>
<CAPTION>
Percent of Outstanding Common
Name and Address Shares Beneficially Owned (1) Stock Beneficially Owned
- ---------------- ----------------------------- ------------------------
<S> <C> <C>
Cleartru Company 101,262 (2) 17.5556%
11 North Second Street
P.O. Box 171
Clearfield, PA 16830
H. Rembrandt Woolridge 30,530 (3) 5.2929%
Mary Lee Woolridge
222 South Second Street
Clearfield, PA 16830
</TABLE>
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within 60 days after
_______, 1999. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) 101,262 shares of common stock beneficially owned by the bank are held by
the Bank's Trust and Security Department in its fiduciary capacity. The
Trust Department does not bare sole voting and disposition power over these
shares, except for sole voting power over 11,499 shares held by the trust
department on behalf of the bank's pension and profit sharing plans, the
bank's trust department intends to permit the shares over which it has
shared voting power to be voted by the other holder of the power. The trust
department intends to obtain the advice of an independent investment
adviser in voting the shares over which it has sole voting power. The
amount also includes 30,530 shares beneficially owned by Mr. & Mrs.
Woolridge.
-19-
<PAGE>
(3) Includes 8,330 shares held under a trust agreement for Mr. Woolridge and
22,200 shares held under a trust agreement for his spouse.
The table below shows the amount and percentage of Clearfield common stock
beneficially owned by each executive officer, each director, and all executive
officers and directors of Clearfield as a group as of December 31, 1998. All
shares are individually owned unless otherwise indicated.
<TABLE>
<CAPTION>
Director and Officer Share Ownership
Shares of Clearfield Common
Stock Beneficially Owned
Name of Director December 31, 1998 (1) Percent of Shares Outstanding
- ---------------- --------------------- -----------------------------
<S> <C> <C>
George L. Beard 10,015 (2) 1.7363%
William L. Bertram 5,700 (3) 0.9882%
D. Stephen Butler 5,500 (4) 0.9535%
William T. Davis 15,547 (5) 2.6953%
Robert W. Dotts 1,100 0.1907%
Craig L. Hile 1,100 (6) 0.1907%
Barbara J. Hugney-Shope 1,660 0.2878%
Robert M. Kurtz, Jr. 8,630 (7) 1.4962%
Michael R. Lytle 10,075 (8) 1.7467%
Sherwood C. Moody 208 (9) 0.0361%
Ray S. Walker 9,884 1.7136%
H. Rembrandt Woolridge 30,530 (10) 5.2929%
All directors and executive officers
as a group (15 persons) 100,616 17.4436%
</TABLE>
- ---------------------------------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within 60 days after
_______, 1999. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Includes 10,015 shares owned jointly by Mr. Beard and his spouse.
(3) Includes 3,700 shares owned individually by Mr. Bertram; 1,800 shares owned
individually by his spouse; and 200 shares under a trust agreement.
(4) Includes 2,000 shares owned individually by Mr. Butler; 1,000 shares owned
jointly with his spouse; and 2,500 shares owned by Butler Trucking Company
Profit Sharing Plan.
(5) Includes 15,547 shares held under a trust agreement for Mr. Davis.
(6) Includes 100 shares owned jointly with his spouse and 1,000 shares owned by
Bloom Insurance Agency.
(7) Includes 7,630 shares owned individually and 1,000 shares owned by Kurtz
Bros.
(8) Includes 10,075 shares owned jointly with his spouse.
(9) Includes 208 shares owned jointly with his spouse.
(10) Includes 8,330 shares held under a trust agreement for Mr. Woolridge and
22,220 shares held under a trust agreement for his spouse.
-20-
<PAGE>
Penn Laurel. Only those shareholders whose ownership appears on the
shareholder record of Penn Laurel Financial Corp. as of the close of business on
__________, 1999, are entitled to vote at the meeting. Each share of Penn Laurel
common stock is entitled to one vote. On ____________, 1999, there were 357,259
shares of Penn Laurel common stock outstanding. Common stock is the only issued
and outstanding class of stock of Penn Laurel. Penn Laurel's Board of Directors
is not aware of any individual, entity or group that owns more than 10% of the
Penn Laurel common stock.
The following table sets forth, as of December 31, 1998, the name and
address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner of more than 5% of Penn Laurel's
outstanding common stock, the number of shares beneficially owned by the person
and the percentage of Penn Laurel's common stock so owned.
Beneficial Ownership Table
<TABLE>
<CAPTION>
Percent of Outstanding Common
Name and Address Shares Beneficially Owned Stock Beneficially Owned
- ---------------- ------------------------- ------------------------------
<S> <C> <C>
Co-Bank Company 26,460 7.41%
C/O County National Bank
P.O. Box 42
Clearfield, PA 16830
</TABLE>
The table below shows the amount and percentage of Penn Laurel common stock
beneficially owned by each executive officer, each director, and all executive
officers and directors of Penn Laurel as a group as of December 31, 1998. All
shares are individually owned unless otherwise indicated.
Director and Officer
Share Ownership
<TABLE>
<CAPTION>
Shares of Penn Laurel Common
Stock Beneficially Owned Percent of Shares Options
Name of Director December 31, 1998 (1)(2) Outstanding
- ---------------- ------------------------- ------------
<S> <C> <C>
Larry W. Brubaker 9,438(3) 2.64%
Richard L. Lininger 600 (4) .17%
Darrell G. Spencer 14,364 (5) 4.02%
Guy A. Graham 3,287 (6) .92%
Frank J. Hoffman, Jr. 5,927 (7) 1.66%
Henry A. Peterson 6,109 (8) 1.71%
Joseph A. Shaw 2,750 (9) .77%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares of Penn Laurel Common
Stock Beneficially Owned Percent of Shares Options
Name of Director December 31, 1998 (1)(2) Outstanding
- ---------------- ------------------------- ------------
<S> <C> <C>
Donald R. Fezell 400 (10) .11%
Joseph P. Leyo 6,107 (11) 1.71%
Laurance B. Seaman 2,749 (12) .77%
Wesley M. Weymers 428 (13) .12%
Richard A. Wilkinson 12,323 (14) 3.45%
All directors and executive 65,408 18.31%
officers as a group (14 persons)
</TABLE>
- ----------------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment power
or has the right to acquire beneficial ownership within 60 days after
_______, 1999. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Information furnished by the directors and the corporation.
(3) Includes 2,877 shares held in KSOP, 2,001 shares held jointly with Mr.
Brubaker's spouse and 36 shares held individually by his spouse.
(4) Includes 220 shares held jointly with Mr. Lininger's spouse.
(5) Includes 1,715 shares held jointly with Mr. Spencer's daughter; 9,856
shares held individually by his spouse; 800 shares held jointly with his
grandchildren; and 1,453 shares held jointly by his spouse and their
daughter.
(6) Includes 3,087 shares held jointly with Mr. Graham's spouse.
(7) Includes 4,902 shares held jointly with Mr. Hoffman's spouse.
(8) Includes 5,609 shares are held jointly with Mr. Peterson's spouse and 300
shares held jointly with his son.
(9) Includes 2,550 shares held jointly with Mr. Shaw's spouse.
(10) Includes 100 shares held jointly with Mr. Fezell's spouse.
(11) Includes 4,329 shares held jointly with Mr. Leyo's spouse and 141 shares
held individually by his spouse.
(12) Includes 1,209 shares held jointly with Mr. Seaman's spouse and 900 shares
held individually by his spouse.
(13) Includes 228 shares held in KSOP.
(14) Includes 8,650 shares held jointly with Mr. Wilkinson's spouse, 500 shares
held by Wilkinson's Subaru, Inc. and 2,973 held by his spouse.
Interests of Certain Persons in Matters to be Voted Upon
Except as described in this proxy statement/prospectus, the directors and
executive officers of Clearfield and Penn Laurel have no special interest in the
merger, other than in their capacity as shareholders. As Clearfield
shareholders, the directors and executive officers of Clearfield are entitled to
receive Penn Laurel stock in exchange for their Clearfield common stock on the
same terms and conditions as all other shareholders of Clearfield. See "APPROVAL
OF THE MERGER--Terms of the Merger, --Interests of Certain Persons in
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<PAGE>
the Merger and -- Management and Operations Following the Merger."
Neither the directors and officers of Penn Laurel Financial Corp. and CSB
Bank nor the directors and officers of Clearfield Bank & Trust Company will
receive any special consideration or compensation in connection with the
completion of the merger, except, however, that Messrs. Brubaker, Moody and
Weymers have entered into employment agreements and Mr. Bertram has entered into
a consulting agreement. For a description of the terms of these agreements, see
"APPROVAL OF THE MERGER--Management and Operations Following the Merger."
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<PAGE>
APPROVAL OF THE MERGER
In this section we describe the material terms and provisions of the
proposed merger. A copy of the agreement that provides for the merger is
attached to this proxy statement/prospectus as Annex A. This is only a
discussion of certain terms of the merger and we qualify it in its entirety by
reference to the full text of the agreement. We urge all shareholders of
Clearfield and of Penn Laurel to read the agreement.
The agreement provides that:
o CSB Bank will merge into Clearfield Bank & Trust Company; and
o Shareholders of Clearfield will receive 0.97 shares of Penn Laurel
Financial Corp. common stock for each share of Clearfield that they
own when the merger is complete.
CSB Bank will cease to exist. Clearfield, the surviving bank will become a
wholly owned subsidiary of Penn Laurel Financial Corp. The parties propose to
change the name of Clearfield Bank & Trust Company, after the merger, to "Penn
Laurel Bank & Trust Company." This name is subject to necessary regulatory
approval. In connection with the merger, the parties will amend the Articles of
Incorporation of the surviving bank to permit an increase in the Board of
Directors to 25 persons. The Pennsylvania Department of Banking and the Federal
Deposit Insurance Corporation, will regulate the surviving bank. Penn Laurel
will continue to be a registered holding company, regulated by the Board of
Governors of the Federal Reserve System and will hold all shares of Penn Laurel
Bank & Trust Company.
The Boards of Directors of each of Clearfield and Penn Laurel has
unanimously approved and adopted the agreement and the merger and believes the
merger is in the best interests of the shareholders of each company. The Boards
of Directors unanimously recommend that shareholders vote "FOR" the following
resolutions that will be presented at the meetings:
RESOLVED, that the Agreement and Plan of Reorganization, dated
as of December 31, 1998, by and among Penn Laurel Financial Corp., CSB
Bank and Clearfield Bank & Trust Company (the "Agreement"), entered
into among the respective entities, approved and adopted by the Board
of Directors of the respective entities, providing, among other things,
for the merger of CSB Bank into Clearfield Bank & Trust Company, the
amendment of Article 6 of the surviving bank's Articles of
Incorporation to permit 25 persons to sit on the Board of Directors,
and providing that each outstanding share of the common stock of
Clearfield Bank & Trust Company shall be converted into the right to
receive 0.97 shares of Penn Laurel Financial Corp. common stock, in
accordance with the terms of the Agreement, is hereby approved,
adopted, ratified and confirmed by the shareholders; and
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<PAGE>
FURTHER RESOLVED, that the proper officers and directors of
the company are hereby authorized, empowered, directed and ordered, in
the name and on behalf of the company, to execute all such documents
and take all such other actions, as they, in their discretion, may in
their discretion deem necessary, appropriate or desirable to carry out
the intent and the purposes contemplated by the Agreement and the
foregoing resolution.
Background of the Merger, Reasons and Recommendation of the Boards of Directors
Clearfield Background. Clearfield Bank & Trust Company's Board of Directors
as an ongoing part of its long-range planning practices, annually reviews and
evaluates various strategic options and alternatives available to maximize the
economic benefits for Clearfield and its shareholders. This review and
evaluation generally includes the impact a merger might have on the institution
and its shareholders. The Board of Directors has considered, among other things,
the merits of maintaining Clearfield's independence, or combining with a smaller
or similar size bank or holding company.
At its most recent annual review, the Board considered its long-range plan
in light of current economic, financial and regulatory conditions and their
impact and likely future ramifications for Clearfield Bank & Trust Company and,
the local financial services industry. After careful analysis, and based on
expert advice, the Board of Directors concluded that in today's financial
services environment Clearfield could compete more effectively in its market
area if it combined with a bank of similar size. The combined institution will
have sufficient financial resources to compete effectively and profitably in the
future. The resulting bank should have the largest market share by total
deposits of any bank in Clearfield County. The resulting bank will have the
potential to create earnings growth, cost savings and shareholder value in
excess of what either entity could do by itself. In addition, each institution
offers unique products and services that will be made available to the customers
of the banks.
Penn Laurel Background. As part of its long-range planning, Penn Laurel's
Board of Directors periodically reviewed and evaluated various strategic options
and alternatives available to maximize the economic benefits for Penn Laurel and
its shareholders, including the impact a merger might have on the institution
and its shareholders. The Board has considered the merits of maintaining Penn
Laurel's independence, Penn Laurel combining with a smaller or similar size bank
or holding company, or merging Penn Laurel with a larger community or regional
financial institution. The long-range plan is evaluated and updated annually in
light of economic, financial and regulatory conditions and their impact and
likely future ramifications for Penn Laurel specifically and the local financial
services industry.
General
For many years the strategy of the Penn Laurel Board of Directors was to
increase profitability on an annual basis as a means of building long-term value
for the Penn Laurel
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<PAGE>
shareholders. The continuation of Penn Laurel as an independent institution with
the ability to compete effectively in the increasingly competitive market for
financial services and products was implicit in this strategy. In the past
several years, Penn Laurel has been able to fulfill its strategy by expanding
through acquisition of an insurance agency in 1998, as well as through internal
growth in its market place and the effective management of its net interest
margin. The Board adopted and followed this strategy recognizing that Penn
Laurel's ability to continue to increase shareholder value depended upon, among
other things, the ability to accelerate its loan and deposit growth in its
market area and the ability to selectively pursue other acquisitions which would
enhance long term shareholder value.
The Penn Laurel Board has long recognized that, in order for Penn Laurel to
achieve the requisite scale and scope of operations necessary to remain an
effective competitor in the dramatically changing market for banking and
financial services, the Board should look to a strategic combination with
another entity that shares the culture and philosophy of Penn Laurel with a
similar commitment to long term shareholder value. The Board also realized that
the ability to grow deposits and loans in a meaningful fashion without
subsequent acquisitions would require the Board to incur substantial capital
expenditures to build or acquire branches in higher growth adjoining markets. In
addition to growth by branch banking, the technologies required to remain
competitive would necessitate capital expenditures. After evaluating internal
growth methods, the Board of Directors of Penn Laurel determined that it should
evaluate potential acquisitions of institutions with similar goals and
objectives and evaluate a business combination or affiliation with a similarly
sized company with complimentary goals and objectives.
The Boards of Directors of Penn Laurel and Clearfield held preliminary
discussions in 1997. None of these discussions resulted in an agreement as to
the terms of a potential combination until recent discussions with Clearfield
which led to execution of the agreement on December 31, 1998. In August, 1998,
Penn Laurel contacted Clearfield. Messrs. Bertram and Brubaker met to discuss
the advantages and issues of a potential combination between Penn Laurel and
Clearfield. The discussions covered:
o corporate culture, operating philosophy;
o corporate goals and objectives;
o long term impact of a combination on the relevant constituencies;
o structure;
o management; and
o the Board of Directors.
The parties did not agree to specific terms but decided it would be advantageous
to continue an open dialogue and discussions.
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<PAGE>
The Boards of Directors of each of Penn Laurel and Clearfield formed
committees to investigate a possible combination between the two companies. Each
committee met with its company's Board of Directors to analyze the advantages
and issues of a combination. The committees discussed:
o corporate culture, operating philosophy;
o corporate goals and objectives;
o long term impact of a combination on the relevant constituencies;
o structure;
o management; and
o the Board of Directors.
The board committees from Penn Laurel and Clearfield met jointly on at least
three occasions and on each occasion talked about an individual issue. In one
case the committee discussed:
o joint goals and objectives;
o addressing relevant constituencies; and
o operating cultures and philosophies.
In one case, the Board of Directors structure was considered, as well as, the
size of the Board of Directors, its composition and membership. The committees
also discussed age restrictions and retirement provisions. The committees
discussed the advantages and disadvantages of using the Penn Laurel holding
company structure. They agreed that, because Penn Laurel had already formed a
holding company, it would be most advantageous to continue Penn Laurel as the
holding company for the combined entity. At the third meeting of the committees,
the members discussed both short term management and long term management of the
combined entity. Committee members also discussed management philosophy,
leadership qualities of the various executive officers and ways to ensure the
executive officers' continuing participation in the combined institution, going
forward. These discussions led to the proposed management structure and the
employment contracts and consulting contract for Messrs. Bertram, Brubaker,
Moody and Weymers.
Finally, the members discussed how to provide and plan for the requisite
shareholder value for the resulting company. The Board of Directors of
Clearfield and Penn Laurel each viewed the transaction from the best interests
of its company, as well as, the best interests of the resulting company. The
members of the committees jointly developed a number of assumptions regarding
growth, cost savings and synergies necessary to provide long term value to
shareholders.
To assist in these discussions Clearfield and Penn Laurel jointly engaged
Ryan, Beck. The primary purpose of the Ryan, Beck engagement was to examine the
assumptions necessary for successful merger of the two companies and to test
those assumptions and how they would effect long term shareholder value. The key
element of the Ryan, Beck study was to establish
-27-
<PAGE>
the parameters, financial and otherwise, to aid the resulting company to enhance
shareholder value within the context of the cultural and political structure
that the companies thought was in the best interest of shareholders. Ryan, Beck
outlined a number of assumptions. Given the growth rates, income and assumptions
for each company and for the resulting company, Ryan, Beck recommended a
relevant range of exchange ratios for the proposed merger. The Boards of
Directors of Clearfield and Penn Laurel negotiated the exchange ratio after
review of Ryan, Beck's report. Eventually, the exchange ratio of .97 shares of
Penn Laurel common stock for each share of Clearfield common stock was agreed to
by the Boards of Directors.
Clearfield and Penn Laurel determined that they should each have an
independent financial advisor review the terms of the transaction and to
ascertain that they were fair to the shareholders of the respective companies,
from a financial point of view. Penn Laurel engaged Garland McPherson and
Clearfield engaged Ryan, Beck. Garland McPherson provided a fairness opinion to
Penn Laurel and Ryan, Beck provided a fairness opinion to Clearfield. The terms
of the transaction were reviewed by the Board of Directors of Penn Laurel on
December 16, 1998, and on December 23, 1998, respective. The Boards of Directors
made certain modifications to the terms of the transaction including providing
that Clearfield would survive the merger and changed its name to Penn Laurel
Bank & Trust Company. The agreement was executed by the parties as of December
31, 1998.
Recommendations
For the reasons outlined in "Opinion of Financial Advisors" below, the
Clearfield Board unanimously agreed to recommend the merger transaction for
shareholder approval. The Board of Directors has received an opinion from Ryan,
Beck to the effect that the exchange ratio is "fair" to the shareholders of
Clearfield from a financial point of view. See "APPROVAL OF THE MERGER--Opinion
of Financial Advisors."
For the reasons outlined in "Opinion of Financial Advisors" below, the Penn
Laurel Board unanimously agreed to recommend the merger transaction for
shareholder approval. The Board of Directors has received an opinion from
Garland McPherson & Associates, Inc. to the effect that the terms of the
agreement with Penn Laurel Financial Corp. are fair to the shareholders of Penn
Laurel from a financial point of view. See "APPROVAL OF THE MERGER--Opinion of
Financial Advisors."
The Boards' Determination About the Merger
The Boards of Directors of each of Clearfield and Penn Laurel believe that
the terms of the transaction are fair to, and in the best interests of each
company and its shareholders and unanimously approved the agreement. The Board
of Directors of Clearfield unanimously recommends that the shareholders of
Clearfield approve the agreement. The Board of Directors of Penn Laurel
unanimously recommends that the shareholders of Penn Laurel approve the
agreement.
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<PAGE>
Opinion of Financial Advisors
General
The Clearfield Board of Directors engaged Ryan, Beck to provide financial
advisory and investment banking services to Clearfield. Penn Laurel engaged
Garland McPherson to provide financial advisory and investment banking services
to Penn Laurel and its subsidiary, CSB Bank. The terms of the engagements were
contained in letters dated December 9, 1998, and December 10, 1998.
CLEARFIELD
On December 9, 1998, Clearfield formally retained Ryan, Beck to render a
fairness opinion with respect to a merger of equals between Penn Laurel and
Clearfield. Ryan, Beck is regularly engaged in the valuation of banks, bank
holding companies, savings and loan associations, savings banks and savings and
loan holding companies in connection with mergers, acquisitions and other
securities-related transactions. Ryan, Beck has knowledge of, and experience
with, the Mid-Atlantic banking market and banking organizations operating within
this market, and was selected by Clearfield because of its knowledge of,
experience with, and reputation in the financial services industry.
In its capacity as Clearfield's financial advisor, Ryan, Beck did not
participate in the negotiations with respect to the determination of the
exchange ratio and other terms and conditions of the merger, and the decision as
to whether to accept the merger proposal and the final pricing of the merger was
ultimately made by the Board of Directors of Clearfield. Ryan, Beck rendered a
formal written opinion on December 31, 1998 and rendered an additional written
opinion dated as of ______________ based on and subject to the assumptions,
factors, and limitations as set forth in the Ryan, Beck opinion and as described
below, that the exchange ratio is "fair" to Clearfield's shareholders from a
financial point of view. No limitations were imposed by the Clearfield Board of
Directors upon Ryan, Beck with respect to the investigations made or procedures
followed by it in arriving at its opinion.
The full text of the Ryan, Beck opinion, which sets forth assumptions made
and matters considered, is attached as Annex B to this joint proxy
statement/prospectus. Shareholders of Clearfield are urged to read the Ryan,
Beck opinion in its entirety. The Ryan, Beck opinion is directed only to the
financial fairness of the exchange ratio and does not constitute a
recommendation to any Clearfield shareholder as to how such shareholder should
vote at the meeting. The summary of the Ryan, Beck opinion set forth in this
joint proxy statement/prospectus is qualified in its entirety by reference to
the full text of the Ryan, Beck opinion. In rendering its opinions, Ryan, Beck
does not admit that it is an expert within the meaning of the term "expert" as
used within the Securities Act and the rules and regulations promulgated
thereunder, or that its opinions constitute a report or valuation within the
meaning of Section 11 of the Securities Act and the rules and regulations
promulgated thereunder.
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<PAGE>
In rendering its opinion, Ryan, Beck:
o reviewed, among other things:
o the agreement and related documents;
o the proxy statement/prospectus;
o Penn Laurel's Annual Report to Shareholders for the years
ended December 31, 1997, 1996 and 1995;
o Penn Laurel's Quarterly Call Reports to the FDIC for the
periods ended September 30, 1998, June 30, 1998 and March
31, 1998;
o Clearfield's Annual Report to Shareholders for the years
ended December 31, 1997, 1996 and 1995;
o Clearfield's Quarterly Call Reports to the FDIC for the
periods ended September 30, 1998, June 30, 1998 and March
31, 1998; and
o Certain operating and financial information provided by the
management's of Penn Laurel and of Clearfield, relating to
their business and prospects;
o held discussions with members of senior management of Penn Laurel
and Clearfield regarding:
o past and current business operations;
o financial projections for the year ending December 31, 1999;
o strategic plans;
o regulatory standing;
o financial condition; and
o future prospects of the respective companies, including
potential synergies arising from the merger of equals;
o reviewed the historical stock prices and trading volume of Penn
Laurel and of Clearfield common stock;
o reviewed the publicly available financial data of commercial banking
organizations which Ryan, Beck deemed generally comparable to Penn
Laurel;
o reviewed the publicly available financial data of commercial banking
organizations which Ryan, Beck deemed generally comparable to
Clearfield; and
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<PAGE>
o conducted other studies and analyses, inquiries and examinations as
Ryan, Beck deemed appropriate.
In connection with its review, Ryan, Beck relied upon and assumed the
accuracy, completeness and fairness of the financial and other information
provided to it by the respective institutions or which was publicly available
and have not assumed any responsibility for independently verifying such
information. Ryan, Beck also relied upon the managements of Penn Laurel and of
Clearfield as to the reasonableness and achievability of the financial and
operating forecasts and projections (and the assumptions and bases therefor)
provided to it and in certain instances Ryan, Beck made certain adjustments to
such financial and operating forecasts which in its judgment were appropriate
under the circumstances. In addition, it assumed with the consent of both
Clearfield and Penn Laurel that such forecasts and projections (including
expense savings) reflect the best currently available estimates and judgments of
the respective managements. Ryan, Beck is not an expert in the evaluation of
allowances for loan losses. Therefore, Ryan, Beck does not assume any
responsibility for making an independent valuation of the adequacy of the
allowances for loan losses set forth in the balance sheets of Penn Laurel and of
Clearfield at September 30, 1998, and it assumed such allowances were adequate
and comply fully with applicable law, regulatory policy, sound banking practice
and policies of the Securities and Exchange Commission as of the date of such
financial statements. Ryan, Beck also assumed that the merger of equals in all
respects is, and will be consummated in compliance with all laws and regulations
applicable to Penn Laurel and Clearfield. Ryan, Beck have not made or obtained
any independent evaluations or appraisals of the assets and liabilities of
either Penn Laurel and Clearfield or their respective subsidiaries, nor has it
reviewed any individual loan files of Clearfield and Penn Laurel, including its
subsidiary bank.
In conducting its analysis and arriving at the Ryan, Beck opinion as
expressed herein, Ryan, Beck considered such financial and other factors as it
deemed appropriate in the circumstances. It assumed that in the course of
obtaining the necessary regulatory approvals for the merger and the transaction
contemplated thereby, no restrictions will be imposed that will have a material
adverse effect on the contemplated benefits of the merger or the transactions
contemplated thereby to Clearfield. Ryan, Beck did not express any opinion as to
the price or range of prices at which Penn Laurel common stock might trade
subsequent to the merger. The Ryan, Beck opinion as to the fairness of the
exchange ratio addresses the ownership position in the combined company to be
received by the holders of shares of Clearfield pursuant to the exchange ratio
on the terms set forth in the Agreement. The Ryan, Beck opinion does not address
the relative merits of the merger and alternative business strategies. In that
regard, Ryan, Beck was not asked to, and did not, solicit third party
indications of interest in acquiring Clearfield or in engaging in a business
combination or any other strategic transaction with Clearfield.
The preparation of a fairness opinion on a transaction such as the merger
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances. Therefore, Ryan, Beck's
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<PAGE>
opinion is not readily susceptible to summary description. In arriving at its
opinion, Ryan, Beck performed a variety of financial analyses. Ryan, Beck
believes that its analyses must be considered as a whole and the consideration
of portions of such analyses and the factors considered therein, or any one
method of analysis, without considering all factors and analyses, could create
an incomplete view of the analyses and the process underlying Ryan, Beck's
opinion. No one method of analysis was assigned a greater significance than any
other.
The projections furnished to Ryan, Beck were prepared by the respective
managements of Penn Laurel and Clearfield without input or guidance by Ryan,
Beck. Penn Laurel and Clearfield do not publicly disclose internal management
projections of the type provided to Ryan, Beck in connection with the review of
the merger. Such projections were not prepared with a view towards public
disclosure. The public disclosure of such projections could be misleading since
the projections were based on numerous variables and assumptions which are
inherently uncertain, including, without limitation, factors related to general
economic and competitive conditions. Accordingly, actual results could vary
significantly from those set forth in such projections.
In its analyses, Ryan, Beck made numerous assumptions with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Ryan,
Beck, Clearfield or Penn Laurel. Any estimates contained in the analyses
performed by Ryan, Beck are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, estimates of the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities might actually be sold. In addition, the fairness
opinion dated as of December 31, 1998 was among several factors taken into
consideration by the Clearfield Board in making its determination to approve the
merger.
After giving effect to the merger, Clearfield and Penn Laurel shareholders
would have a fully diluted ownership interest of approximately 61.7% and 38.3%
in the pro forma combined company, based on the 0.97 exchange ratio.
The following is a brief summary of the analyses and procedures performed by
Ryan, Beck in the course of arriving at the Ryan, Beck opinion.
Impact Analysis: Ryan, Beck analyzed the merger in terms of its effect on
Penn Laurel's projected 1999, 2000 and 2001 earnings per share, stated book
value and tangible book value based on Clearfield's projected 1999, 2000 and
2001 earnings which were derived from information provided by the management's
of Clearfield and Penn Laurel. Based upon certain assumptions, including those
with respect to cost savings and other synergy's from the merger and the
stand-alone earnings projections provided by Clearfield and Penn Laurel, the
analysis showed that the merger would be accretive to Penn Laurel's projected
1999, 2000 and 2001 fiscal year earnings per share by approximately 24.50%,
25.27% and 23.33%. The analysis further showed that the merger would be dilutive
to Penn Laurel's book value per share by
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<PAGE>
approximately 7.36% and dilutive to Penn Laurel's tangible book value by
approximately 10.15%. Ryan, Beck analyzed the impact of the merger on Penn
Laurel values per Clearfield share based on the exchange ratio of 0.97 shares of
Penn Laurel common stock for each share of Clearfield common stock using pro
forma projected 1999, 2000 and 2001 fiscal year earnings per share, pro forma
stated book value per share, pro forma tangible book value per share and
dividends per share at September 30, 1998. That analysis found that, based on
such exchange ratio, Clearfield's equivalent projected 1999 earnings per share
would increase by approximately 25.33%, equivalent projected 2000 earnings per
share would increase by approximately 29.78% and equivalent projected 2001
earnings per share would increase by approximately 31.49%. Equivalent stated
book value would increase by approximately 2.52% and equivalent tangible book
value would increase by approximately 4.67%. Additionally, Clearfield's
shareholders, based on an anticipated increase in Penn Laurel's dividend level,
would receive annual dividends equal to those currently received. These
forward-looking projections may be affected by many factors beyond the control
of Penn Laurel and/or Clearfield, including the future direction of interest
rates, economic conditions in the companies' market place, the actual amount and
timing of cost savings achieved through the merger, the actual level of revenue
enhancements brought about through the merger, future regulatory changes and
various other factors. The actual results achieved may vary from the projected
results and the variations may be material.
Discounted Dividend Analysis - Clearfield. Using a discounted dividend
analysis, Ryan, Beck estimated the present value of the future dividend streams
that Clearfield could produce in perpetuity. Projection ranges for Clearfield's
five-year balance sheet and income statement were provided by Clearfield's
management. Management's projections were based upon various factors and
assumptions, many of which are beyond the control of Clearfield. These
projections are, by their nature, forward-looking and may differ materially from
the actual values or actual future results which may be significantly more or
less favorable than suggested by such projections. In producing a range of per
share Clearfield values, Ryan, Beck utilized the following assumptions: discount
rates range from 11.0% to 13.0%, terminal price/earnings multiples range from
13.0x to 15.0x (which when applied to terminal year estimated earnings produces
a value which approximates the net present value of the dividends in perpetuity,
given certain assumptions regarding growth rates and discount rates). The
discounted dividend analysis produced the range of net present values per share
of Clearfield common stock illustrated in the chart below:
Discount Rate: 11.00% 12.00% 13.00%
- -------------- ------ ------ ------
Terminal Year 13.00 $50.28 $48.78 $47.37
Multiple 14.00 $52.22 $50.63 $49.13
Of Earnings 15.00 $54.16 $52.48 $50.89
These analyses do not purport to be indicative of actual values or expected
values or an appraisal range of the shares of Clearfield common stock. Ryan,
Beck notes that the discounted dividend analysis is a widely used valuation
methodology, but it relies on numerous assumptions, including dividend payout
rates, terminal values and discount rates, the future values of which may
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be significantly more or less than such assumptions. Any variation from these
assumptions would most likely produce different results.
Discounted Dividend Analysis - Pro Forma Combined Company. Ryan, Beck also
estimated for comparison purposes the present value of the future dividend
streams that the pro forma combined company created by the combination of
Clearfield and Penn Laurel could produce in perpetuity. Projection ranges for
the pro forma combined company's five-year balance sheet and income statement
were provided by Clearfield and Penn Laurel's management's. Management's
projections were based upon various factors and assumptions, many of which are
beyond the control of Clearfield and Penn Laurel. These projections are, by
their nature, forward-looking and may differ materially from the actual values
or actual future results which may be significantly more or less favorable than
suggested by such projections. In producing a range of per share pro forma
combined company values, Ryan, Beck utilized the following assumptions: discount
rates range from 11.0% to 13.0%, terminal price/earnings multiples range from
13.0x to 15.0x (which when applied to terminal year estimated earnings produces
a value which approximates the net present value of the dividends in perpetuity,
given certain assumptions regarding growth rates and discount rates) and
earnings that include estimated savings in the pro forma combined company's
non-interest expense equal to 15% in 1999 and 17.5%, in the aggregate, in 2000,
with an assumed 5% growth in synergies in years thereafter. The discounted
dividend analysis produced the range of net present values per share of the pro
forma combined company common stock illustrated in the chart below:
Discount Rate: 11.00% 12.00% 13.00%
- -------------- ------ ------ ------
Terminal Year 13.00 $64.17 $62.14 $60.21
Multiple 14.00 $66.88 $64.72 $62.68
Of Earnings 15.00 $69.60 $67.31 $65.14
Ryan, Beck multiplied the 0.97 exchange ratio times the pro forma combined
company common values in the chart above to produce a range of net present
values per equivalent Clearfield share as illustrated in the chart below:
Discount Rate: 11.00% 12.00% 13.00%
- -------------- ------ ------ ------
Terminal Year 13.00 $62.24 $60.28 $58.40
Multiple 14.00 $64.87 $62.78 $60.80
Of Earnings 15.00 $67.51 $65.29 $63.19
The analyses do not purport to be indicative of actual values or expected
values or an appraisal range of the shares of the pro forma combined company's
common stock. Ryan, Beck notes that the discounted dividend analysis is a widely
used valuation methodology, but it relies on numerous assumptions, including in
the pro forma analysis expense savings levels and synergies growth, as well as
the assumptions used in the stand-alone analysis of Clearfield, the future
values of which may be significantly more or less than such assumptions. Any
variation from these assumptions would most likely produce different results.
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Contribution Analysis. Ryan, Beck reviewed the relative contributions of
Clearfield and Penn Laurel to the combined company based on financial data as of
September 30, 1998. Ryan, Beck compared the pro forma equity ownership interest
of Clearfield and Penn Laurel of 61.70% and 38.30%, respectively, with the
following Clearfield and Penn Laurel relative contribution table:
Clearfield Penn Laurel
Bank & Trust Financial Corp.
------------ ---------------
Total Assets 57.73% 42.27%
Loans, net unearned income 54.72% 45.28%
Loan Loss Reserve 58.84% 41.16%
Deposits 58.74% 41.26%
Total Equity 59.39% 40.61%
Tangible Common Equity 58.14% 41.86%
Market Capitalization 66.58% 33.42%
Nonperforming Loans 74.02% 25.98%
Nonperforming Assets 69.13% 30.87%
Last Twelve Months (9/30/98) Net Income 62.11% 37.89%
Estimated 1999 Net Income 61.54% 38.46%
Peer Group Analysis - Individually. Ryan, Beck also compared Clearfield and
Penn Laurel's reported financial data as of June 30, 1998, with that of a peer
group of fourteen selected commercial banks located in the Mid-Atlantic region
of the United States with assets between $100 million and $250 million for which
public trading and pricing information was available. Ryan, Beck deemed this
group to be generally comparable to both Penn Laurel and Clearfield. The
following table compares selected statistics of Penn Laurel and Clearfield with
the median ratios and average ratios for the fourteen selected commercial banks
comprising the peer group:
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<PAGE>
<TABLE>
<CAPTION>
Clearfield Penn Laurel Peer Group Peer Group
Bank & Trust Financial Corp. Average Median
------------ --------------- ---------- ----------
<S> <C> <C> <C> <C>
Total Equity / Total Assets 10.84 9.18 9.67 9.87
Return on Average Assets (1) 1.06 1.33 0.80 0.77
Return on Average Equity (1) 9.41 13.74 8.22 8.10
Net Interest Margin 3.75 4.35 4.61 4.73
Yield on Interest Earning Assets 7.40 8.39 8.23 8.22
Cost of Interest Bearing Liabilities 4.34 4.64 4.43 4.52
Non-Performing Loans/Total Loans 0.30 0.37 1.08 0.93
Loan Loss Reserves/Non Performing Loans 335.84 218.48 220.07 116.69
Total Loans/Total Assets 59.27 68.95 60.19 59.10
Total Loans/Deposits 67.77 79.75 70.66 68.15
1-4 Family Loans/Total Loans 39.60 29.96 30.50 26.47
Commercial Loans/Total Loans 13.31 17.70 19.63 17.71
Consumer Loans/Total Loans 18.14 33.22 6.08 4.06
Price/Latest Twelve Months Earnings (1) 17.09 9.99 21.47 19.08
Price/Book Value 156.17 114.32 168.51 150.06
Dividend Yield 2.94 2.85 1.44 1.53
</TABLE>
- --------------
(1) Penn Laurel's net income includes $504,000 in non recurring securities
gains
Ryan, Beck noted that the performance of Clearfield as measured by return
on average assets and return on average equity was superior to that of the Peer
Group. Clearfield's yield on interest earning assets was less than that of the
companies comprising the Peer Group. Additionally, Clearfield had a slightly
lower cost of interest bearing liabilities than that of the Peer Group.
Clearfield's net interest margin was less than its peers primarily due to its
relatively lower yielding interest earning assets. Ryan, Beck also noted that
Clearfield has a lower level of non-performing loans than the Peer Group and a
higher loan loss reserve when measured as a percent of non-performing loans.
Based on Clearfield stock price of $55.50 per share as of December 21, 1998,
Clearfield's price to latest twelve months earnings per share was less than the
Peer Group. Clearfield's price to book value was greater than the peer group
median and less than the peer group average.
Penn Laurel's yield on interest earning assets was superior to that of
Clearfield reflecting the higher level of total loans to total assets, total
loans to total deposits and composition of the loan portfolio at Penn Laurel as
compared to Clearfield. Additionally, Penn Laurel had a higher cost of interest
bearing liabilities than Clearfield. Penn Laurel's net interest margin was
greater than Clearfield's primarily due to its higher yielding interest earning
assets. Ryan, Beck also noted that Clearfield has a higher loan loss reserve as
a percent of non-performing loans as compared to Penn Laurel. Based on Penn
Laurel's stock price of $46.25 per share and
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Clearfield's stock price of $55.50 as of December 21, 1998, Clearfield's price
to latest twelve months earnings per share greatly exceeded Penn Laurel's and
Clearfield's price to book value was also greater than Penn Laurel's. Ryan, Beck
noted that the common stock of both Penn Laurel and Clearfield both traded
infrequently and that the current stock prices of both Penn Laurel and
Clearfield may not be indicative of fair market value. Ryan, Beck also noted
that Penn Laurel's stock trades less frequently than Clearfield's.
Peer Group Analysis - Combined. Ryan, Beck also compared the pro forma
combined company's pro forma financial data as of June 30, 1998 with that of a
group of seventeen selected commercial banks located in the Mid-Atlantic region
of the United States with assets between $250 million and $450 million for which
public trading and pricing information was available. The pro forma financial
data does not include any expense savings anticipated as a result of the merger.
Ryan, Beck deemed this group to be generally comparable to the pro forma
combined company. The following table compares selected statistics of the pro
forma combined company with the median ratios and average ratios for the
seventeen selected commercial banks comprising the combined peer group:
<TABLE>
<CAPTION>
Pro Forma Combined Combined
Combined Peer Group Peer Group
Company Average Median
--------- ---------- -----------
<S> <C> <C> <C>
Total Equity / Total Assets 10.16 10.36 9.55
Return on Average Assets (1) 1.15 1.16 1.14
Return on Average Equity (1) 10.81 11.09 11.47
Net Interest Margin 3.99 4.83 4.74
Yield on Interest Earning Assets 7.80 8.27 8.13
Cost of Interest Bearing Liabilities 4.45 4.25 4.34
Non-Performing Loans/Total Loans 0.33 0.74 0.54
Loan Loss Reserves/Non Performing Loans 277.34 276.84 244.63
Total Loans/Deposits 72.64 77.15 77.24
</TABLE>
- --------------------
(1) Includes $504,000 in non recurring securities gains.
Ryan, Beck noted that the performance of the pro forma combined company
without synergies, as measured by return on average assets was approximately
equal to the combined peer group and return on average equity was slightly less
than the combined peer group. If synergies are included, the pro forma combined
company's return on average assets and return on average equity would exceed
that of the combined peer group. The pro forma combined company's yield on
interest earning assets was less than that of the companies comprising the
combined peer group and its cost of interest bearing liabilities was higher than
that of the combined peer group. The net effect is that the pro forma combined
company had a lower net interest margin than that of the combined peer group.
Ryan, Beck also noted that the pro forma
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combined company has a lower level of non-performing loans than the combined
peer group and a higher loan loss reserve when measured as a percent of
non-performing loans.
Financial Advisory Fees. Ryan, Beck has been retained by the Board of
Directors of Clearfield as an independent contractor to act as financial advisor
to Clearfield with respect to the merger and will receive a fee for their
services. Ryan, Beck, in October 1998, was jointly engaged by Penn Laurel and
Clearfield to develop a full understanding of the business and characteristics
of Penn Laurel and Clearfield to facilitate the merger of equals by developing a
suggested appropriate exchange ratio. When that engagement was complete and with
the consent of Penn Laurel and Clearfield, Ryan, Beck, in December 1998, was
engaged solely by Clearfield to provide a fairness opinion with respect to the
merger after both companies had negotiated a final exchange ratio. Ryan, Beck
has had no other investment banking relationship with either Penn Laurel or
Clearfield.
With regard to Ryan, Beck's services with respect to facilitating the
merger, Clearfield and Penn Laurel each agreed to each pay Ryan, Beck a retainer
fee of $5,000 plus each an additional fee equal to $15,000 at the time of the
announcement of the transaction. In addition, Clearfield and Penn Laurel have
agreed to reimburse Ryan, Beck for its reasonable out-of-pocket expenses, which
cannot exceed $7,500 without the prior consent of Clearfield or Penn Laurel.
Ryan, Beck has been paid all such fees. The Clearfield and Penn Laurel have also
agreed to indemnify Ryan, Beck and certain related persons against certain
liabilities, including liabilities under federal securities law, incurred in
connection with its services, including the determination of the exchange ratio.
The amounts of Ryan, Beck's fees were determined by negotiation between Ryan,
Beck, Clearfield and Penn Laurel.
With regard to Ryan, Beck's services in connection with the merger,
Clearfield has agreed to pay Ryan, Beck a retainer fee of $7,500 plus an
additional fee equal to $17,500 upon delivery of the fairness opinion. In
addition, Clearfield has agreed to reimburse Ryan, Beck for its reasonable
out-of-pocket expenses, which cannot exceed $7,500 without the prior consent of
Clearfield. Ryan, Beck has been paid all such fees. Clearfield has also agreed
to indemnify Ryan, Beck and certain related persons against certain liabilities,
including liabilities under federal securities law, incurred in connection with
its services, including the fairness opinion. The amounts of Ryan, Beck's fees
were determined by negotiation between Clearfield and Ryan, Beck.
Ryan, Beck is a market maker for both Penn Laurel's and Clearfield's common
stock. Ryan, Beck's research department does not cover either Penn Laurel or
Clearfield.
PENN LAUREL
Pursuant to an engagement letter dated December 10, 1998, the Penn Laurel
Board of Directors retained Garland McPherson to render financial advisory and
investment banking services to Penn Laurel in connection with the possible
merger of Penn Laurel with Clearfield.
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Garland McPherson, as part of its investment banking and bank consulting
business, engages in the valuation of financial institution securities for a
variety of purposes, including mergers and acquisitions, and the determination
of adequate consideration in merger and acquisition transactions. The Penn
Laurel Board selected Garland McPherson on the basis of its experience in and
knowledge of the banking industry and its ability to evaluate the fairness of
the transaction from a financial point of view. Garland McPherson acted
exclusively for the Penn Laurel Board in rendering its fairness opinion and has
received fees from Penn Laurel in rendering its fairness opinion and its
services. There are no other material relationships between Garland McPherson,
its affiliates and representatives and Penn Laurel or its affiliates.
The full text of the opinion is attached as Annex C to this joint proxy
statement/ prospectus and is incorporated herein by reference. We urge you to
read the opinion in its entirety for a description of the procedures followed,
assumptions made, matters considered and qualifications and limitations on the
review undertaken by Garland McPherson in connection therewith. The following
summary of the opinion is qualified in its entirely by the full text of the
opinion. The exchange ratio was determined by negotiation between Penn Laurel
and Clearfield and was not determined by Garland McPherson.
In rendering the opinion, Garland McPherson:
o reviewed the historical financial performances, current financial
positions and general prospects of Penn Laurel and Clearfield;
o reviewed the agreement;
o reviewed the proxy statement/prospectus;
o reviewed and analyzed the stock market performance of Penn Laurel and
Clearfield;
o reviewed the respective history of dividends paid by the two
institutions;
o considered the terms and conditions of the proposed transaction as
compared with the terms and conditions of comparable bank mergers and
acquisitions;
o discussed with various senior officers of Penn Laurel and Clearfield
the foregoing as well as other matters it believed relevant to its
opinion; and
o conducted such other analyses, studies and investigations as were
deemed appropriate.
Garland McPherson relied, without independent verification, upon the
accuracy and completeness of all the financial and other information reviewed by
and discussed with it for
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purposes of its opinion. With respect to the Penn Laurel and Clearfield
financial forecasts reviewed in rendering its opinion, it was assumed that such
financial forecasts were reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the respective managements as to
the future financial performance of Penn Laurel and Clearfield. Garland
McPherson did not make an independent evaluation or appraisal of the assets
(including loans) or liabilities of Penn Laurel or Clearfield nor was it
furnished with any such appraisal. Garland McPherson also did not independently
verify, and has relied on and assumed, that all allowances for loan losses set
forth in the balance sheets of Penn Laurel and Clearfield were adequate and
complied fully with all applicable law, regulatory policy and sound banking
practice as of the date of such financial statements.
In connection with rendering the opinion, Garland McPherson performed a
variety of financial analyses. Although the evaluation of the fairness, from a
financial point of view, of the transaction and of the consideration to be paid
in the transaction was to some extent a subjective one based on the experience
and judgment of Garland McPherson and not merely the result of mathematical
analysis of financial data, Garland McPherson principally relied on the
financial evaluation methodology summarized below in its determinations. Garland
McPherson believes its analyses must be considered as a whole and that selecting
portions of such analyses and factors considered by Garland McPherson without
considering all such analyses and factors could create an incomplete view of the
process underlying Garland McPherson's opinion. In its analysis, Garland
McPherson made numerous assumptions with respect to business, market, monetary
and economic conditions, industry performance and other matters, many of which
are beyond Penn Laurel's and Clearfield's control. Any estimates contained in
Garland McPherson's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable then such estimates.
The following is a summary of selective analyses prepared by Garland
McPherson and analyzed by Garland McPherson in connection with the opinion.
Comparable Company Analysis. Garland McPherson compared selected financial
and operating data for Penn Laurel with those of Clearfield and a peer group of
rural banking organizations with assets between $100 and $300 million. This data
includes, but was not limited to:
o average assets;
o return on average equity;
o certain capital adequacy ratios; and
o certain asset quality ratios.
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Garland McPherson excluded securities gains and items of non-recurring nature in
computing profitability ratios. The analysis showed that Penn Laurel's return on
average assets was 1.0% compared to 1.1% for Clearfield and the peer group
median of 1.3%; its return on equity was 9.2% compared to 9.8% for Clearfield
and the peer group median of 13.2%; its leverage ratio was 10.6% compared to
10.8% for Clearfield and the peer group median of 9.4%; its non-performing loans
measured 0.3% of total loans compared to 0.7% for Clearfield and the peer group
median of 0.9%; and its loan loss reserve as a percentage of nonaccrual loans
was 1,251% compared to 151% for Clearfield and the peer group median of 248%.
Stock Trading History. Garland McPherson reviewed the history of the
trading price and volume of Penn Laurel and Clearfield common stock. Garland
McPherson noted that the trading volume of each institution is limited and that,
accordingly, there could be no assurance that their trading prices reflect the
true underlying value of the respective organizations.
Analysis of Key Valuation Indices. Garland McPherson computed the tangible
book value multiples and price/earnings for sample group of selected
Pennsylvania super community banking institutions. As a preliminary step in
computing price/earnings ratios for these institutions, Garland McPherson
adjusted earnings to eliminate the effect of securities gains and non-recurring
items based on data provided by SNL Securities, a nationally recognized company.
Multiplying the median tangible book value multiple of the sample group by the
tangible book values of Penn Laurel and Clearfield implied a value of $92.51 per
share for Penn Laurel and $81.54 for Clearfield. Multiplying the median price
earnings ratio per share of the sample group by the relevant financial data for
Penn Laurel and Clearfield indicates values of $59.81 and $58.67.
Discounted Dividend Analysis. Using discounted dividend analysis, Garland
McPherson estimated the present value of the future dividend streams that Penn
Laurel could produce over a five-year period under various earnings growth
assumptions. Garland McPherson also estimated the terminal value for Penn Laurel
by applying an earnings multiple of eighteen. The dividend streams and terminal
value were discounted to determine the present value using discount rates
ranging from 9.0% to 11.0%. The discounted dividend analysis indicated a range
of per share values from $55.38 to $66.84.
Garland McPherson also used discounted dividend analysis to estimate the
present value of the future dividend streams that Clearfield could produce over
a five-year period under various earnings growth assumptions. The discounted
dividend analysis indicated a range of per share values from $49.61 to $59.72.
Pro Forma Merger Analysis. Garland McPherson analyzed, using projections
based on discussions with management of Penn Laurel and Clearfield, certain pro
forma effects resulting from the transaction. The analysis examined the
projected impact on earnings per
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share, including management's estimates of transaction related savings, and book
value per share of Clearfield.
In reaching its opinion as to fairness, none of the analyses performed by
Garland McPherson was assigned a greater significance by Garland McPherson than
any other. As a result of its consideration of the aggregate of all factors
present and analyses performed, Garland McPherson reached the conclusion, and
opines, that the consideration, as set forth in the agreement, is fair, from a
financial point of view, to holders of Penn Laurel's securities.
In connection with delivering the Garland McPherson opinion, Garland
McPherson updated certain of its analyses and reviewed the assumptions on which
such analyses were based and the factors considered therewith.
In delivering its opinion, Garland McPherson assumed that in the course of
obtaining the necessary regulatory and governmental approvals for the
transaction, no restrictions will be imposed on Penn Laurel or Clearfield that
would have a material adverse affect on the contemplated benefits of the
transaction. Garland McPherson also assumed that there would not occur any
change in applicable law or regulation that would cause a material adverse
change in the prospects of operations of Clearfield after the effective date of
the transaction. Pursuant to the terms of the engagement letter, Penn Laurel has
paid Garland McPherson $25,000 and has agreed to reimburse Garland McPherson for
its reasonable out-of-pocket expenses. Whether or not the merger is consummated,
Penn Laurel has agreed to indemnify Garland McPherson and certain related
persons against certain liabilities relating to or arising out of its
engagement.
The full text of the opinion of Garland McPherson, as of the date of this
proxy statement/prospectus, which set forth assumptions made and matters
considered, is attached hereto as Annex C to this proxy statement/prospectus. We
urge you to read the opinion in its entirely. Garland McPherson's opinion is
directed only to the consideration to be received by shareholders in the
transaction and does not constitute a recommendation to you as to how you should
vote at the meeting.
Dissenters' Rights
General. Under the Pennsylvania Banking Code of 1965, which directs that
dissenter's rights are governed by the Pennsylvania Business Corporation Law of
1988, shareholders of Clearfield common stock, have the right to dissent from
the merger and to obtain payment of the "fair value" of their shares in the
event we complete the merger. The Pennsylvania Business Corporation Law of 1988
also grants shareholders of Penn Laurel the right to dissent from the
transaction and receive the "fair value" of their shares.
If you are a shareholder of Clearfield or Penn Laurel and you contemplate
exercising your right to dissent, we urge you to read carefully the provisions
of Subchapter D of Chapter 15 of the Pennsylvania Business Corporation Law of
1988, which is attached to this proxy
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statement/prospectus as Annex C. A discussion of the provisions of the statute
is included here. The discussion describes the steps that you must take if you
want to exercise your right to dissent. You should read this summary and the
full text of the law.
Before the day of the merger, send any written notice or demand, required
concerning your exercise of dissenters' rights to William A. Shiner, Senior Vice
President-Lending and Secretary, Clearfield Bank & Trust Company, 11 North
Second Street, Post Office Box 171, Clearfield, Pennsylvania 16830-0171 or to
Janice E. Kephart, Secretary, Penn Laurel Financial Corp., 434 State Street,
Post Office Box 29, Curwensville, Pennsylvania 16833-0029.
Fair Value. The term "fair value" means the value of a share of Clearfield
or, if you are a Penn Laurel shareholder, Penn Laurel, common stock immediately
before the day of the merger, taking into account all relevant factors, but
excluding any appreciation or depreciation in anticipation of the merger.
Notice of Intention to Dissent. If you wish to dissent, you must:
o file a written notice of intention to demand payment of the fair value
of your shares if the merger is effected with Clearfield or Penn
Laurel, prior to the vote of shareholders on the merger at the
meeting;
o make no change in your beneficial ownership of stock from the date you
give notice through the day of the merger; and
o not vote your stock for approval of the agreement.
Neither a proxy nor a vote against approval of the merger satisfies the
necessary written notice of intention to dissent.
Notice to Demand Payment. If the merger is approved by the required vote of
shareholders, Clearfield or Penn Laurel will mail a notice to all dissenters who
gave due notice of intention to demand payment and who did not vote for approval
of the agreement. The notice will state where and when you must deliver a
written demand for payment and where you must deposit certificates for stock in
order to obtain payment. The notice will include a form for demanding payment
and a copy of the law. The time set for receipt of the demand for payment and
deposit of stock certificates will be not less than 30 days from the date of
mailing of the notice.
Failure to Comply with Notice to Demand Payment, etc. You must take each
step in the indicated order and in strict compliance with the statute to keep
your dissenters' rights. If you fail to follow the steps, you will lose you
right to dissent and you will receive 0.97 shares of Penn Laurel common stock
for each share of Clearfield common stock that you hold or, if you are a Penn
Laurel shareholder, you will continue to hold Penn Laurel common stock after the
merger.
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Payment of Fair Value of Shares. Promptly after the merger, or upon timely
receipt of demand for payment if the merger already has taken place, Penn Laurel
will send dissenters, who have deposited their stock certificates, the amount
that Penn Laurel estimates to be the fair value of the stock. The remittance or
notice will be accompanied by:
o a closing balance sheet and statement of income of Clearfield or Penn
Laurel for a fiscal year ending not more than 16 months before the
date of remittance or notice together with the latest available
interim financial statements;
o a statement of Penn Laurel's estimate of the fair value of the
Clearfield common stock or Penn Laurel common stock; and
o a notice of the right of the dissenter to demand supplemental payment,
accompanied by a copy of the law.
Estimate by Dissenter of Fair Value of Shares. If a dissenter believes that
the amount stated or remitted by Penn Laurel is less than the fair value of the
stock, the dissenter may send an estimate of the fair value of the stock to Penn
Laurel. If Penn Laurel remits payment of estimated value of a dissenter's stock
and the dissenter does not file his or her own estimate within 30 days after the
mailing by Penn Laurel of its remittance, the dissenter will be entitled to no
more than the amount remitted by Penn Laurel.
Valuation Proceeding. If any demands for payment remain unsettled within 60
days after the latest to occur of:
o the merger;
o timely receipt by Clearfield or Penn Laurel, as the case may be, of
any demands for payment; or
o timely receipt by Clearfield or Penn Laurel, as the case may be, of
any estimates by dissenters of the fair value,
then, Penn Laurel may file an application, in the Court of Common Pleas of
Clearfield County, requesting that the court determine the fair value of the
stock. If this happens, all dissenters, no matter where they reside, whose
demands have not been settled, shall be made parties to the proceeding. In
addition, a copy of the application will be delivered to each dissenter.
If Penn Laurel fails to file the application, then any dissenter, on behalf
of all dissenters who have made a demand and who have not settled their claim
against Penn Laurel, may file an application in the name of Penn Laurel at any
time within the 30-day period after the expiration of the 60-day period and
request that the Clearfield County Court determine the fair value of the shares.
The fair value determined by the Clearfield County Court may, but need not,
equal the dissenters' estimates of fair value. If no dissenter files an
application, then each dissenter entitled to do so shall be paid Penn Laurel's
estimates of the fair value of the common stock and no more, and may bring an
action to recover any amount not previously remitted, plus interest at a rate
the Clearfield County Court finds fair and equitable.
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Penn Laurel intends to negotiate in good faith with any dissenting
shareholders. If, after negotiation, a claim cannot be settled, then Penn Laurel
intends to file an application requesting that the fair value of the common
stock be determined by the Clearfield County Court.
Costs and Expenses. The costs and expenses of any valuation proceedings in
the Clearfield County Court, including the reasonable compensation and expenses
of any appraiser appointed by the Court to recommend a decision on the issue of
fair value, will be determined by the Court and assessed against Penn Laurel
except that any part of the costs and expenses may be apportioned and assessed
by the Court against all or any of the dissenters who are parties and whose
action in demanding supplemental payment the Court finds to be dilatory,
obdurate, arbitrary, vexatious or in bad faith.
Terms of the Merger
We discuss the material terms of merger below. Our description is not
complete. We qualify the discussion in its entirety by reference to the
agreement, a copy of which is attached as Annex A to this proxy
statement/prospectus. We urge you to read the agreement.
Effect of the Merger. CSB Bank will merge into Clearfield Bank & Trust
Company. CSB Bank will cease to exist. Clearfield plans to change its name to
"Penn Laurel Bank & Trust Company," and continue business as a wholly owned
subsidiary of Penn Laurel Financial Corp.
Exchange of Shares. On the day of the merger, each outstanding share of
Clearfield common stock will become a right to receive 0.97 shares of Penn
Laurel common stock, subject to adjustment for certain stock dividends, stock
splits and similar transactions.
Penn Laurel will not issue fractional shares of common stock in the merger.
Each former shareholder of Clearfield will receive cash in an amount equal to
the fair market value of any fractional share interest.
Penn Laurel and Clearfield anticipate that the merger will occur during the
second or third quarter of 1999, assuming no difficulties are encountered in
obtaining the required regulatory approvals and shareholder approval, and all
other conditions to closing are satisfied without unexpected delay. If for any
reason, however, the merger does not occur by October 31, 1999, and the parties
have not agreed otherwise prior to that date, the agreement will terminate
automatically. See, "Business Pending the Merger--Conditions, Amendment and
Termination" for a discussion of the various termination provisions.
Following the merger, former shareholders of Clearfield will be required to
surrender their Clearfield common stock certificates to Penn Laurel. Each
shareholder will receive detailed instructions concerning the procedure for
surrendering the Clearfield common stock certificates. Upon proper surrender of
stock certificates, each former shareholder of Clearfield will receive a stock
certificate representing the number of whole shares of Penn Laurel common
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stock into which his or her shares of Clearfield common stock were converted.
Each shareholder will also receive a check in the amount of any cash to which he
or she is entitled instead of a fractional share. Shareholders of Clearfield
should not surrender their Clearfield common stock certificates for exchange
until they receive written instructions to do so.
Following the merger and until properly requested and surrendered, each
Clearfield common stock certificate will be deemed for all corporate purposes to
represent the number of whole shares of Penn Laurel common stock that the holder
would be entitled to receive upon its surrender. However, Penn Laurel, at its
option, may withhold dividends payable after the merger to any former
shareholder of Clearfield who has received written instructions from Penn Laurel
but has not surrendered Clearfield stock certificates. Penn Laurel will pay any
dividends withheld, without interest, to former shareholders of Clearfield upon
the proper surrender of the Clearfield common stock.
Clearfield shareholders must surrender all Clearfield stock certificates to
Penn Laurel within two years after the merger. In the event that any former
shareholder of Clearfield does not properly surrender his or her certificates
within that time, Penn Laurel may sell the shares of Penn Laurel common stock
that would otherwise have been issued and hold the net proceeds of the sale,
together with the cash (if any) to which the shareholder is entitled instead of
the issuance of a fractional share and any previously accrued and unpaid
dividends, in a non-interest bearing account for his or her benefit. After the
sale, the former Clearfield shareholder's sole right is the right to collect the
net proceeds, cash and accumulated dividends. Subject to laws of escheat, the
net proceeds, cash and accumulated dividends will be paid to the former
shareholder of Clearfield, without interest, upon proper surrender of the
Clearfield stock certificates.
Business Pending the Merger
Clearfield and Penn Laurel agreed to conduct business in the usual, regular
and ordinary course, consistent with prudent business judgment, pending the
merger. Among other things, they will:
o not amend their Articles of Incorporation or Bylaws;
o only pay regular quarterly cash dividends in amounts and on dates
consistent with past practice;
o not authorize, purchase, issue or sell any shares of common stock or
other equity or debt securities or any securities convertible into
common stock of Clearfield or Penn Laurel;
o not change the presently outstanding number of shares or declare or
effect any capitalization, reclassification, stock dividend, stock
split or like change in capitalization;
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<PAGE>
o not change any method, practice or principle of accounting except as
may be required by generally accepted accounting principles or any
applicable regulator;
o not make any loan or other credit facility commitment in excess of
$400,000 (including without limitation, lines of credit and letters of
credit) to any affiliate or compromise, expand, renew or modify any
such outstanding commitment;
o not enter into any swap or similar commitment, agreement or
arrangement, which is not consistent with past practice and which
increases the credit or interest rate risks over the levels existing
at September 30, 1998;
o not enter into any derivative, cap or floor or similar commitment,
agreement or arrangement, except in the ordinary course of business
and consistent with past practices; and
o not sell, exchange or otherwise dispose of any investment securities
or loans that are held for sale, prior to scheduled maturity and other
then pursuant to policy agreed upon from time to time by the parties.
There have been no material contracts or other transactions between
Clearfield and Penn Laurel since the signing of the agreement, nor have there
been any material contracts, arrangements, relationships or transactions between
Clearfield and Penn Laurel during the past five years, other than in connection
with the agreement and as described in this proxy statement/prospectus.
Conditions, Amendment and Termination
The obligations of Penn Laurel and Clearfield to complete the merger are
subject to a number of conditions and contingencies. These are stated in the
agreement. The most significant of these conditions include:
o approval by the shareholders of Clearfield;
o approval by the shareholders of Penn Laurel;
o approval by the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation and the Pennsylvania Department
of Banking;
o receipt of a favorable opinion from Shumaker Williams, P.C. concerning
certain federal income tax consequences relating to the transaction;
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o continued effectiveness of the Registration Statement containing this
joint proxy statement/prospectus;
o determination that the merger can be accounted for as a pooling of
interests for financial reporting purposes;
o determination of compliance with all applicable federal and state
securities and anti-trust laws; and
o exercise by the dissenting shareholders of dissenter's rights with
respect to less than 9% of the issued and outstanding shares of
Clearfield common stock.
In connection with the required regulatory approvals, Clearfield and Penn
Laurel have filed:
o a Notice with respect to the transaction with the Board of Governors
of the Federal Reserve System, on April __, 1999;
o an Application with the Pennsylvania Department of Banking pursuant to
Section __ of the Pennsylvania Banking Code, on April __, 1999;
o an Application for Merger with the FDIC on April __, 1999; and
o an Application for Merger with the Pennsylvania Department of Banking,
on April __, 1999.
We await action on the applications and notices set forth above.
Any term or condition of the agreement may be waived by the party that
would benefit from the term at any time before the completion of the
transaction, whether before or after approval of the agreement by shareholders
of Clearfield and Penn Laurel. However, no change in the amount of consideration
to be received by the Clearfield shareholders can be adopted unless the
shareholders of Clearfield approve the change.
The agreement may be terminated at any time before the effective date,
whether before or after its approval and adoption by the shareholders of
Clearfield and Penn Laurel by:
o agreement of all the parties;
o unilateral action by each of the parties in the event the material
breech by the other party of any representation, warranty or covenant
not cured within 30 days or failure to satisfy any condition precedent
to the terminating party's obligation to consummate the transaction
through no fault of the terminating party; or
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<PAGE>
o automatically in the event of a failure to close the transaction by
October 31, 1999, unless extended in writing prior to that date.
Effective Date
The agreement provides that the merger of CSB Bank into Clearfield will
take place under the terms of an Agreement and Plan of Merger, set forth as
Exhibit A to the agreement, which is attached as Annex A to this proxy
statement/prospectus.
Closing the transaction will occur at a time and place agreed upon by the
parties, within 30 days after:
o receipt of all regulatory approvals and expiration of any applicable
waiting periods;
o the lifting, discharge or dismissal of any stay of any governmental
approval or of any injunction against the transaction; and
o receipt of all shareholder approvals.
The agreement will automatically terminate and the transaction will be
canceled if all applicable conditions have not been satisfied by October 31,
1999, unless the parties have agreed prior to that date to extend the
termination date of the agreement.
Interests of Certain Persons in the Merger
Certain members of Clearfield's and Penn Laurel's management and of their
Boards of Directors may have interests in the transaction in addition to their
interests as shareholders, generally. These include, among other things,
provisions in the agreement relating to indemnification and employment. You will
find additional information about certain persons who may have an interest in
the merger in the following section entitled "Management and Operations
Following the Merger." The Boards of Directors were aware of these factors and
considered them, among other matters, in approving the agreement and the
transactions contemplated by the agreement. As of ___________, 1999, the
directors and executive officers of Clearfield beneficially own _______ shares
of Clearfield common stock. As of ___________, 1999, the directors and executive
officers of Penn Laurel beneficially own _______ shares of Penn Laurel common
stock.
See "APPROVAL OF THE MERGER--Management and Operations Following the
Merger," below.
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<PAGE>
Management and Operations Following the Merger
Following the merger, the Board of Directors of Penn Laurel and Penn Laurel
Bank & Trust Company will consist of all people who are members of the Boards of
Directors of Clearfield and of Penn Laurel on December 31, 1998, and Wesley M.
Weymers. One director from each board, however, has chosen not to continue as a
director of his respective company and has chosen not to be on the board of Penn
Laurel Financial Corp. or Penn Laurel Bank & Trust Company. The rest of the
persons will serve until their successors are elected and qualified. A list of
the members of the post-merger Boards of Directors is found on page __ of this
proxy statement. In order for Penn Laurel Bank & Trust Company to accommodate 22
persons on its Board of Directors, management intends to amend the Articles of
Incorporation to increase the permissible size of the Board of Directors to 25
members on the day of the merger.
The Agreement provides that Messrs. Bertram, Brubaker, Moody, and Weymers
will serve as executive officers of Penn Laurel and Penn Laurel Bank & Trust
Company. William L. Bertram will be Chairman of the Board of Directors of Penn
Laurel and of Penn Laurel Bank & Trust Company. Larry W. Brubaker will be
President and Chief Executive Officer of Penn Laurel and of Penn Laurel Bank &
Trust Company. Sherwood C. Moody and Wesley M. Weymers shall each serve as an
Executive Vice President of Penn Laurel and Penn Laurel Bank & Trust Company.
Messrs. Brubaker, Moody and Weymers entered into employment agreements with
Penn Laurel in connection with the transaction. Mr. Bertram entered into a
consulting agreement with Penn Laurel. The agreements are effective on the date
of merger. These agreements will replace any employment or consulting agreements
existing with Penn Laurel or Clearfield on the day of the Merger. Mr. Brubaker's
agreement is for a term of three years with automatic renewals for one year
terms. His salary is $143,688 per year. If Mr. Brubaker is terminated for cause,
all payments and benefits under the agreement cease. If Mr. Brubaker is
terminated without cause, or he resigns for good reason, he will receive the
greater of 2.99 times his compensation or his compensation due for the remainder
of the employment agreement. This benefit is payable in 36 equal monthly
installments. Mr. Brubaker would also receive health and welfare benefits for 36
months subsequent to termination.
The agreement contains a "change of control" clause, which provides for a
severance allowance, as defined in the agreement, as 2.99 times his
compensation, payable in 36 monthly installments and including health and
welfare benefits for 36 months. If Mr. Brubaker is disabled under the terms of
the agreement, he will receive 70% his compensation until he returns to work,
reaches age 65, dies or his employment ends.
Messrs. Moody and Weymers also entered into employment agreements with Penn
Laurel and Penn Laurel Bank & Trust Company. The terms of their agreements are
the same as those of Mr. Brubaker's except that:
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o their annual salary is $101,004 per year, and
o their termination without cause provision provides for the greater of
the agreed upon compensation due for the remainder of the term of the
agreement or one times their compensation payable in 12 equal monthly
installments, with health and welfare benefits payable for 12 months.
Mr. Bertram's agreement:
o has a 3 year term;
o provides for compensation to Mr. Bertram of $20,500 per year, for 2
years for services rendered;
o contemplates that Mr. Bertram will act as Chairman of the Board of
Directors of Penn Laurel and Penn Laurel Bank & Trust Company for 2
years;
o includes a covenant not to compete under which Mr. Bertram will
receive $33,500 in each of the 3 years of the agreement; and
o does not include any "change of control" clause.
Federal Income Tax Consequences
The following discussion summarizes the anticipated federal income tax
consequences of the merger. Penn Laurel and Clearfield believe that for federal
income tax purposes:
o the merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, and Clearfield
and Penn Laurel will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code;
o no gain or loss will be recognized by Clearfield or Penn Laurel by
reason of the merger;
o except for cash received in lieu of fractional shares, no income, gain
or loss generally will be recognized by Clearfield shareholders on the
exchange of their shares of Clearfield common stock for shares of Penn
Laurel common stock;
o the basis of the Penn Laurel common stock to be received by the
Clearfield shareholders generally will be, in each instance, the same
as the basis of the Clearfield common stock surrendered in exchange
therefor;
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o the holding period of the Penn Laurel common stock to be received by
the shareholders of Clearfield, generally, will include the period
during which the surrendered Clearfield common stock was held,
provided that the Clearfield common stock surrendered is held as a
capital asset on the date of the exchange pursuant to the merger; and
o the payment of cash to the Clearfield shareholders in lieu of their
fractional share interests of Penn Laurel common stock generally will
be treated as having been received as a distribution in full payment
in exchange for the fractional share interest of Penn Laurel common
stock which the shareholders would otherwise be entitled to receive
and will qualify as capital gain or loss.
The obligations of the parties to close the transaction are conditioned
upon receipt of a ruling from the Internal Revenue Service or an opinion of
counsel substantially to the effect that the federal income tax consequences of
the merger are as summarized in this section. Unlike a ruling from the IRS, an
opinion of counsel would have no binding effect on the IRS. The ruling or
opinion would not deal with all of the tax considerations that may be relevant
to particular Clearfield shareholders, such as shareholders who are dealers in
securities, foreign persons, tax-exempt entities or the impact of the
alternative minimum tax. The ruling or opinion would not address any state,
local or foreign tax considerations, any federal estate, gift, employment,
excise or other non-income tax considerations.
This is only a general description of the federal income tax consequences
of the merger. We did not consider the particular facts and circumstances of
your situation. We recommend that you consult your own tax advisors as to
particular facts and circumstances that may be unique to you and not common to
shareholders as a whole and also as to any estate, gift, state, local or foreign
tax consequences arising out of the transaction and/or any sale of Penn Laurel
common stock received in the merger.
Investment Agreement
Concurrently with the execution and delivery of the agreement, Clearfield
and Penn Laurel entered into investment agreements. The investment agreements
are attached as exhibits to the agreement attached to this proxy
statement/prospectus as Annex A.
As a condition of the agreement and as an inducement to entering the
agreement, Clearfield and Penn Laurel each entered into an investment agreement,
dated as of December 31, 1998, pursuant to which:
o Penn Laurel granted Clearfield a warrant to purchase up to 20,815
shares of Penn Laurel common stock at a purchase price of $44.00 per
share; and
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o Clearfield granted Penn Laurel a warrant to purchase up to 40,791
shares of Clearfield common stock at $52.00 per share.
The terms of the investment agreements are identical in all material respects
other than with respect to the shares that may be purchased and the exercise
prices.
The warrants are exercisable, in whole or in part, at any time or at one or
more times, or from time to time upon the occurrence of certain events as
described in paragraph 2 of the investment agreements. There are also certain
redemption rights granted to the warrant holder. These rights are described in
paragraph 3 of the investment agreements and permit the warrant holder to
require the company to redeem some or all of the shares at a redemption price
equal to:
o 110% of the exercise price;
o the highest price paid or agreed to be paid for a share of stock by an
acquiring person, as defined; and
o in the event of sale of all or substantially all of the company's
assets, the sum of the price paid for the assets and the current
market value the remaining assets of the company, as determined by a
recognized banking firm, divided by the number of shares of common
stock then outstanding.
In addition, the investment agreements provide for adjustment of the
warrants in the event of a change in the common stock of the particular grantor
by reason of a stock dividend, split-up recapitalization, combination,
conversion, division, or exchange of shares. In any such case, the number and
kind of shares issuable under the applicable warrant is adjusted appropriately.
Accounting Treatment
The agreement contemplates that the merger will be treated as a pooling of
interests for financial accounting purposes. This accounting treatment is
different from a purchase transaction. Under this accounting method, the assets
and liabilities of CSB Bank will be combined with Clearfield Bank & Trust
Company at their historical recorded bases. Results of operations of Penn Laurel
Bank & Trust Company will include the results of both companies for the entire
fiscal year in which the merger occurs. The reported balance sheet amounts and
results of operations of the separate corporations for prior periods will be
combined, reclassified and conformed, as appropriate, to reflect the combined
financial position and results of operations for Penn Laurel Bank & Trust
Company.
If Penn Laurel were required to purchase more than 10% of the outstanding
shares of Clearfield common stock for cash, due to the purchase of fractional
shares and the exercise of dissenters' rights by Clearfield shareholders, or if
other conditions arise that would prevent the
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merger from being treated as a pooling of interests for financial accounting
purposes, Clearfield and Penn Laurel have the right to terminate the agreement
and to cancel the merger.
Restriction on Resale of Stock Held By Affiliates
The shares of Penn Laurel common stock to be issued upon completion of the
merger will be registered with the Commission under the Securities Act.
Following the merger, former shareholders may freely resell or otherwise
transfer, except those former shareholders who are deemed "affiliates" of
Clearfield , within the meaning of Commission Rules 144 and 145. In general
terms, any person who is an executive officer, director or 10% shareholder of
Clearfield at the time of the shareholders meeting may be deemed to be an
affiliate of Clearfield for purposes of Commission Rules 144 and 145. This proxy
statement/prospectus does not cover resales of shares of Penn Laurel common
stock to be issued to affiliates of Clearfield in connection with the
transaction.
Penn Laurel common stock received by persons who are deemed to be
affiliates of Clearfield may be resold only:
o in compliance with the provisions of Commission Rule 145(d);
o in compliance with the provisions of another applicable exemption from
the registration requirements of the Securities Act; or
o pursuant to an effective registration statement filed with the
Commission.
In general terms, Commission Rule 145(d) permits an affiliate of Clearfield to
sell shares of Penn Laurel common stock received by him or her in ordinary
brokerage transactions subject to certain limitations on the number of shares
that may be resold in any consecutive three month period. An affiliate of
Clearfield may not, as a general rule and subject to an exception in a case of
certain de minimis sales:
o sell any shares of Clearfield common stock during the 30-day period
immediately preceding the day of the merger; or
o sell any shares of Penn Laurel Financial Corp. common stock received
by him or her in exchange for shares of Clearfield common stock until
after the publication of financial results covering at least 30 days
of post-merger combined operations.
The ability of affiliates to resell shares of Penn Laurel common stock
received in the transaction under Rule 144 or Rule 145 is subject to Penn
Laurel's having satisfied its Exchange Act reporting requirements, if any, for
specified periods prior to the time of sale. Affiliates are also permitted to
resell Penn Laurel common stock received in the transaction pursuant to an
effective registration statement under the Securities Act or another available
exemption from the Securities Act regulations requirements. This proxy
statement/prospectus does not cover any resales of Penn Laurel common stock
received by persons who may be deemed to be affiliates of Penn Laurel or
Clearfield.
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Each person who may be an affiliate of Clearfield is required, prior to the
closing, to provide Penn Laurel with a letter agreeing to abide by the
limitations imposed by the Commission regarding the sale or other disposition of
the shares of Penn Laurel common stock that the shareholder will receive in the
merger.
COMPARATIVE STOCK PRICES AND DIVIDENDS
AND RELATED SHAREHOLDER MATTERS
Common Stock of Clearfield
The last reported sale price of Clearfield common stock as reported on the
OTC Bulletin Board was ___ shares at $______ per share on ___________, 1999.
Clearfield common stock is quoted on the OTC market under the symbol "CLFD."
Clearfield common stock has historically traded on a limited basis in the
over-the-counter market and is quoted and transactions are reported on the OTC
Bulletin Board and in privately negotiated transactions. The table below shows,
for the periods indicated, the high and low bid quotations for Clearfield common
stock as reported ________, and cash dividends paid per share. The quotations in
the table represent quotations between dealers, do not include retail markups,
markdowns or commissions, and may not represent actual transactions. All
information has been adjusted for stock dividends and splits throughout the
periods.
<TABLE>
<CAPTION>
Cash Dividends
1999 High Low Paid Per Share
- ---- ---- --- --------------
<S> <C> <C> <C>
First Quarter $54.00 $51.50 $.31
Second Quarter
Third Quarter
Fourth Quarter
1998
- ----
First Quarter $52.25 $46.25 .31
Second Quarter 53.00 52.20 .31
Third Quarter 54.75 53.00 .31
Fourth Quarter 55.50 54.25 .71
1997
- ----
First Quarter $39.50 $36.50 $.30
Second Quarter 42.00 38.50 .30
Third Quarter 44.88 40.00 .30
Fourth Quarter 46.75 42.75 .70
</TABLE>
As of ________, 1999, Clearfield common stock was held by approximately
_____ holders of record. Clearfield has in the past paid regular quarterly
dividends to its shareholders on or about January 20, April 20, July 20 and
October 20, of each year. Clearfield, historically, has also paid a special
dividend on December 20 of each year.
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Common Stock of Penn Laurel
The last reported sale of Penn Laurel common stock as reported on the OTC
Bulletin Board was _____ shares at $ _____ per share on ______, 1999. Penn
Laurel common stock is quoted on the OTC market under the symbol "PELA." The
table below shows, for the periods indicated, the high and low bid quotations
for Penn Laurel common stock as reported on the OTC Bulletin Board, and cash
dividends paid per share. The quotations in the table represent quotations
between dealers, do not include retail markups, markdowns or commissions, and
may not represent actual transactions.
<TABLE>
<CAPTION>
Cash Dividends
1999 High Low Paid Per Share
- ---- ---- --- --------------
<S> <C> <C> <C>
First Quarter $.30
Second Quarter
Third Quarter
Fourth Quarter
1998
- ----
First Quarter $41.00 $39.50 $.29
Second Quarter 41.25 40.50 .29
Third Quarter 44.25 44.25 .29
Fourth Quarter 46.25 45.25 .45
1997
- ----
First Quarter $31.38 $38.38 $.27
Second Quarter 36.25 31.63 .27
Third Quarter 38.00 37.00 .27
Fourth Quarter 39.00 38.00 .45
</TABLE>
As of __________, 1999, Penn Laurel common stock was held by approximately
_____ holders of record. Penn Laurel Financial Corp. has in the past paid
regular quarterly cash dividends to its shareholders on or about January 1,
April 1, July 1 and October 1, of each year. Penn Laurel has also, historically,
paid a special dividend in the fourth quarter.
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INFORMATION CONCERNING CLEARFIELD BANK & TRUST COMPANY
Information Concerning Clearfield
Clearfield Bank & Trust Company engages in the general commercial and
retail banking business. The bank operates 6 banking offices in Clearfield
County, Pennsylvania. The Pennsylvania Department of Banking and the FDIC
regulate the bank. The bank also has a wholly owned subsidiary, Diamond
Financial Services. Diamond Financial Services is a Pennsylvania corporation
that sells mutual funds and annuities.
The principal executive offices of Clearfield are located in Clearfield,
Pennsylvania.
Description of Business and Property
Below is a schedule of all Clearfield's properties, all of which are owned
by the bank.
<TABLE>
<CAPTION>
Nature of Bank Office or Facility Address Date Acquired
- --------------------------------- ------- -------------
<S> <C> <C>
Main Office 11 North Second Street June 18, 1903
Clearfield, PA 16830
Bridge Street Office Corners of North Second & Bridge July 16, 1960
Streets
Clearfield, PA 16830
Philipsburg Office Irvin Drive Extension August 23, 1993
Philipsburg, PA 16866
Curwensville Office 407 Walnut Street January 21, 1980
Curwensville, PA 16833
DuBois Office 91 Beaver Drive September 8, 1988
DuBois, PA 15801
Goldenrod Office 1935 Daisy Street March 7, 1997
Clearfield, PA 16830
</TABLE>
Clearfield is a full service commercial bank and trust company that offers
a large range of commercial and retail banking services to its customers,
including personal and business checking, NOW accounts, commercial sweep
accounts, money market accounts, savings accounts, IRA accounts, and
certificates of deposit. The bank also offers credit cards, installment loans,
home equity loans, lines of credit, letters of credit, revolving credit,
commercial term and mortgage loans, first-time home buyer mortgages, as well as
residential and commercial construction loans.
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In addition, Clearfield provides debit cards, safe deposit boxes, traveler
checks, money orders, wire transfers of funds and direct deposits of social
security and payroll checks. The bank also provides credit card processing
services to local merchants and retailers and is a member of "MAC" system and
provides customers with access to this automated teller machine network.
In the event that loan requests may exceed Clearfield's lending limit to
any one customer, the bank seeks to arrange loans on a participation basis with
other financial institutions. The offering or continuation of the above
enumerated services are periodically evaluated.
The Trust Department offers a full line of services such as guardianships,
personal trusts, estate planning, IRA and KEOGH plans, pension and profit
sharing plan administration and investment counseling.
Its wholly owned subsidiary, Diamond Financial Services, Inc. offers
nontraditional banking products such as fixed and variable rate annuities,
mutual funds and stock transactions.
Clearfield competes with other commercial banks and savings and loan
associations, most of which are larger than Clearfield. The bank also competes
with major regional banking and financial institutions headquartered elsewhere.
Clearfield generates the overwhelming majority of its deposit and loan volume
within its primary service area, i.e. Clearfield County, Pennsylvania. The
majority of the residents and business and employees within Clearfield's primary
service area are within driving time - 30 minutes from each banking office.
There are 37 offices of commercial banks headquartered or which have a presence
in the greater Clearfield area. The bank also competes with branch offices of
numerous banks and financial institutions that are headquartered elsewhere.
The primary service area constitutes the community delineated for
Clearfield's Community Reinvestment Act Statement that states the bank intends
to meet the credit needs of the entire local community. It is the bank's policy
to evaluate all applications for credit without regard to the applicant's race,
color, creed, sex, age or marital status.
The primary service area includes a wide variety of residential
neighborhoods, commercial businesses, retail stores, industrial complexes and
service institutions. The Clearfield County area has a large number of
established businesses.
Employees
As of December 31, 1998, Clearfield had 88 full-time equivalent employees.
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Legal Proceedings
The nature of the business of Clearfield generates a certain amount of
litigation involving matters in the ordinary course of business. In the opinion
of management of Clearfield, there are no proceedings pending to which
Clearfield is a party or to which its property is subject, which, if determined
adversely to the bank, would be material in relation to Clearfield's undivided
profits or financial condition, nor are there any proceedings pending, other
than ordinary routine litigation, incident to the business of Clearfield. In
addition, no material proceedings are pending or are known to be threatened or
contemplated against Clearfield by government authorities or others.
Dividends
Clearfield shareholders are entitled to receive the dividends when, as and
if declared by the Board of Directors out of legally available funds. Clearfield
has historically paid quarterly cash dividends to its shareholders on or about
January 20, April 20, July 20 and October 20 of each year, and has,
historically, paid a special dividend on December 20.
The ability of Clearfield to pay dividends to its shareholders is dependent
primarily upon the earnings and financial condition of the bank. Clearfield
expects to obtain funds for the payment of dividends on common stock, for the
foreseeable future. These dividends are subject to certain statutory
limitations. In accordance with the regulatory restrictions, as of December 31,
1998, Clearfield had approximately $________ available for the payment of
dividends. The agreement permits Clearfield to make normal dividend payments
during the of 1999 to its shareholders, consistent with past practice.
Clearfield paid cash dividends of $1.64 per share in 1998, and $0.31 for
the first quarter of 1999.
Information about Directors and Executive Officers
The following table contains certain information with respect to the
executive officers and directors of Clearfield and the committees of the bank's
Board of Directors.
<TABLE>
<CAPTION>
Age as of Principal Occupation
May 1, for Past Five Years and Director
Name 1999 Positions Held Since
- ---- ---- -------------- -----
<S> <C> <C> <C>
Sherwood C. Moody 49 President/CEO 1993
William L. Bertram 66 Chairman of the Board 1972
George L. Beard 63 Retired 1989
D. Stephen Butler 56 President 1985
Butler Trucking
William T. Davis 90 Attorney at Law 1958
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<CAPTION>
Age as of Principal Occupation
May 1, for Past Five Years and Director
Name 1999 Positions Held Since
- ---- ---- -------------- -----
<S> <C> <C> <C>
Robert W. Dotts 75 President 1956
Dotts Motor Co.
Craig L. Hile 49 VP 1986
Bloom Insurance
Robert M. Kurtz, Jr. 66 President, Chairman and 1962
CEO
Kurtz Bros.
Michael R. Lytle 49 Commissioner 1990
Barbara J. Hugney-Shope 59 Attorney at Law 1989
Ray S. Walker 87 President 1962
Walker Foundation
H. Rembrandt Woolridge 85 President 1962
Moshannon Falls Mining
William A. Shiner 43 Senior VP
Secretary
Gary E. Curry 48 VP Operations
Treasurer
Richard W. Ogden 40 VP Finance
Comptroller
</TABLE>
Executive Compensation
The following table sets forth information concerning the annual
compensation for services in all capacities to Clearfield for the fiscal years
ended December 31, 1998, 1997 and 1996 of those persons who were, at December
31, 1998:
o Chief Executive Officer; and
o the other four most highly compensated executive officers of the
company to the extent such persons' total annual salary and bonus
exceeded $100,000.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payout
---------------------------- ----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------------------- --------- ---------- ---------- -------------- ---------------- ----------- ----------- -------------
Other All other
Annual Restricted Compens
Compen- Stock Options ation
Name and Salary Bonus sation Awards /SARs Payouts ($)
Principal Position Year ($) ($) ($) ($) (#) ($) (1)(2)(3)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sherwood C.
Moody 1998 95,417 24,194
President and 1997 88,583 22,846
Chief Executive 1996 80,667 21,205
Officer
- --------------------- --------- ---------- ---------- -------------- ---------------- ----------- ----------- -------------
</TABLE>
(1) Includes company's contributions to the Profit Sharing Plan of $14,313,
$13,288 and $12,100 for 1998, 1997 and 1996.
(2) Includes Life Insurance Premiums of $1,287, $1,194 and $1,067 for 1998,
1997 and 1996.
(3) Includes the payment of club dues in the amount of $727, $726 and $626 for
each of 1998, 1997 and 1996.
(4) Includes company's contributions to the Defined Benefit Contribution Plan
of $7,867, $7,638 and $7,412 for 1998, 1997 and 1996.
Defined Benefit Pension Plan
Clearfield has a defined benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and employee's
compensation during the three highest consecutive years of employment.
Clearfield's funding policy is to contribute annually the maximum amount that
can be deducted for federal income tax purposes. Contributions are intended to
provide not only for benefits attributed to service date, but also for those
expected to be earned in the future.
Profit Sharing Plan
Clearfield employees become eligible to participate in the profit sharing
plan upon meeting the attained age and service requirements. The annual
contribution to the trust fund established under the plan is authorized by the
Board of Directors. The contribution was $271,134 in 1998, $244,255 in 1997 and
$212,325 in 1996.
Director Compensation
During 1998, the bank's Board of Director's held 25 meetings. Each outside
director receives a fee of $11,000 per year, payable in installments of $2,750
each quarter. Each director is permitted 4 absences per year. Directors
quarterly installment payment are reduced by $417 for each meeting missed in
excess of 4. The bank also provides life and health insurance for directors.
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<PAGE>
Loans
Clearfield grants loans and makes other credit available to the general
public. These extensions of credit are structured to meet the varying needs of
businesses, individuals, and institutional customers and include mortgages,
lines of credit, term loans, leases and letters of credit. This activity
comprises a major source of revenue for the bank and it also exposes Clearfield
to potential losses upon borrower default. In order to minimize the occurrence
of loss, the bank follows strict loan underwriting and risk weighing policies.
While collateral continues to play an important part in lending decisions,
primary emphasis is placed upon borrowers' underlying ability to pay.
Clearfield, generally, confines its lending activity to customers who live or
are based in its primary trade area, Clearfield County and the contiguous
counties surrounding Clearfield County. By limiting lending activities to a
general geographic area, the bank's staff becomes more knowledgeable about local
market conditions and can thereby make better credit risk assessments and
consequently more prudent lending decisions. Clearfield believes that this local
knowledge, when combined with prudent underwriting standards, overcomes the
risks associated with the geographic concentration of loans.
The Bank does participate in loans with other financial institutions that
meet the terms and conditions under the Bank's lending policy.
Description of Clearfield Common Stock
Clearfield is authorized to issue 617,600 shares of common stock of which
576,809 shares were issued and outstanding as of December 31, 1998.
Liquidation
In the event of liquidation, dissolution or winding up of the bank
shareholders are entitled to share ratably in all assets remaining after payment
of liabilities.
Anti-takeover Provisions
Clearfield's Articles of Incorporation and Bylaws, Pennsylvania's Banking
Code of 1965, as well as certain applicable provisions of Pennsylvania Business
Corporation Law of 1988, contain provisions that may be deemed to be
"anti-takeover" in nature.
For example Clearfield's Articles of Incorporation eliminate cumulative
voting. Cumulative voting permits a shareholder with a large minority holding of
common stock to elect one or more persons to the Board of Directors. Elimination
of cumulative voting prevents a minority shareholder from electing one or more
persons to the Board of Directors.
In addition, Clearfield's Bylaws require that nominations to the Board of
Directors must comply with extensive notice and information requirements. This
provision would give the
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Board of Directors advance warning of a possible proxy contest enabling the
Board to prepare to fight it.
The Pennsylvania Banking Code requires that at least 66 2/3% of the
outstanding shares approve a bank merger.
Clearfield elects directors for staggered terms of office (a classified
board). The Board of Directors believes that a classified board consisting of
three classes helps ensure continuity and stability of corporate leadership and
policy. In addition, a classified board will help moderate the pace of any
change in control of the Board of Directors by extending the time required to
elect a majority of the directors to at least two successive annual meetings.
However, since this extension of time also tends to discourage a tender offer or
takeover bid, this provision may also be deemed to be anti-takeover in nature.
In addition, a classified board makes it more difficult for a majority of the
shareholders to change the composition of the Board of Directors even though
this may be considered desirable by them.
Clearfield's amended Articles of Incorporation and Bylaws contain an
additional anti-takeover provision that enables the Board of Directors to oppose
a tender offer on the basis of factors other than economic benefit. Based on the
Board's responsibilities to certain constituent groups, including Clearfield's
subsidiaries and the communities that they serve, the Board may consider factors
such as:
o the impact the acquisition of Clearfield would have on the community;
o the effect of the acquisition upon shareholders, employees,
depositors, suppliers and customers; and
o the reputation and business practices of the tender offeror.
Anti-takeover provisions may prolong the terms of the existing Board of
Directors giving management a veto power over certain acquisitions regardless of
whether the acquisition is desired by, or beneficial to, a majority of the
shareholders, assisting management in retaining its present position. Also, the
super-majority voting requirements of the Pennsylvania Banking Code can give the
holders of a minority of the bank's outstanding shares a veto power over any
merger of consolidation of Clearfield, even if management and/or a majority of
the shareholders believes the transaction to be desirable and beneficial.
Indemnification
Clearfield's bylaws provide for indemnification of its directors, officers,
employees and agents provided that the person seeking indemnification acted in a
manner that does not constitute self-dealing, willful misconduct or
recklessness.
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INFORMATION CONCERNING PENN LAUREL FINANCIAL CORP.
Information Concerning Penn Laurel
Through its subsidiary, CSB Bank, Penn Laurel engages in the general
commercial and retail banking business. CSB Bank operates 5 banking offices in
Clearfield County, Pennsylvania. The Pennsylvania Department of Banking and the
FDIC regulate the bank. CSB Bank has a wholly owned subsidiary, CSB Financial
Corporation, a Pennsylvania corporation that sells various lines of insurance.
As a registered bank holding company, Penn Laurel is subject to regulation
under the Bank Holding Company Act of 1956, and the rules and regulations of the
Board of Governors of the Federal Reserve System. Under applicable Board of
Governors of the Federal Reserve System policies, a bank holding company, such
as Penn Laurel is expected to act as a source of financial strength to each of
its subsidiary bank and to commit resources to support the bank in circumstances
when it might not do so absent such a policy.
The principal executive offices of Penn Laurel Financial Corp. are located
in Curwensville, Pennsylvania.
Description of Business and Property
Penn Laurel was incorporated on October 10, 1986, to act as a holding
company for Curwensville State Bank of Curwensville, PA. The Curwensville State
Bank commenced operations on August 4, 1924, as a state banking association
chartered under the laws of the Commonwealth of Pennsylvania. On March 8, 1995,
Curwensville State Bank changed its name to CSB Bank. As a state chartered bank,
CSB Bank is subject to regulation and periodic examination by Pennsylvania
Department of Banking and the Federal Deposit Insurance Corporation. CSB Bank's
deposits are insured by the Federal Deposit Insurance Corporation. CSB Bank's
principal executive offices are located at 428 State Street, Curwensville, PA
16833.
Below is a schedule of all Penn Laurel's properties, all of which are owned
by the bank with the exception of the DuBois Office. Penn Laurel leases this
branch to CSB Bank.
<TABLE>
<CAPTION>
<S> <C> <C>
Nature of Office or Facility Address Date Acquired
- ---------------------------- ------- -------------
Main Office 434 State Street August 4, 1924
Curwensville, PA 16833
Target Square Office Route 879 February 24, 1974
Clearfield Curwensville Highway
Clearfield, PA 16830
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<PAGE>
Nature of Office or Facility Address Date Acquired
- ---------------------------- ------- -------------
Coalport Office Main Street October 18, 1976
P.O. Box 354
Coalport, PA 16627
K-Mart Plaza Office River Road October 28, 1991
R.D. Box 257 A-1
Clearfield, PA 16830
DuBois Office Corner Maple Avenue & Shaffer Road December 20, 1993
P.O. Box 465
DuBois, PA 15801
</TABLE>
CSB Bank, Penn Laurel's wholly owned subsidiary, is a full service
commercial bank that offers a large range of commercial and retail banking
services to its customers, including personal and business checking, NOW
accounts, money market accounts, savings accounts, IRA accounts, and
certificates of deposit. The bank also offers installment loans, home equity
loans, lines of credit, letters of credit, revolving credit, term loans and
commercial mortgage loans, as well as residential and commercial construction
loans.
In addition, CSB Bank provides safe deposit boxes, traveler checks, money
orders, wire transfers of funds and direct deposits of social security and
payroll checks. The bank also provides credit card processing services to local
merchants and retailers and is a member of "MAC" system.
In the event that loan requests may exceed Penn Laurel's lending limit to
any one customer, the bank seeks to arrange such loans on a participation basis
with other financial institutions. The offering or continuation of the above
enumerated services are periodically evaluated.
CSB Bank competes with other commercial banks and savings and loan
associations, most of which are larger than CSB Bank. The bank also competes
with major regional banking and financial institutions headquartered elsewhere.
The bank generates the overwhelming majority of its deposit and loan volume
within its primary service area, i.e. Clearfield County, Pennsylvania. The
majority of the residents and business and employees within the bank's primary
service area are within 30 minutes driving time from the bank. There are 37
offices of commercial banks headquartered or which have a presence in the
greater Clearfield/DuBois area where the bank is located. The bank also competes
with branch offices of numerous banks and financial institutions that are
headquartered elsewhere.
The primary service area constitutes the community delineated for CSB
Bank's Community Reinvestment Act Statement which states the bank intends to
meet the credit needs of the entire local community. It is the policy of the
bank to evaluate all applications for credit without regard to the applicant's
race, color, creed, sex, age or marital status.
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The primary service area includes a wide variety of residential
neighborhoods, commercial businesses, retail stores, industrial complexes and
service institutions. The Clearfield County area has a large number of
established businesses and a substantial employment base.
Employees
As of December 31, 1998, Penn Laurel and CSB Bank had 60 full-time
equivalent employees.
Legal Proceedings
The nature of the business of Penn Laurel generates a certain amount of
litigation involving matters in the ordinary course of business. In the opinion
of management of Penn Laurel, there are no proceedings pending to which Penn
Laurel or CSB Bank are a party or to which their property is subject, which, if
determined adversely to Penn Laurel or the bank, would be material in relation
to Penn Laurel's undivided profits or financial condition, nor are there any
proceedings pending, other than ordinary routine litigation, incident to the
business of Penn Laurel or the bank. In addition, no material proceedings are
pending or are known to be threatened or contemplated against Penn Laurel or the
bank by government authorities or others.
Dividends
Penn Laurel shareholders are entitled to receive the dividends when, as and
if declared by the Board of Directors out of legally available funds. Penn
Laurel has paid quarterly cash dividends to its shareholders on or about January
1, April 1, July 1, and October 1 of each year. In addition, Penn Laurel has,
historically, paid a special dividend in the fourth quarter.
The ability of Penn Laurel to pay dividends to its shareholders is
dependent primarily upon the earnings and financial condition of CSB Bank. Penn
Laurel expects to obtain funds from the payment of dividends on Penn Laurel
common stock, for the foreseeable future, primarily from dividends paid to Penn
Laurel by the bank. These dividends are subject to certain statutory
limitations. In accordance with the regulatory restrictions, as of December 31,
1998, Penn Laurel had approximately $________ available for the payment of
dividends. The agreement permits Penn Laurel to make normal dividend payments,
during the of 1999 to its shareholders, consistent with past practice.
Penn Laurel paid cash dividends of $1.32 per share in 1998, and $.30 for
the first quarter of 1999.
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Information about Directors and Executive Officers
The following table contains certain information with respect to the
executive officers and directors of Penn Laurel.
<TABLE>
<CAPTION>
Age as of Principal Occupation
May 1, for Past Five Years and Director
Name 1999 Positions Held Since
- ---- ---- -------------- -----
<S> <C> <C>
Larry W. Brubaker 63 President 1986 (1)
Donald R. Fezell 60 Owner, 1996
Fezell Enterprise I, II, III
Guy A. Graham 58 President, 1990
Clearfield Foundation
Frank J. Hoffman Jr. 79 Chairman of the Board 1990
Janice E. Kephart 41 Secretary 1986 (1)
Joseph P. Leyo 64 President, Leyo's Inc. 1986
Richard L. Lininger 71 Retired 1986
C. Ben Mullins, Jr. 47 Treasurer 1986 (1)
Henry A. Peterson 72 President, 1990
Clearfield Wholesale
Paper Company
Laurance B. Seaman 52 Attorney-at-Law 1986
Gates & Seaman
Joseph A. Shaw 68 Retired 1986
Darrell G. Spencer 71 Director, 1986
Hepburnia Coal Co., Inc.
Partner,
Spencer Land Co.
Wesley M. Weymers 41 Vice President 1994 (1)
Richard A. Wilkinson 64 Auto Dealer 1986
Wilkinson's Subaru, Inc.
</TABLE>
1 Principally employed as an officer or employee of the Bank for more than
the past five years.
Executive Compensation
The following table sets forth information concerning the annual
compensation for services in all capacities to Penn Laurel for the fiscal years
ended December 31, 1998, 1997 and 1996 of those persons who were, at December
31, 1998, (i) Chief Executive Officer, and (ii) the
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other four most highly compensated executive officers of the company to the
extent such persons' total annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payout
------ ------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------------------------------------------------------------------------------------------------------------------------------
Other
Annual Restricted All other
Name and Compen- Stock Options/ Compens
Principal Salary Bonus sation Awards SARs Payouts ation
Position Year ($) ($) ($) ($) (#) ($) ($) (1)(2)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry W.
Brubaker 1998 114,664 6,027 12,733
President 1997 100,659 1,621 10,800
and 1996 93,427 1,098 9,121
Chief
Executive
Officer
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes company's contribution to 401(k) Plan of $3,688, $3,105 and
$2,637 for 1998, 1997 and 1996.
(2) Includes Life Insurance Premiums of $1,383, $1,358 and $755 for 1998,
1997 and 1996.
(3) Includes the payment of club dues in the amount of $3,846, $2,521 and
$2,379 for each of 1998, 1997 and 1996, as well as the value of
Mr. Brubaker's use of a vehicle, estimated at $3,816 for each of 1998
and 1997 and $3,350 for 1996.
KSOP Plan
During 1998, Penn Laurel adopted an Employee Stock Ownership Plan that
contains 401(k) provisions. We refer to this plan as a KSOP. The KSOP is a plan
of deferred compensation in which Penn Laurel contributions provide
participating employees with stock in Penn Laurel. The KSOP also provides that
participants may make contributions to the plan on a before-tax basis, under
Internal Revenue Code Section 401(k). As contributions are made to the KSOP,
shares of Penn Laurel common stock, or other investments, are credited to
accounts set up for employee participants. To be eligible, participants must be
18 years of age and employed in a full-time position requiring the completion of
at least 1,000 hours of service for the plan year.
During 1998, CSB Bank made a total contribution of $70,189 to the KSOP
Plan. The amounts allocated to the five most highly compensated officers
pursuant to the KSOP Plan in 1998 are as follows: Mr. Brubaker, $6,388; Mr.
Capatch, $3,090; Mr. Mullins, $3,015; Mr. Weymers, $5,627; and Mr. Johnson,
$3,154. These amounts do not include additional discretionary contribution.
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Employment Contracts
Wesley M. Weymers has an Employment Agreement with Penn Laurel and CSB
Bank. The agreement is for 2 years, beginning January 1, 1999 and ending January
1, 2001. Mr. Weymers serves as the President and Chief Operating Officer of CSB
Bank and as a member of the Board of Directors of Penn Laurel and CSB Bank. Mr.
Weymers will devote substantially all his working time to the business of Penn
Laurel and CSB Bank. He agreed not to enter into any business arrangement deemed
to be competitive to Penn Laurel's interest. The Board of Directors determines
Mr. Weymers base salary for 1999, and 2000. The Board of Directors may also pay
a bonus to Mr. Weymers. Mr. Weymers receives fringe benefits equal to benefits
received by other employees of the bank.
If Mr Weymers' employment is terminated without cause, or he resigns for
good reason, he can receive the greater of 12 months' salary or an amount equal
to the payment of his salary from the date of termination through the remaining
term of the agreement. The agreement also contains a noncompete provision, under
which, Mr. Weymers agrees to keep certain information confidential and not
compete with Penn Laurel for 3 years.
The agreement contains a "change of control" clause that provides a
severance allowance, as defined in the agreement, equal to 2 1/2 times his
annual salary, including any bonus, for the most recent 12 month period, if Penn
Laurel undergoes a "Change of control." The agreement defines a "change of
control" as:
o the acquisition of the beneficial ownership of at least 25% of Penn
Laurel's voting securities other than by Penn Laurel or a person or
persons who are officers or directors of Penn Laurel; and
o during any period of 2 consecutive terms of this agreement,
individuals who, at the beginning of such period, constituted the
Board of Directors of Penn Laurel cease, for any reason, to constitute
at least a majority of the Board, unless the election of each director
who was not a director at the beginning of the period has been
approved in advance by directors representing at least 2/3 of the
directors then in office who were directors at the beginning of the
period.
An Addendum to the Agreement excludes a merger with Clearfield from the
definition of a "change of control."
Larry W. Brubaker also entered into an employment agreement with Penn
Laurel and CSB Bank. The terms of Mr. Brubaker's agreement are the same as those
of Mr. Weymers, except that:
o Mr. Brubaker serves as Chief Executive Officer of Penn Laurel and of
CSB Bank;
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o The bank will purchase or lease a vehicle for Mr. Brubaker and
reimburse him for certain operating expenses; and
o Mr. Brubaker's noncompete provision is for a term of 2 years.
Executive Supplemental Income Agreement
In 1998, CSB Bank entered into an Executive Supplemental Income Agreement
with a select management group at CSB Bank. The bank employs the covered
officers in a management capacity. CSB Bank determined that the bank should try
to retain the valuable services of these officers and to encourage them to
remain with CSB Bank in an executive or management capacity. Retention of these
officers should protect the bank from a possible financial loss, if an officer
were to leave and enter the employ of a competitor. The plan encourages
continuous service by these officers until retirement age and provides increased
retirement benefit levels as years of service increase.
The plan contains a pre-retirement death benefit, which will pay an
officer's beneficiary, if the officer dies prior to retirement age. If the
officer attains retirement age, the benefit is fully vested. Retirement benefits
are paid in 12 monthly payments after retirement. The plan also contains
provisions for early retirement and for disability.
Officers covered under the plan may not engage in any activity or similar
employment capacity for any business enterprise, which competes to a substantial
degree with the bank, while employed or while receiving benefits. In the event
of violation of this provision, all future benefits are canceled and payments
discontinued.
The agreement provides that upon a change of control, the officer shall be
fully vested in the benefit.
The bank's obligation under this agreement is an unfunded and an unsecured
promise to pay. The bank is not required under any circumstances to fund its
obligation under this agreement. The rights of the officer or the beneficiary
are solely those of an unsecured general creditor of the bank. The bank
purchased life insurance contracts to fund the death benefit, should the officer
die prior to retirement. In the event that the officer is discharged for cause,
the agreement is terminated and neither the officer nor the officer's
beneficiary have any claim against the bank.
Compensation of Directors
During 1998, Penn Laurel's Directors held 17 meetings. Directors of the CSB
Bank held 25 meetings during 1998. Directors were paid $282.00 per meeting. In
addition, the members of committees of the Board of Directors were paid $54.00
per hour with a maximum of $162.00
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per committee meeting attended. In the aggregate, Directors received $117,621 in
Directors fee's and committee fees for meetings of Penn Laurel and CSB Bank in
1998.
Director's Deferred Compensation Plan
The Bank maintains two deferred income plans for the directors.
In Plan 1, each participating director has an account balance equal to the
director's fees deferred plus compounded interest. These funds will be disbursed
to the participating director or his designated beneficiary during a period of
10 years after the director reaches age 65.
In Plan 2, which was formed in 1998, each participating director has the
opportunity to defer the next five years of directors compensation. The deferred
fees will be retained and compounded until the selected pay-out age. The
deferred and compounded fees will be paid out over a 10 year period beginning at
the directors selected pay-out age.
Loans
Penn Laurel, through CSB Bank, grants loans and makes other credit
available to the general public. These extensions of credit are structured to
meet the varying needs of businesses, individuals, and institutional customers
and include mortgages, lines of credit, term loans, leases and letters of
credit. This activity comprises a major source of revenue for CSB Bank and it
also exposes Penn Laurel and CSB Bank to potential losses upon borrower default.
In order to minimize the occurrence of loss, CSB Bank follows strict loan
underwriting and risk weighing policies. While collateral continues to play an
important part in lending decisions, primary emphasis is placed upon borrowers'
underlying ability to pay. CSB Bank confines its lending activity to customers
who live or are based in its market area. By limiting lending activities to a
specific geographic area, the bank's staff becomes more knowledgeable about
local market conditions and can thereby make better credit risk assessments and
consequently more prudent lending decisions. Penn Laurel believes that this
local knowledge, when combined with prudent underwriting standards, overcomes
the risks associated with the geographic concentration of loans.
Description of Penn Laurel Common Stock
Penn Laurel is authorized to issue 2,500,000 shares of Penn Laurel common
stock of which 357,259 shares were issued and outstanding as of December 31,
1998.
Liquidation
In the event of liquidation, dissolution or winding up of Penn Laurel
shareholders are entitled to share ratably in all assets remaining after payment
of liabilities.
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Anti-takeover Provisions
The Pennsylvania Business Corporation Law of 1988 and Penn Laurel's amended
Articles of Incorporation and amended Bylaws provide numerous provisions that
may be deemed to be anti-takeover in nature, both as to purpose and effect.
The overall effect of the various provisions described herein might be to
deter a tender offer that a majority of the shareholders might possibly view to
be in their best interest as the offer might include a substantial premium over
the market price of Penn Laurel common stock at that time. In addition, these
provisions may have the effect of assisting Penn Laurel's current management in
retaining its position and placing it in a better position to resist changes
that the shareholders might want to make if dissatisfied with the conduct of
Penn Laurel's business.
Two of these statutory provisions have the effect of eliminating the rights
of the shareholders of registered corporations to:
o call a special meeting of shareholders; and
o propose an amendment to the Articles of Incorporation.
One effect of these provisions may be to prevent the calling of a special
meeting of shareholders for the purpose of considering a merger, consolidation
or other corporate combination which does not have the approval of a majority of
the members of Penn Laurel's Board of Directors. This provision may have the
effect of making Penn Laurel less attractive as a potential takeover candidate
by depriving shareholders of the opportunity to initiate special meetings at
which a possible business combination might be proposed.
These two provisions may discourage attempts by shareholders to call a
special meeting of shareholders. They also provide a greater time for
consideration of any shareholder proposal to the extent that the proposal must
be deferred until the next annual meeting of shareholders. Also, when made,
shareholder proposals must comply with certain notice requirements and proxy
solicitation rules. These provisions of Pennsylvania law do not affect the
calling of a special meeting by the Chairman of the Board or by a majority of
the members of the Board of Directors or of its Executive Committee if, in their
judgment, there are matters to be acted upon which are in the best interest of
Penn Laurel and its shareholders.
Penn Laurel's Articles of Incorporation and amended Bylaws contain a number
of additional provisions that could be considered anti-takeover in purpose and
effect. These provisions include:
o authorization of 2,500,000 shares of Penn Laurel common stock;
o lack of preemptive rights for shareholders to subscribe to purchase
additional shares of stock on a pro rata basis.
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These anti-takeover provisions generally permit the Board of Directors to
have as much flexibility as possible to issue additional shares without further
shareholder approval for proper corporate purposes, including financing,
acquisitions, stock dividends, stock splits, employee incentive plans and other
similar purposes. These additional shares may, however, also be used by the
Board of Directors to deter future attempts to gain control over Penn Laurel.
o the necessity for the affirmative vote of the holders of 75 percent of
Penn Laurel's common stock to approve an amendment to Penn Laurel's
Bylaws or to change an amendment to its Bylaws that was approved by
the Board of Directors; and
o the necessity for the affirmative vote of the holders of 75 percent of
Penn Laurel's common stock to approve a merger, consolidation,
liquidation, or sale of substantially all assets.
These provisions could give the holders of a minority of Penn Laurel's
outstanding shares a veto power over any merger, consolidation, dissolution or
liquidation of Penn Laurel, the sale of all or substantially all of its assets
or an amendment to its Bylaws unless 75 percent of the shareholders believe that
the transaction is desirable and beneficial. Without these provisions in Penn
Laurel's Articles of Incorporation and Bylaws, the affirmative vote of at least
a majority of Penn Laurel's common stock outstanding entitled to vote would be
required to approve any merger, consolidation, dissolution, liquidation, the
sale of all of its assets or an amendment to the Bylaws.
Provisions for a classified or staggered board are included in the amended
Bylaws of Penn Laurel. A classified board has the effect of moderating the pace
of any change in control of the Board of Directors by extending the time
required to elect a majority of the directors to at least two successive annual
meetings. However, this extension of time also tends to discourage a tender
offer or takeover bid. This provision may also be deemed to be anti-takeover in
nature. In addition, a classified board makes it more difficult for a majority
of the shareholders to promptly change the composition of the board of directors
even though such prompt change may be considered desirable for them.
Penn Laurel's amended Articles of Incorporation contain an additional
anti-takeover provision that enables the Board of Directors to oppose a tender
offer on the basis of factors other than economic benefit. Based on the Board's
responsibilities to certain constituent groups, including Penn Laurel's
subsidiaries and the communities that they serve, the Board may consider factors
such as:
o the impact the acquisition of Penn Laurel would have on the community;
o the effect of the acquisition upon shareholders, employees,
depositors, suppliers and customers; and
o the reputation and business practices of the tender offeror.
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At this time, Penn Laurel's common stock is not registered under Section
12(g) of the Securities Exchange Act of 1934, and therefore, Penn Laurel does
not file periodic reports with the SEC. The shares that Penn Laurel proposes to
issue in connection with the merger are registered on a Registration Statement
filed under the Securities Act of 1933. Upon consummation of the merger, Section
15(d) of the Securities Exchange Act of 1934 requires Penn Laurel to file
periodic reports with the SEC under Section 13. In addition, Penn Laurel will be
required to register with the SEC under Section 12 of the Securities Exchange
Act of 1934 within 120 days of the end of the calender year 1999 because it will
have more than 500 shareholders of record. Penn Laurel may voluntarily register
under Section 12(g) of the Securities Exchange Act earlier, if management so
desires.
Pennsylvania law gives certain strong anti-takeover provisions to
corporations that have their securities registered with the Securities and
Exchange Commission under Section 12 of the Securities Exchange Act of 1934. The
law calls these "Registered Corporations." Although Penn Laurel will not attain
the status of "Registered Corporation" on the day of the merger, when Penn
Laurel's common stock is registered under the Securities Exchange Act of 1934,
the company will obtain "Registered Corporation" Status under the Pennsylvania
Business Corporation Law and the following statutory provisions will be
applicable to Penn Laurel. These provisions are in addition to provisions
contained in the company's Articles of Incorporation.
Two of these statutory provisions eliminate the rights of the shareholders
of registered corporations to call a meeting of shareholders and to propose an
amendment to a company's Articles of Incorporation. One effect of these
provisions will be to prevent the calling of a special meeting of shareholders
for the purpose of considering a merger, consolidation or other corporate
combination that does not have the approval of a majority of the members of the
Board of Directors. This provision may have the effect of making Penn Laurel
less attractive as a potential takeover candidate by depriving shareholders of
the opportunity to initiate special meetings at which a possible business
combination might be proposed. There is an important exception, however, in that
an interested shareholder who owns at least 20% of the shares that would be
entitled to vote in an election of directors of the corporation may generally
call a special meeting for the purpose of approving a business combination
within five years after the interested shareholder's acquisition date.
In the opinion of Penn Laurel's Board of Directors, the elimination of
these two rights would discourage attempts by shareholders to disrupt the
company's between annual meetings of the shareholders by calling a special
meeting. Furthermore, these provisions provide a greater time for consideration
of any shareholder proposal to the extent that his, her or its proposal must be
deferred until the next annual meeting of shareholders and must comply with
certain notice requirements and proxy solicitation rules in advance thereof.
These provisions do affect the calling of a special meeting by the Chairman of
the Board or by a majority of the members of the Board of Directors or of its
Executive Committee if, in their judgment, there are matters to be acted upon
which are in the best interests of the company and its shareholders.
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Another provision to which Penn Laurel will be subject, upon obtaining
registered corporation status, assures that all shareholders will receive the
"fair value" for their shares as the result of a "control transaction." "Fair
Value" means not less than the highest price paid per share by a controlling
person or group at any time during the 90-day period ending on and including the
date of the control transaction plus an increment representing any value,
including, without limitation, any proportion of any value payable for
acquisition of control of the company, that may not be reflected in the price.
"Control Transaction" means the acquisition by a person who has, or a group of
persons acting together that has, voting power over Penn Laurel's voting shares
that would entitle the holders to cast at least 20% of the votes that all
shareholders would be entitled to vote in an election of Penn Laurel's
directors. After the occurrence of a control transaction, any shareholder may,
within a specified time period, make written demand on the person or group
controlling at least 20% of the voting power of Penn Laurel's shares for payment
in an amount equal to the fair value of each voting share as of the date on
which the control transaction occurs.
It has become a relatively common practice in corporate takeovers to pay
cash to acquire controlling equity in an company and then to acquire the
remaining equity interest in the company by paying the balance of the
shareholders a price for their shares that is lower than the price paid to
acquire control or is in a less desirable form of consideration, frequently, in
securities of the purchaser that do not have an established trading market at
the time of issue. The Board of Directors considers such "two-tier pricing"
tactics to be unfair to Penn Laurel's shareholders. By their very nature, such
tactics tend (and are designed) to cause concern on the part of shareholders
that if they do not act promptly, they risk either being relegated to the status
of minority shareholders in a controlled company or being forced to accept a
lower price for all of their shares. Thus, two-tier pricing unduly pressures
shareholders into selling as many of their shares as quickly as possible, either
to the purchaser or in the open market, without having genuine opportunity to
make a considered investment choice between remaining a shareholder of the
company or disposing of their shares. Moreover, these sales in turn facilitate
the purchaser's acquisition of a sufficient interest in the company and thereby
enable the purchaser to force the exchange of remaining shares for a lower price
in a business combination.
While the fair price provision in Pennsylvania law is designed to help
assure fair treatment of all shareholders vis-a-vis other shareholders in the
event of a takeover, it is not the purpose of the fair price provision to assure
that shareholders will receive a premium price for their shares in a takeover.
Accordingly, the fair price provision would not preclude the Board of Directors'
opposition to any future takeover proposal which it believes not to be in Penn
Laurel's best interests and its of its shareholders, whether or not the proposal
satisfies the minimum price, form of consideration and procedural requirements
of the Pennsylvania fair price provision.
Another provision of Pennsylvania law relates to a "Business Combination"
involving a registered corporation. Business combination means any one of the
following transactions involving an "Interested Shareholder":
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o a merger of consolidation of Penn Laurel with an interested
shareholder or any other corporation that is, or after the merger or
consolidation would be, an affiliate or associate of the interested
shareholder;
o a sale, lease, exchange, mortgage, pledge, transfer or other
disposition to or with the interested shareholder or any affiliate or
associate of the interested shareholder of Penn Laurel's assets or any
subsidiary of Penn Laurel having an aggregate market value equal to
10% or more of Penn Laurel's consolidated assets, its outstanding
shares or its consolidated earning power and net income;
o Penn Laurel's or a subsidiary's issuance or transfer of any Penn
Laurel shares that has an aggregate market value at least equal to 5%
of the aggregate market value of all the outstanding shares to an
interested shareholder or any affiliate or associate;
o Penn Laurel's adoption of any plan for the company's liquidation or
dissolution proposed by, or pursuant to any agreement with, the
interested shareholder or any affiliate or associate;
o a reclassification of securities or recapitalization of Penn Laurel or
any merger of consolidation of Penn Laurel with any subsidiary of Penn
Laurel or any other transaction proposed by, or pursuant to any
agreement with, the interested shareholder or any affiliate or
associate, which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of Penn Laurel owned
by the interested shareholder; or
o the receipt by the interested shareholder or any affiliate or
associate of the benefit, directly or indirectly, of any loans,
advances, guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by or through Penn Laurel.
An "Interested Shareholder" is any person that is the beneficial owner, directly
or indirectly of shares entitling that person to cast at least 20% of the votes
that all shareholders would be entitled to cast in an election of Penn Laurel's
directors.
Under Pennsylvania law, Penn Laurel may not engage in a business
combination with an interested shareholder other than:
o a business combination approved by the Board of Directors prior to the
date on which the Interested Shareholder acquires at least 20% of the
shares ("share acquisition date") or where the purchase of shares by
the interested shareholder has been approved by Penn Laurel's Board of
Directors;
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<PAGE>
o a business combination approved by a majority of the votes that all
shareholders would be entitled to cast not including those shares held
by the interested shareholder, at a meeting called for such purpose no
earlier than three months after the interested shareholder became, and
if at the time of the meeting the interested shareholder is, the
beneficial owner, directly or indirectly, of shares entitling the
interested shareholder to cast at least 80% of the votes that all
shareholders would be entitled to cast in an election of Penn Laurel
directors if the business combination satisfies certain minimum
conditions, which are discussed below;
o a business combination approved by the affirmative vote of all of the
shareholders of the outstanding shares;
o a business combination approved by a majority of the votes that all
shareholders would be entitled to cast not including those shares
beneficially owned by the interested shareholder at a meeting called
for such purpose no earlier than 5 years after the interested
shareholder's share acquisition date; and
o a business combination approved at a shareholders' meeting called for
that purpose no earlier than 5 years after the interested
shareholder's share acquisition date and that meets certain minimum
conditions, which are discussed below.
The certain minimum conditions discussed above generally require that the
aggregate amount of the cash and the market value of consideration other than
cash, such as stock, bonds or debentures, to be received per share by the Penn
Laurel shareholders be at least equal to the highest per share price paid by the
Interested shareholder at a time when the interested shareholder was the
beneficial owner of shares entitling him to cast at least 5% of the votes that
all shareholders would be entitled to cast in an election of directors:
o business combination or in the transaction in which the interested
shareholder became an interested shareholder, whichever is higher;
plus
o in either situation, interest compounded annually from the earlier
date on which the highest per-share acquisition price was paid through
the consummation date at the rate of 1-year United States Treasury
obligations from time to time in effect less the aggregate amount of
any cash dividends paid and the market value of any dividends paid
other than cash.
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<PAGE>
The Pennsylvania provision relating to business combinations is designed to
help assure that if, despite a company's best efforts to remain independent, the
company is nevertheless taken over, each shareholder will be treated fairly
vis-a-vis every other shareholder and that arbitragers and professional
investors will not profit at the expense of the company's long-term public
shareholders. We note that while the business combination provision is designed
to help assure fair treatment of all shareholders vis-a-vis other shareholders
in the event of a takeover, it is not the purpose of the business combination
provision to assure that shareholders will receive premium price for their
shares in a takeover. Accordingly, the Board of Directors believes that the
business combination provision would not preclude the Board of Director's
opposition to any future takeover proposal that it believes not to be in the
best interests of the company and its shareholders, whether or not such a
proposal satisfies the requirements of the business combination provision or
fair price provision or both.
Subchapter G of Chapter 25 of the Pennsylvania Business Corporation Law
also applies to registered corporations. Under Subchapter G, the acquisition of
shares that increase the acquiror's's's control of the corporation above 20%,
33 1/3% or 50% of the voting power able to elect the Board of Directors cannot
be voted until a majority of disinterested shareholders approve the restoration
of the voting rights of those shares in two separate votes:
o all disinterested shares of the corporation and
o all voting shares of the corporation.
Voting rights that are restored by shareholder approval will lapse if any
proposed control-share-acquisition that is approved is not consummated within
90 days after shareholder approval is obtained. Furthermore, control-shares that
are not accorded voting rights or whose rights lapse will regain such voting
rights on transfer to another person who is not an affiliate of the acquiror's.
If they constitute control-shares for the transferee, this subchapter must be
applied to that person as well. If the acquiror's does not request a shareholder
meeting to approve restoration of voting rights within 30 days of the
acquisition or if voting rights are denied by the shareholders or if they lapse,
the corporation may redeem the control shares at the average of the high and low
price on the date of the notice of redemption.
Subchapter H of Chapter 25 of the Pennsylvania Business Corporation Law
also applies to Registered Corporations. Under Subchapter H, a control person (a
person who owns shares with 20% or more voting power) must disgorge to the
corporation any profits from the disposition of any equity securities if the
disposition occurs within 18 months of becoming a control person, and the
security was acquired 24 months before to 18 months after becoming a control
person. This provision seeks to prevent speculative takeover attempts.
Finally, Pennsylvania law grants a registered corporation the express
authority to treat shareholders on a disparate basis and therefore may take
advantage of "poison pills." "Poison pills" generally consist of a shareholder
rights plan whereby a corporation gives its shareholders
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<PAGE>
the right to buy common stock upon the occurrence of certain specified events,
such as a merger, which decreases the value of the acquiror's holdings and the
acquiror's percentage of ownership.
The overall effect of these provisions may be to deter a future offer or
other merger or acquisition proposal that a majority of the shareholders might
view to be in their best interests as the offer might include a substantial
premium over the market price of Penn Laurel's common stock at that time. In
addition, these provisions may have the effect of assisting Penn Laurel's
management in retaining its position and placing it in a better position to
resist changes that the shareholders may want to make if dissatisfied with the
conduct of Penn Laurel's business.
Indemnification
Penn Laurel's bylaws provide for indemnification of its directors,
officers, employees and agents to the fullest extent permitted under the laws of
the Commonwealth of Pennsylvania, provided that the person seeking
indemnification acted in good faith, in a manner he or she reasonably believed
to be in the best interest of the company, and without willful misconduct or
recklessness.
COMPARISON OF SHAREHOLDER RIGHTS
After the merger, the shareholders of Clearfield will become shareholders
of Penn Laurel Financial Corp. There are certain differences in the rights of
shareholders of these two companies These differences arise out of differences
in the articles of incorporation and bylaws of the two companies and the
differences in the laws that govern the two companies. The most significant of
these differences are those relating to anti-takeover protection and public
registration.
The Bylaws of Penn Laurel and Clearfield both provide for a classified
Board of Directors under which there are three classes of directors and,
accordingly, one-third of the directors are elected each year for a term of
three years.
The Articles of Incorporation and Bylaws of Penn Laurel, among other things
require a vote of 75% of the shareholders to approve a merger. They also include
a number of other provisions that are intended to protect the shareholders of
Penn Laurel but may be considered anti-takeover in nature and may serve to
entrench the current management of Penn Laurel. These protections will be
available to the present shareholders of Clearfield, who will become
shareholders of Penn Laurel following the merger. See "INFORMATION CONCERNING
PENN LAUREL AND DESCRIPTION OF PENN LAUREL COMMON STOCK--Anti-takeover
Provisions."
The material differences between Clearfield common stock and Penn Laurel
common stock and the rights of their respective holders, as of December 31,
1998, are summarized in the following table:
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<TABLE>
<CAPTION>
Clearfield Penn Laurel
---------- -----------
<S> <C> <C>
Title Capital Stock, $1.5625 par value per share Common Stock, $5.00 par value per share
Shares Authorized 617,600 2,500,000
Shares Issued and Outstanding 576,809 357,259
Preferred Stock None authorized None authorized
Preemptive Rights None None
Voting: Election of Directors Non-cumulative Non-cumulative
Classification of Board of Directors Board divided into 3 classes with 3 year Board divided into 3 classes with 3 year
terms; approximately 1/3 elected each year terms; approximately 1/3 elected each year
Voting: Other Matters One vote for each share of record One vote for each share of record
Mergers, Consolidations, Approval of at least 66 2/3% of the Approval of at least 75% of the outstanding
Liquidations Sales of Substantially outstanding stock is required shares of common stock is required
All Assets
Special Shareholder Meetings Special shareholders meetings may be Special shareholders meetings may be called
called at any time by the Chairman, at any time by the Chairman, President, a
President, the Board of Directors or majority of the members of the Board or by
holders of not less than 1/5 of all shares shareholders entitled to cast 51% of the
outstanding and entitled to vote at the votes that all shareholders are entitled to
particular meeting. cast.
Authorization to Issue Additional Approval by a majority vote of the Board Approval of a majority vote of the Board of
Shares of Directors. Directors.
Repurchase of Additional Shares Stock may be repurchased by resolution of Stock can be repurchased up to the extent of
the Board and with prior approval of the unrestricted or unreserved undivided profits
Banking Department as long as surplus and as much of its unrestricted surplus as
remains at least equal to amount of capital has been made available for such purpose
after the repurchase. by the prior affirmative vote of
shareholders; stock cannot be repurchased
when Penn Laurel is insolvent or would be
made insolvent by the purchase; and no more
than 10 percent of the outstanding shares
can be repurchased in any twelve (12) month
period without prior regulatory approval;
and provisions of the Securities Act
restrict the timing, nature and amount of
repurchases.
Stock Incentive Plan No Yes
Dissenters' Rights Yes Yes
Dividend Reinvestment Plan No No
Market Listed for quotation on the OTC Bulletin Listed for quotation on the OTC Bulletin
Board Board
Registered Under Exchange Act No No
</TABLE>
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YEAR 2000 ISSUES
The following section contains forward-looking statements that involve
risks and uncertainties. The actual impact on the Year 2000 readiness disclosure
on Clearfield or Penn Laurel could materially differ from the description in
these forward-looking statements as a result of changes in certain factors that
we identify below.
The Y2K problem arose because many existing computer programs use only the
last two digits to refer to the year. Therefore, certain computer programs will
not be able to determine if "00" represents the year 2000 or 1900. If not
corrected, many computer applications could fail or create erroneous results by
or at the year 2000. This could cause entire system failures, miscalculations,
and disruptions of normal business operations including, among other things, a
temporary inability to process transactions, generate statements, compute
payments, interest or delinquencies, or engage in similar daily business
activities. We do not yet know the extent of the potential impact of the Y2K
problem. If not timely corrected, Y2K could affect the global economy.
Clearfield
Clearfield is subject to regulation and oversight by the Pennsylvania
Department of Banking and the Federal Deposit Insurance Corporation. This
oversight requires Clearfield to provide specific timetables, programs and
guidance regarding the Year 2000 issue. Regulators examine Clearfield's Year
2000 program on a regular basis. In addition, internal audits provide written
reports to the Board of Directors on a quarterly basis.
Clearfield is committed to ensuring that daily operations suffer little or
no impact from the century date change. Clearfield has applied due diligence
throughout the Y2K process, following the guidelines contained in a series of
Federal Financial Institutions Examination Council's Interagency Guideline
statements. The guidelines identify the following phases:
o awareness;
o assessment;
o renovations or remediation;
o testing or validation; and
o implementation.
In 1996, Management initiated a bank wide program to prepare the computer
system for the Year 2000. Clearfield developed a comprehensive inventory of all
mainframe and PC based application, third-party relationships. environmental
systems, proprietary programs and non- computer related systems. This assessment
identified the systems, processes or proprietary programs, which could be
impacted by the century date change. Clearfield recognizes that its processing
and account operations are computer reliant and could be affected by the Y2K
issue. Clearfield has developed a plan to make these systems Y2K ready and
tested all of its mission
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critical applications as of December 31, 1998, except for its ATM processing.
The ATM processing was successfully tested as of February 15, 1999.
Clearfield initiated communications with all of its significant vendor,
suppliers and large commercial customers to determine the extent to which
Clearfield is vulnerable to those third-parties' failure to remedy their own
Year 2000 problem. Clearfield does not currently have information concerning all
of its significant vendors, suppliers and large commercial customers.
In the event that significant vendors, suppliers and large commercial
customers do not achieve Year 2000 compliance in a timely manner, Clearfield's
business could be adversely affected. If significant vendors fail to meet Year
2000 operating requirements, Clearfield will engage alternative suppliers. For
large commercial loan customers, Clearfield will take appropriate action based
upon their level of readiness.
As of December 31, 1998, Clearfield expensed $30,000 in Year 2000 costs.
Management expects to spend a total of $50,000 for the entire project.
Clearfield does not expect the amounts required to be expensed over the next
twelve months to have a material adverse effect on the financial position or
results of operations.
At present, Management believes its progress in remedying systems, programs
and applications and installing Y2K compliant upgrades is on target. Despite
Clearfield's activities in regard to the Year 2000 problem, we are not certain
that partial or total systems interruption or that the cost necessary to upgrade
hardware or software, may not have a material effect on Clearfield's business,
financial condition, results of operations and business prospects.
Realizing that some disruptions may occur despite its best efforts,
Clearfield continues to develop its contingency plans for each critical system
in the event that one or more of those systems fail.
Penn Laurel
In 1997, management developed a comprehensive project plan to address the
Year 2000 problem and issues relating to CSB Bank's operations. The Board of
Directors approved and implemented the plan. The plan includes five phases of
awareness, assessment, renovation, validation and implementation as defined by
Federal Financial Institutions Examination Council and the banking regulatory
agencies that regulate CSB Bank.
CSB Bank set up a project team consisting of key members of CSB Bank's
technology staff, representatives of functional business units and senior
management.
The team completed their assessment of the impact of the Year 2000 issue on
CSB Bank's computer systems. The scope of the project also includes operational
and environmental systems because embedded computer chips control the
functionality of those systems and Y2K issues may impact them. From the
assessment, CSB Bank has identified and prioritized those
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systems deemed to be mission critical and those that have a significant impact
on normal operations.
CSB Bank relies on third party vendors and service providers for its data
processing capabilities, and to maintain its computer systems. Management
initiated formal communications with the providers of date processing
capabilities and other external parties in 1997 and 1998 to access the Year 2000
readiness of their products and services. The team monitors their progress in
meeting the targeted schedules for an indication that they may not be able to
address the problem in time. Thus far, responses indicate that more of the
significant providers currently have compliant versions available or are well
into the renovations and testing phases. However, CSB Bank cannot guarantee that
the systems of those service providers and vendors, on which CSB Bank relies,
will be timely renovated.
In addition, CSB Bank has implemented a plan to manage the potential risk
posed by the impact of the year 2000 issue on its major customers. The bank has
initiated formal communications and completed an assessment of the bank's loan
customers. Formal communications have been initiated and assessment is scheduled
to be significantly completed by March 31, 1999.
The project team estimates that CSB Bank's Year 2000 readiness project is
94% complete. The following table provides a summary of the current status of
the five project phases and a project timetable for completion.
Project Phase % Completed Projected Completion
- ------------- ----------- --------------------
Awareness 100 completed
Assessment 100 completed
Renovation 90 June 30, 1999
Critical System Validation 90 June 30, 1999
Implementation 90 June 30, 1999
Overall 94%
CSB Bank has used and expects to continue to primarily use internal
resources to implement its readiness plan, and to upgrade or replace and test
systems affected by the Year 2000 issue. The total cost to CSB Bank for its Year
2000 activities has not been and is not anticipated to be material to its
financial position in any given year. In total, CSB Bank estimates that its
costs will be under $400,000. The majority of this cost is for a replacement
ofthe banks current reader/sorter and its associated software, at a cost of
$320,000. The bank expects to capitalize the cost for the reader/sorter and its
associated software over a five year period.
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Based upon current information related to the progress of its major vendors
and service providers, management has determined that the Year 2000 issue will
not pose significant operational problems for its computer systems. This
determination is based on the ability of those vendors, and service providers to
renovate in a timely manner, the products and services on which CSB Bank's
systems rely. However, CSB Bank cannot guarantee that the systems of these
suppliers will be timely renovated.
Realizing that some disruptions may occur despite its best efforts, the CSB
Bank has developed contingency plans for its critical systems in the event that
one or more of those systems fail.
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<PAGE>
CLEARFIELD BANK & TRUST COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On the following pages we present management's discussion and analysis of
the financial condition and results of operations of Clearfield Bank & Trust
Company, and its wholly-owned subsidiary, Diamond Financial Service, Inc.
Management's discussion and analysis discusses the significant changes in the
results of operations, capital resources and liquidity presented in its
accompanying financial statements for Clearfield. Current performance does not
guarantee, assure, and may not be indicative of similar performance in the
future.
The following discussion focuses on and highlights certain information
regarding Clearfield. We recommend that you read this discussion in conjunction
with the financial statements and related notes appearing elsewhere in this
proxy statement/prospectus.
We caution you not to place undue reliance on forward-looking statements in
this section, they reflect management's analysis only as of this date.
Clearfield undertakes no obligation to publicly revise or update these
forward-looking statements to reflect subsequent events or circumstances.
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Balance Sheet Analysis
The table below presents the major asset and liability categories on an
average daily basis for the periods presented, along with interest income and
expense, and key rates and yields.
Distribution of assets, liabilities and shareholders equity,
interest/return rates and interest differential:
<TABLE>
<CAPTION>
Period Ended December 31,
-------------------------
1998 1997
---- ----
Average Average Average Average
(Dollars in thousands) Balance Rate Interest Balance Rate Interest
------- ---- -------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Assets -- --
Investment securities:
Taxable investments $ 39,694 5.53% $ 2,197 $ 47,317 5.91% $ 2,795
Nontaxable investments (1) 15,983 8.10 1,294 15,042 8.34 1,255
-------- ------ ------- -------- ------ -------
Total investment securities 55,677 6.27 3,491 62,359 6.49 4,050
Loans (1) 108,763 8.29 9,015 97,655 8.48 8,286
Other rate-sensitive assets 2,508 5.50 138 1,305 5.67 74
-------- ------ ------- -------- ------ -------
Total earning assets 166,948 7.57 12,644 161,319 7.69 12,410
Noninterest-earning assets 12,740 - - 12,173 - -
-------- ------ ------- -------- ------ -------
Total assets $179,688 $12,644 $173,492 $12,410
======== ======= ======== =======
</TABLE>
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<TABLE>
<CAPTION>
Period Ended December 31,
-------------------------
1998 1997
---- ----
Average Average Average Average
(Dollars in thousands) Balance Rate Interest Balance Rate Interest
------- ---- -------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Liabilities and
Shareholders' Equity
Deposits:
Demand $ 18,862 -- $ -- $ 18,576 -- $ --
Savings 55,251 2.64 1,457 53,115 2.61 1,385
Time 83,662 5.38 4,500 79,410 5.49 4,362
-------- ----- -------- -------- ------ --------
Total $157,775 3.78% $ 5,957 $151,101 3.80% $ 5,747
Borrowings and other
interest-bearing liabilities 412 6.80 28 2,117 5.62 119
-------- ----- -------- -------- ------ --------
Total interest-bearing liabilities 158,187 3.78 5,985 153,218 3.83 5,866
Other liabilities 1,502 -- -- 1,385 -- --
-------- ----- -------- -------- ------ --------
Total liabilities 159,689 -- 5,985 154,603 -- 5,866
Shareholders' equity 19,999 -- -- 18,889 -- --
-------- ----- -------- -------- ------- --------
Total liabilities and
shareholders equity $179,688 -- $ 5,985 $173,492 -- $ 5,866
======== ===== ======== ======== ======= ========
Average effective rate on
interest-bearing liabilities $139,325 4.30% $ 5,985 $134,642 4.36% $ 5,866
======== ===== ======== ======== ======= ========
Interest Income/Earning
Assets $166,948 7.57% $ 12,644 $161,319 7.69% $ 12,410
Interest Expense/Earning
Assets $166,948 3.58 $ 5,985 $161,319 3.64 $ 5,866
----- ----
Net interest margin 3.99% 4.05%
===== ====
Net interest spread 3.79% 3.86%
===== ====
</TABLE>
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
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Investment Securities
The investment portfolio is an interest earning asset, second only in size
to the loan portfolio. Investment securities serve as an important source of
revenue, a primary source of liquidity, and as collateral for public deposits.
Clearfield established an investment policy that addresses the various
aspects of portfolio management including, but not limited to, quality
standards, liquidity and maturity limits, investment concentrations, and
regulatory guidelines. The Board of Directors regularly reviews compliance with
the policy.
Total investment securities of $50,761,483 decreased $6,928,754 from
December 31, 1997 to December 31, 1998. The decrease is the result of the
available for sale portfolio increasing by $2,267,017, while the held to
maturity portfolio decreased by $9,195,771. This decrease is part of the
strategic plan to increase the loans outstanding while decreasing the investment
portfolio.
On December 31, 1998, the federal funds sold balance of $3,481,000 was
$781,000 higher than the December 31, 1997, balance of $2,700,000.
The maturity analysis of investment securities held to maturity, including
the weighted average yield for each category as of December 31, 1998, is as
follows:
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
U. S. Treasury securities:
Carrying value $1,002 $0 $0 $0 $1,002
Weighted average yield 5.73% 0.00% 0.00% 0.00% 5.73%
Weighted average maturity 10 Months
Obligations of other U.S. Government agencies
and corporations:
Carrying value $999 $8,000 $0 $0 $8,999
Weighted average yield 2.49% 3.53% 0.00% 0.00% 3.42%
Weighted average maturity 1 Year,
5 Months
</TABLE>
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<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Obligations of state and political subdivisions:
Carrying value $585 $0 $1,012 $1,376 $2,973
Weighted average yield 4.71% 0.00% 7.35% 7.83% 7.53%
Weighted average maturity 1 Year,
2 Months
Total:
Carrying value $2,586 $8,000 $1,012 $1,376 $12,974
Weighted average yield 4.79% 3.53% 7.35% 7.83% 4.54%
Weighted average maturity 1 Year,
3 Months
</TABLE>
The maturity analysis of securities available for sale, including the
weighted average yield for each category, as of December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
<S> <C> <C> <C> <C> <C>
U. S. Treasury securities:
Carrying value $3,006 $3,796 $0 $0 $6,802
Weighted average yield 5.92% 6.46% 0.00% 0.00% 6.22%
Weighted average maturity 11 Months
Obligations of other U.S. Government agencies
and corporations:
Carrying value $0 $11,999 $4,494 $1,131 $17,624
Weighted average yield 0.00% 5.68% 6.72% 7.05% 6.03%
Weighted average maturity 2 Years,
11 Months
</TABLE>
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<TABLE>
<CAPTION>
Under 1-5 5-10 Over 10
(Dollars in thousands) 1 year years years years Total
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Obligations of state and political subdivisions:
Carrying value $0 $598 $5,441 $5,552 $11,591
Weighted average yield 0.00% 9.17% 7.30% 7.92% 7.70%
Weighted average maturity 6 Years,
6 Months
Taxable Obligations of state and political subdivisions:
Carrying value $0 $0 $605 $0 $605
Weighted average yield 0.00% 0.00% 7.75% 0.00% 7.75%
Weighted average maturity 1 Year,
6 Months
Equity Securities:
Carrying value $0 $0 $589 $0 $589
Weighted average yield 0.00% 0.00% 6.02% 0.00% 6.02%
Weighted average maturity
Total:
Carrying value $3,006 $16,393 $11,129 $6,683 $37,211
Weighted average yield 5.92% 5.99% 7.00% 7.77% 6.51%
Weighted average maturity 3 Years,
7 Months
</TABLE>
Weighted average yield is computed by dividing the annualized interest
income, including the accretion of discounts and the amortization of premiums,
by the carrying value. Tax-exempt securities were adjusted to a tax-equivalent
basis and are based on the federal statutory tax rate of 34%.
-90-
<PAGE>
The amortized cost and fair value of investment securities are as follows:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------
Available for Sale Gross Gross Estimated
- ------------------ Amortized Unrealized Gross Market
(Dollars in thousands) Cost Gains Unrealized Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $6,802 $164 $0 $6,966
Obligations of other U.S. Governmental agencies
and corporations 17,624 123 65 17,682
Obligations of states and political subdivisions 11,591 334 0 11,925
Taxable Obligations of states and political
subdivisions 605 20 0 625
Equity securities 589 0 0 589
------- ---- --- -------
Totals $37,211 $641 $65 $37,787
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------------
Held to Maturity Gross Gross Estimated
- ---------------- Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $1,002 $8 $0 $1,010
Obligations of other U.S. Governmental agencies
and corporations 8,999 0 245 8,754
Obligations of states and political subdivisions 2,973 52 0 3,025
Taxable Obligations of states and political
subdivisions 0 0 0 0
Equity securities 0 0 0 0
------- --- --- -------
Totals $12,974 $60 $245 $12,789
======= === ==== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------
Available for Sale Gross Gross Estimated
- ------------------ Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $8,832 $95 $0 $8,927
Obligations of other U.S. Governmental agencies
and corporations 17,069 143 98 17,114
Obligations of states and political subdivisions 8,052 255 0 8,307
Taxable Obligations of states and political
subdivisions 605 16 0 621
Equity securities 551 0 0 551
------- ---- --- -------
Totals $35,109 $509 $98 $35,520
======= ==== === =======
</TABLE>
-91-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------
Held to Maturity Gross Gross Estimated
- ---------------- Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $1,004 $2 $0 $1,006
Obligations of other U.S. Governmental agencies
and corporations 14,498 4 508 13,994
Obligations of states and political subdivisions 6,668 65 0 6,733
Taxable Obligations of states and political
subdivisions 0 0 0 0
Equity securities 0 0 0 0
------- --- ---- -------
Totals $22,170 $71 $508 $21,733
======= === ==== =======
</TABLE>
Loans
Clearfield grants commercial loans, residential mortgages, and consumer
loans to customers located primarily within Clearfield and its contiguous
counties. Clearfield has a concentration of credit in commercial loans and
exposure to credit loss can be adversely impacted by downturns in local economic
and employment conditions.
Loans grew $12,113,997, or 11.8% from $102,575,087 at December 31, 1997, to
$114,689,084. The growth was in the real estate, municipal and all other loan
areas. The bank's credit quality is reflected by the annualized ratio of net
charge offs to total loans of .31% for 1998 versus .11% for the year 1997, and
the ratio of nonperforming assets to total assets of .41% at December 31, 1998,
compared to .42% at December 31, 1997.
-92-
<PAGE>
Major classifications of loans are summarized as follows at December 31,
1998 and 1997:
December 31,
-------------------------
(Dollars in thousands) 1998 1997
-------- --------
Real estate loans - construction $ 2,165 $ 1,809
Real estate loans - other 77,884 65,339
Commercial & industrial loans 12,513 12,988
Installment loans 18,913 21,335
Municipal loans 2,567 818
All other loans 647 286
------- -------
Total 114,689 102,575
Less:
Unearned discount 0 0
Allowance for possible loan losses 1,100 1,097
-------- --------
Net Loans $113,589 $101,478
======== ========
A loan is generally classified as nonaccrual when principal or interest has
consistently been in default for a period of 90 days or more or because of a
deterioration in the financial condition of the borrower or payment in full of
principal or interest is not expected. Delinquent loans past due 90 days or more
and still accruing interest are generally well-secured and expected to be
restored to a current status in the near future. The following table details
those loans that were placed on nonaccrual status, were accounted for as
troubled debt restructurings or were delinquent 90 days or more and still
accruing interest:
December 31
------------------
(Dollars in thousands) 1998 1997
---- ----
Nonaccrual loans $397 $187
Trouble debt restructurings 0 0
Delinquent loans 75 247
Total $472 $434
==== ====
-93-
<PAGE>
Allowance for Possible Loan Losses
A summary of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average loans $108,763 $97,655 $77,955 $72,722 $73,110
======== ======= ======= ======= =======
Allowance, beginning of period $1,097 $949 $869 $817 $841
------ ---- ---- ---- ----
Loans charged off:
Commercial and industrial 125 1 0 0 211
Installment and other 229 125 85 43 53
Real estate 10 26 0 11 0
Lease financing 0 0 0 0 0
--- --- -- -- ---
Total loans charged off 364 152 85 54 264
--- --- -- -- ---
Recoveries:
Commercial and industrial 0 0 0 0 0
Installment and other 26 43 25 25 30
Real estate 0 0 0 0 0
Lease financing 0 0 0 0 0
--- --- -- -- ---
- - - - -
Total recoveries 26 43 25 25 30
--- --- -- -- ---
Net loans charged off 338 109 60 29 234
--- --- -- -- ---
Provision for loan losses 341 257 140 81 210
--- --- --- -- ---
Allowance, end of period $1,100 $1,097 $949 $869 $817
====== ====== ==== ==== ====
Ratio of net charge offs to average loans
outstanding 0.31% 0.11% 0.08% 0.04% 0.32%
===== ===== ===== ===== =====
</TABLE>
The allowance for possible loan losses is increased by the provision
charged to current operating income and is reduced by loans charged off, net of
recovery. The provision is based upon a credit review of the loan portfolio,
past loan loss experience, current economic conditions and other pertinent
factors which form a basis for determining the adequacy of the allowance for
-94-
<PAGE>
possible loan losses. Management deems the aggregate amount reserved to be
adequate to absorb future loan losses.
The allowance for possible loan losses of $1,100,181 at December 31, 1998,
was 0.96% of loans, compared to 1.07% of loans on December 31, 1997.
Transactions in the allowance for possible loan losses account for the
years ended December 31, 1998 and 1997 are summarized as follows:
December 31,
---------------------
(Dollars in thousands) 1998 1997
------ ------
Beginning balance $1,097 $ 949
Provision charged to operations 341 257
Recovery of loans previously charged off 26 43
------ ------
1,464 1,249
Loans charged off 364 152
------ ------
Ending balance $1,100 $1,097
====== ======
Premises and Equipment
Clearfield's premises and equipment are summarized as follows at December
31, 1998 and 1997:
December 31,
----------------------
(Dollars in thousands) 1998 1997
------- -------
Land $ 792 $ 792
Clearfield premises 5,532 5,435
Furniture & Equipment 2,214 2,225
------- -------
8,538 8,452
Less accumulated depreciation (3,281) (3,240)
------- -------
Clearfield premises and equipment, net $ 5,257 $ 5,212
======= =======
-95-
<PAGE>
Deposits
The following table is a distribution of average balances and average rates
paid on the deposit categories for December 31, 1998 and 1997.
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
-------------------- --------------------
(Dollars in thousands) Amount Rate Amount Rate
------ ----- ------ -----
<S> <C> <C> <C> <C>
Noninterest-bearing $18,862 -% $18,576 -%
Interest-bearing checking
accounts 13,991 1.18% 13,259 1.33%
Money market accounts 13,710 3.87% 17,766 4.09%
Savings 27,550 2.77% 22,090 2.18%
Time--under $100,000 71,821 5.32% 70,617 5.58%
Time-over $100,000 11,841 5.72% 8,793 4.77%
-------- --------
Total $157,775 $151,101
======== ========
</TABLE>
A maturity distribution of total certificates of deposit of $100,000 and
over is as follows:
December 31,
----------------------
(Dollars in thousands) 1998 1997
------- ------
Three months or less $ 3,779 $2,803
Over three months to six months 3,726 672
Over six months to twelve months 1,920 696
Over twelve months 4,477 5,379
------- ------
Total $13,902 $9,550
======= ======
Deposits are the primary source of funding for loans and investment
securities. Total deposits of $162,806,314 on December 31, 1998 were $9,554,956,
or 6.2% higher than December 31, 1997 balance of $153,251,358. This increase was
primarily the result of increases in noninterest-bearing and interest checking
accounts, savings accounts and time deposits. These increases are partially
offset by decreases in money market accounts.
-96-
<PAGE>
Deposits are summarized as follows at December 31, 1998 and 1997:
December 31,
----------------------
(Dollars in thousands) 1998 1997
------- -------
Noninterest-bearing $20,579 $18,437
Interest-bearing checking accounts 14,243 13,961
Money market accounts 14,073 14,116
Savings 27,156 25,176
Time, under $100,000 72,853 72,011
Time, over $100,000 13,902 9,550
-------- --------
Total Deposits $162,806 $153,251
======== ========
Capital
Quantitative measures established by regulations to ensure capital adequacy
require the maintenance of minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets. Management believes, as of December 31, 1998
that Clearfield meets all capital adequacy requirements.
The minimum for the Tier 1 ratio is 4.0%, and the total capital ratio (Tier
1 plus Tier 2 capital divided by risk-adjusted assets) minimum is 8.0%. At
December 31, 1998, Clearfield's Tier 1 risk-adjusted capital ratio was 17.1%,
and the total risk-adjusted capital ratio was 18.1%, both well above the
regulatory requirements.
December 31,
-----------------
1998 1997
---- ----
Tier 1 Capital Ratio 17.1% 17.3%
Total Capital Ratio 18.1% 18.4%
Leverage Ratio 10.4% 10.3%
Shareholders' equity increased by $1,084,158 or 5.6% in 1998 to
$20,362,026. This increase was primarily due to the retention of earnings. Cash
dividends paid in 1998 increased $23,072 or 2.5%.
-97-
<PAGE>
Results of Operations
Consolidated net income for 1998 was $1,921,547 or 7.3% above 1997 net
income of $1,790,465. Earnings per share were $3.33 in 1998 compared to $3.10 in
1997.
Net income as a percentage of stockholders' equity was 9.61% for 1998,
compared to 9.29% for 1997. Net income as a percentage of average assets was
1.07% for 1998, compared to 1.03% for 1997.
During 1998, the Clearfield Bank & Trust Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting standards Number
130, "Reporting Comprehensive Income." Comprehensive income is the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Comprehensive income consists
of operating income and net unrealized gains on investment securities available
for sale. Subsequent to the adoption date all prior periods are required to be
restated to conform to the provisions. Comprehensive income in 1998 was
$2,030,124, compared to $2,042,670 in 1997.
Net Interest Income
Net interest income is Clearfield's primary source of income. It is the
difference between interest income on assets and interest expense on
liabilities. The change in net interest income from year to year is caused by
changes in interest rates, and changes in volume or mix of rate sensitive assets
and liabilities.
Net interest income increased $88,110 or 1.4% to $6,179,882 in 1998 from
the 1997 amount of $6,091,772. This increase in interest income was the result
of the 11.4% growth in average loans outstanding of $11,108,778 to $108,763,399.
Interest expense increased $119,905 or 2.0% to $5,985,502 in 1998 from the
1997 amount of $5,865,597.
For analytical purposes, the following table reflects tax-equivalent net
interest income in recognition of the income tax savings on tax-exempt items
such as interest on municipal securities and tax-exempt loans. Adjustments are
made using a statutory federal tax rate of 34%.
December 31,
-----------------------------
(Dollars in thousands) 1998 1997 1996
------- ------- -------
Interest income $12,165 $11,957 $10,472
Interest expense 5,985 5,866 5,024
------ ------ -------
Net interest income 6,180 6,091 5,448
Tax equivalent adjustment 479 453 427
------ ------ -------
Net interest income
(fully taxable equivalent) $6,659 $6,544 $ 5,875
====== ====== ======
-98-
<PAGE>
<TABLE>
<CAPTION>
1998 over (under) 1997 1997 over (under) 1996
--------------------------------- -----------------------------------------
due to changes in due to changes in
------------------- -------------------------
(Dollars in Net Net
thousands) Change Rate Volume Change Rate Volume
------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Investment
securities(1) ($559) ($125) ($434) ($201) $34 ($235)
Loans(1) 729 (214) 943 1,706 (43) 1,663
Other assets 64 (4) 68 6 (2) 8
----- ---- ---- ----- --- -----
Total 234 (343) 577 1,511 75 1,436
----- ---- ---- ----- --- -----
Interest
Expense:
Savings deposits 72 (16) 56 (45) 33 (12)
Time deposits 138 96 234 777 (41) 736
Borrowings and
other interest-
bearing
liabilities (91) 5 (96) 110 4 106
----- ---- ---- ----- --- -----
Total 119 (75) 194 842 (12) 830
----- ---- ---- ----- --- -----
Changes in net
interest income $ 115 ($268) $383 $669 $63 $606
===== ====== ===== ===== ==== =====
</TABLE>
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
Provision for Loan Losses
The provision for loan losses is determined by a periodic review of
individual loans, loss experience, current economic conditions, the risk
characteristics of various categories of loans and other important factors.
Based on these factors, the provision for loan losses was $341,000 in 1998
compared to $257,000 in 1997. The Clearfield Bank & Trust Company experienced
net charge offs in 1998 of $337,590 compared to $109,342 in 1997.
Management believes that the allowance for loan losses at December 31, 1998
is adequate based on its analysis of the loan portfolio.
-99-
<PAGE>
Other Income
Other income grew 4.7% from $971,982 for 1997, to $1,018,137 for 1998. The
increase is due primarily to increased revenues from fiduciary activities,
return check charges, debit card fees, ATM surcharging, and commissions from the
sale of other financial products.
The bank generates revenues from fiduciary activities through its Trust
Department. The Trust Department offers a full line of services such as
guardianships, personal trusts, estate planning, IRA and Keogh plans, pension
and profit sharing plan administration and investment counseling.
Through the establishment of Diamond Financial Services, the bank has been
able to increase revenues through the sale of non-traditional banking products
such as, fixed and variable rate annuities, mutual funds and stock transactions.
Other Operating Expenses
Other operating expenses of $4,376,324 in 1998, were $113,055 lower than in
1997. This decrease was a result of lower advertising, and supplies and printing
expenses. Salaries, wages and employee benefits, and depreciation of premises
and fixed assets increased during 1998.
Income Tax
The provision for federal income taxes was $559,148 for 1998, compared to
$526,910 for 1997. The increase in tax provision was due to higher level of
income before income taxes.
-100-
<PAGE>
PENN LAUREL FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On the following pages we present management's discussion and analysis of
the consolidated financial condition and results of operations of Penn Laurel.
Management's discussion and analysis discusses the significant changes in the
results of operations, capital resources and liquidity presented in its
accompanying consolidated financial statements for Penn Laurel. Current
performance does not guarantee, assure, and may not be indicative of similar
performance in the future.
The following discussion focuses on and highlights certain information
regarding Penn Laurel. We recommend that you read this discussion in conjunction
with the consolidated financial statements and related notes appearing elsewhere
in this proxy statement/prospectus.
We caution you not to place undue reliance on forward-looking statements in
this section, they reflect management's analysis only as of this date. Penn
Laurel undertakes no obligation to publicly revise or update these
forward-looking statements to reflect subsequent events or circumstances.
-101-
<PAGE>
Balance Sheet Analysis
The table below presents the major asset and liability categories on an
average daily basis for the periods presented, along with interest income and
expense, and key rates and yields. During 1998, the assets showing the greatest
increase were loans. On the liability side, the most significant source of new
funds was time deposits.
Distribution of assets, liabilities and shareholders equity, interest rates and
interest differential:
<TABLE>
<CAPTION>
Period Ended December 31
-------------------------------------------------------------------
1998 1997
------------------------------ -------------------------------
(Dollars in thousands) Average Average Average Average
Balance Rate Interest Balance Rate Interest
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investment securities:
Taxable investments $ 23,751 5.36 $1,273 $ 23,228 5.97 $1,371
Nontaxable investments (1) 10,101 7.62 770 8,770 7.54 661
-------- ---- ------ -------- ---- ------
Total investment securities 33,852 6.04 2,043 31,998 6.40 2,032
Loans (1) 87,244 9.42 8,215 80,163 9.46 7,587
Other rate-sensitive assets - - - - - -
- - - - - -
-------- ---- ------ -------- ---- ------
Total earning assets 121,096 8.47 10,258 112,161 8.58 9,619
Noninterest-earning assets 7,266 - - 7,035 - -
-------- ---- ------ -------- ---- ------
Total assets $128,362 $10,258 $119,196 $9,619
======== ======= ======== ======
Liabilities and Shareholders' Equity
Deposits:
Demand $8,863 - $8,851 - $ -
Savings 40,485 2.99 1,210 39,033 2.93 1,142
Time 61,042 5.75 3,509 56,765 5.77 3,273
-------- ---- ----- -------- ---- ------
Total $110,390 4.27 4,719 $104,649 4.22 $4,415
Borrowings and other interest-bearing
liabilities 2,269 4.76 108 188 5.85 11
-------- ---- ------ -------- ---- ------
Total interest bearing liabilities 112,659 4.28 4,827 104,837 4.20 4,426
Other liabilities 1,693 - - 1,892 - -
Total liabilities 114,352 4,827 106,729 4,426
Shareholders' equity 14,010 - - 12,467 - -
Total liabilities and shareholders equity $128,362 $4,827 $119,196 $4,426
======== ====== ======== ======
Average effective rate on interest-bearing
liabilities $103,796 4.65 $4,827 $95,986 4.61 $4,426
======== ==== ======= ======== ==== ======
Interest Income/Earning Assets $121,096 8.47 $10,258 $112,161 8.58 $9,619
Interest Expense/Earning Assets $121,096 3.99 $4,827 $112,161 3.94 $4,415
---- ----
Net Interest Margin 4.48 4.64
==== ====
Net Interest Spread 4.19 4.38
==== ====
</TABLE>
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
Investment Securities
Investments, which are Penn Laurel's secondary use of funds, increased
$2,481,807 or 7.6% to $35,092,991 at year-end 1998. In 1997, the investment
portfolio reflected an increase of
-102-
<PAGE>
$1,754,094 or 5.7% compared to 1996. The primary increase in the available for
sale portfolio in 1998 was in municipal bonds and marketable equities. The year
end 1998 held to maturity portfolio of $1,977,044 did not change significantly
from year-end 1997 of $2,623,685.
The 1997 increase was primarily the result of increases in U.S. Government
Agencies and unrealized gains in marketable equities.
The maturity analysis of investment securities held to maturity, including
the weighted average yield for each category as of December 31, 1998, is as
follows:
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- --------
Corporate Debt Securities:
<S> <C> <C> <C> <C> <C>
Carrying value 1,977 - - - 1,977
Weighted average yield 5.58% - - - 5.58%
Weighted average maturity 1 month
Total:
Carrying value 1,977 - - - 1,977
Weighted average yield 5.58% - - - 5.58%
Weighted average maturity 1 month
</TABLE>
The maturity analysis of securities available for sale, including the
weighted average yield for each category, as of December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Under 1-5 5-10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities
Carrying value 999 2,987 - - 3,986
Weighted average yield 5.95 5.81 - - 5.84%
Weighted average maturity 1 year
4 months
</TABLE>
-103-
<PAGE>
<TABLE>
<CAPTION>
Obligations of other U.S. Government agencies:
<S> <C> <C> <C> <C> <C>
Carrying value 0 5,499 1,500 - 6,999
Weighted average yield 0 5.94% 7% - 6.17%
Weighted average maturity 3 years
9 months
Obligations of states and political subdivisions:
Carrying value 220 2,266 3,974 4,274 10,734
Weighted average yield 10.0% 7.02% 7.55% 7.30% 7.48%
Weighted average maturity 9 years
10 months
Equity Securities:
Carrying value - - 3,076 - 3,076
Weighted average yield -% -% 4.78% -% 4.78%
Weighted average maturity
Corporate Debt Securities
Carrying value 2,137 1,554 - - 3,691
Weighted Average Yield 6.47% 5.68% - - 6.12%
Weighted Average Maturity 1 year
8 months
Mortgage Backed and Asset Backed Securities
Carrying Value 42 662 949 186 1,839
Weighted Average Yield 6.79% 6.02% 6.20% 5.66% 6.09%
Weighted Average Maturity 10 years
10 months
Total:
Carrying value 3,398 12,968 9,499 4,460 30,325
Weighted average yield 6.53% 6.07% 6.42% 7.22% 6.40%
Weighted average maturity 5 years
4 months
</TABLE>
Weighted average yield is commuted by dividing the annualized interest
income, including the accretion of discounts and the amortization of premiums,
by the carrying value.
-104-
<PAGE>
Tax-exempt securities were adjusted to a tax-equivalent basis and are based on
the federal statutory tax rate of 34%.
The amortized cost and fair value of investment securities are as follows:
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury Securities $3,985,703 $58,047 $- $4,043,750
Obligations of Other U.S. Government Agencies 6,999,471 60,648 4,359 7,055,760
Obligations of States and Political Subdivision 10,734,135 247,384 15,348 10,966,171
Marketable Equities 3,075,968 2,605,495 170,431 5,511,032
Other Securities 5,529,844 27,769 18,379 5,539,234
----------- ---------- -------- -----------
TOTAL $30,325,121 $2,999,343 $208,517 $33,115,947
=========== ========== ======== ===========
Securities Held to Maturity:
Other Securities $1,977,044 $- $- $1,977,044
========== == == ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
----------------------------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasury Securities $3,989,754 $15,733 $12,675 $3,992,812
Obligations of Other U.S. Government Agencies 8,752,786 52,731 15,770 8,789,747
Obligations of States and Political Subdivisions 7,514,517 112,688 53 7,627,152
Marketable Equities 1,591,809 2,514,906 - 4,106,715
Other Securities 5,472,006 23,273 24,206 5,471,073
----------- ---------- ------- -----------
TOTAL $27,320,872 $2,719,331 $52,704 $29,987,499
=========== ========== ======= ===========
Securities Held to Maturity:
- ---------------------------
Obligations of States and Political Subdivisions $1,628,598 $51,926 $- $1,680,524
Other Securities 995,087 - - 995,087
---------- ------- ------- ----------
TOTAL $2,623,685 $51,926 $- $2,675,611
========== ======= ======= ==========
</TABLE>
Loans
Penn Laurel grants commercial loans, residential mortgages, and consumer
loans to customers located primarily within Central Pennsylvania. Loans grew
$9,489,316 or 11.6% from $81,879,858 at December 31, 1997 to $91,369,174 at
December 31, 1998. The growth was primarily the result of an increase in real
estate related loans.
-105-
<PAGE>
Major classifications of loans are summarized as follows at December 31,
1998 and 1997:
December 31,
------------------------------
1998 1997
------------ ------------
Commercial, financial and agricultural $ 26,472,381 $ 25,956,075
Real Estate 35,200,147 28,608,637
Installment 30,739,970 28,861,122
------------ ------------
92,412,498 83,425,834
Unearned discount (271,846) (757,169)
------------ ------------
92,140,652 82,668,665
Allowance for loan losses (771,478) (788,807)
------------ ------------
$ 91,369,174 $ 81,879,858
============ ============
A loan is generally classified as nonaccrual when principal or interest has
consistently been in default for a period of 90 days or more or because of a
deterioration in the financial condition of the borrower or payment in full of
principal or interest is not expected. Delinquent loans past due 90 days or more
and still accruing interest are generally well-secured and expected to be
restored to a current status in the near future. The following table details
those loans that were placed on nonaccrual status or were delinquent 90 days or
more and still accruing interest:
December 31
-------------------------
(Dollars in thousands) 1998 1997
---- ----
Nonaccrual loans $121 $501
Delinquent loans 27 210
---- ----
Total $148 $711
==== ====
Allowance for Possible Loan Losses
The allowance for possible loan losses of $771,000 at December 31, 1998 was
.84% of loans, compared to .95% of loans at December 31, 1997. This decrease is
primarily due to the increase in the volume of loans.
A summary of the allowance for loan losses is as follows:
-106-
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Average loans $87,244 $80,163 $74,184 $68,383 $60,186
======= ======= ======= ======= =======
Allowance, beginning of period $ 789 $ 721 $ 723 $ 638 $ 516
------- ------- ------- ------- -------
Loans charged off:
Commercial, financial and agricultural 177 10 142 22 18
Installment 293 381 209 153 77
Real estate - residential 16 9 145 1 121
------- ------- ------- ------- -------
Total loans charged off 486 400 496 176 216
------- ------- ------- ------- -------
Recoveries:
Commercial, financial and agricultural 76 65 149 46 18
Installment 56 103 100 53 26
Real estate - residential 17 0 13 1 116
------- ------- ------- ------- -------
Total recoveries 149 168 262 100 160
------- ------- ------- ------- -------
Net loans charged off 337 232 234 76 56
Provision for loan losses 319 300 232 161 178
Allowance, end of period $ 771 $ 789 $ 721 $ 723 $ 638
======= ======= ======= ======= =======
Ratio of net charge offs to average loans outstanding 0.39% 0.29% 0.32% 0.11% 0.09%
======= ======= ======= ======= =======
</TABLE>
The provision for loan losses is based upon a credit review of the loan
portfolio, past loan loss experience, current economic conditions and other
pertinent factors which form a basis for determining the adequacy of the
allowance for possible loan losses. In the opinion of management, the aggregate
amount reserved is deemed to be adequate to absorb future loan losses.
Transactions in the allowance for possible loan losses account for the
years ended December 31, 1998 and 1997 are summarized as follows:
December 31,
-------------------
(Dollars in thousands) 1998 1997
------ ------
Beginning balance $ 789 $ 721
Provision charged to operations 319 300
Recovery of loans previously charged off 149 168
------ ------
1,257 1,189
Loans charged off 486 400
------ ------
Ending balance $ 771 $ 789
====== ======
-107-
<PAGE>
Penn Laurel premises and equipment are summarized as follows at
December 31, 1998 and 1997:
December 31,
---------------
(Dollars in thousands) 1998 1997
------ ------
Land $ 471 $ 519
Buildings 1,770 1,744
Furniture & Equipment 2,104 2,004
------ ------
4,345 4,267
Less accumulated depreciation 2,464 2,283
------ ------
Penn Laurel premises and equipment, net $1,881 $1,984
====== ======
Deposits
Total deposits of $113,845,000 at December 31, 1998 were $8,258,000, or
7.8% higher than at December 31, 1997. This increase is primarily the result of
increases in non-interest bearing deposits, interest-bearing checking deposits,
money market deposits and time deposits. These increases were partially offset
by a decrease in savings deposits.
The following table is a distribution of average balances and average rates
paid on the deposit categories for December 31, 1998 and 1997.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1998 1997
-------------------- -------------------
(Dollars in thousands) Amount Rate Amount Rate
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Noninterest-bearing $8,863 -% $8,851 -%
Interest-bearing checking
accounts 17,244 2.37% 16,484 2.39%
Money market accounts 7,509 4.58% 5,843 4.60%
Savings 15,731 2.91% 16,706 2.87%
Time--under $100,000 51,893 5.74% 49,209 5.75%
Time-over $100,000 9,150 5.75% 7,556 5.87%
Total $110,390 $104,649
======== ========
</TABLE>
A maturity distribution of certificates of deposit of $100,000 and over is
as follows:
-108-
<PAGE>
December 31,
-------------------------
(Dollars in thousands) 1998 1997
------ ------
Three months or less $1,791 $1,899
Over three months to six months 3,825 1,705
Over six months to twelve months 2,230 432
Over twelve months 2,053 4,164
----- -----
Total $9,899 $8,200
====== ======
Deposits are summarized as follows at December 31, 1998 and 1997:
(Dollars in thousands) December 31,
-------------------------
1998 1997
-------- --------
Noninterest-bearing $ 9,734 $ 8,000
Interest-bearing checking accounts 17,281 17,082
Money market accounts 8,301 6,672
Savings 15,128 15,884
Time, under $100,000 53,502 49,749
Time, over $100,000 9,899 8,200
-------- --------
Total Deposits $113,845 $105,587
======== ========
Capital
Quantitative measures established by regulation to ensure capital adequacy
require the maintenance of minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets. Management believes, as of December 31, 1998
that Penn Laurel meets all capital adequacy requirements.
The minimum for the Tier 1 ratio is 4.0%, and the total capital ratio (Tier
1 plus Tier 2 capital divided by risk-adjusted assets) minimum is 8.0%. At
December 31, 1998, Penn Laurel's Tier 1 risk-adjusted capital ratio was 11.35%
and the total risk-adjusted capital ratio was 12.50%, both well above the
regulatory requirements.
December 31,
-------------------
1998 1997
------ ------
Tier 1 Capital Ratio 11.35% 12.39%
Total Capital Ratio 12.50% 13.31%
Leverage Ratio 9.30% 7.53%
-109-
<PAGE>
Results of Operations
Consolidated net income at December 31, 1998 was $1,282,000 or 3.03% below
December 31, 1997. The decrease in net income is the result of higher operating
expenses experienced during 1998. The December 31, 1997 net income of $1,322,000
was 20.5% higher than the December 31, 1996 net income of $1,097,000. This
increase was the result of a higher net interest income. The December 31, 1996
net income is 6.20% higher than the net income at December 31, 1995 of
$1,033,000. This increase was the result of higher interest income.
On January 1, 1998, Penn Laurel adopted the Financial Accounting Standards
Board issued SFAS No. 130 "Reporting Comprehensive Income." Comprehensive income
is the change in equity of a business enterprise during a period from
transactions and other events and circumstances from on-owner sources. Other
comprehensive income consists of net unrealized gains on investment securities
available for sale. Subsequent to the adoption date, all prior-period amounts
are required to be restated to conform to the provisions of SFAS No. 130.
Comprehensive income for December 31, 1998 and 1997 was ($55,622) and $1,046,717
respectively.
Net Interest Income
Net interest income at December 31, 1998 of $5,146,000 was 4% higher than
the December 31, 1997 net interest income of $4,949,000. This increase was the
result of a 8% increase in earning assets during this period. Partially
offsetting this increase was a reduction in the net interest margin. The net
interest margin for December 31, 1998 and 1997 was 4.48% and 4.64% respectively.
This reduction in the net interest margin was due to both a decrease in the
yield on average earning assets and an increase in the interest rate paid on
deposits and borrowings.
For analytical purposes, the following table reflects tax-equivalent net
interest income in recognition of the income tax savings on tax-exempt items
such as interest on municipal securities and tax-exempt loans. Adjustments are
made using a statutory federal tax rate of 34%.
December 31,
------------------------
(Dollars in thousands) 1998 1997 1996
------ ------ ------
Interest income $9,973 $9,375 $8,536
Interest expense 4,827 4,426 3,961
------ ------ ------
Net interest income 5,146 4,949 4,575
Tax equivalent adjustment 274 232 221
------ ------ ------
Net interest income
(fully taxable equivalent) $5,420 $5,181 $4,796
====== ====== ======
-110-
<PAGE>
<TABLE>
<CAPTION>
1998 over (under) 1997 1997 over (under) 1996
due to changes in due to changes in
---------------------------- ------------------------------
(Dollars in Net Net
thousands) Change Rate Volume Change Rate Volume
------ ---- ------ ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Investment
securities (1) $14 $(91) $105 $104 $5 $99
Loans (1) 629 (18) 647 727 190 537
Other assets (3) (3) - 19 5 14
---- ----- ---- ---- ---- ----
Total 640 (112) 752 850 200 650
---- ----- ---- ---- ---- ----
Interest Expense:
Savings deposits 67 35 32 33 10 23
Time deposits 237 (11) 248 470 - 470
Borrowings and
other interest-
bearing liabilities 97 (2) 99 (38) - (38)
Total 401 22 379 465 10 455
---- ----- ---- ---- ---- ----
Changes in net
interest income $239 (134) $373 $385 $190 $195
==== ===== ==== ==== ==== ====
</TABLE>
- --------------------
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
Provision for Loan Losses
The provision for loan loss increased by $19,000 to $319,000 for 1998. The
provision for loan loss for 1997 was $300,000 and $232,000 for 1996. Net
charge-offs for 1998 and 1997 was $337,000 and $232,000 respectively.
Other Income
Other income for 1998 of $1,247,000 was $661,000 higher than
the 1997 other income of $586,000. This increase was primarily due to security
gains, ATM surcharges and increased fees on NSF checks. Other income for 1997 of
$586,000 was 13.4% higher than the $517,000 for 1996 and was 3.7% higher than
the $565,000 other income for 1995.
-111-
<PAGE>
Other Operating Expenses
Other operating expenses of $4,365,000 was $900,000 higher than the 1997
other operating expenses of $3,465,000. This increase was the result of higher
salaries, wages, employee benefits and other expenses. Other operating expenses
for 1997 of $3,465,000 was 1.8% higher than the $3,404,000 for 1996 and was 4.8%
than the $3,306,000 for 1995.
-112-
<PAGE>
ADJOURNMENT OF THE MEETING
If there are not enough votes at the meeting to approve the agreement, the
companies' Boards of Directors intend to adjourn the meetings to a later date to
permit further solicitation of votes in favor of the agreement. The affirmative
vote of a majority of the shares present is required in order to approve any
such adjournment. At the meeting, management will announce the place and date to
which the meeting would be adjourned. It is not be necessary to give any notice
of the time and place of the adjourned meeting other than the announcement at
the meeting.
The Clearfield Board of Directors and the Penn Laurel Board of Directors
recommend that you vote "FOR" the proposal to adjourn the meeting if necessary
to permit further solicitation of proxies to approve the agreement.
EXPERTS
The consolidated financial statements of Penn Laurel Financial Corp. and
subsidiaries as of December 31, 1998, and 1997, and for each of the years in the
three-year period ended December 31, 1998, included in this proxy statement have
been audited by Walter Hopkins & Company, independent certified public
accountants, as indicated in its reports with respect to the financial
statements and are included in reliance upon the authority of the firm as
experts in accounting and auditing.
The financial statements of Clearfield as of December 31, 1998, 1997 and
1996, included in this proxy statement/prospectus have been audited by Young,
Oakes, Brown & Company, P.C., independent public accountants, as indicated in
its reports with respect to the financial statements, and are included in
reliance upon the authority of the firm as experts in accounting and auditing.
LEGAL OPINIONS
The legality of the shares of Penn Laurel Financial Corp. common stock to
be issued in connection with the merger and certain other legal matters relating
to the transaction will be passed upon by the law firm of Shumaker Williams,
P.C., Camp Hill, Pennsylvania, Special Counsel to Penn Laurel Financial Corp.
OTHER MATTERS
Neither Clearfield's Board of Directors nor Penn Laurel's Board of
Directors knows of matters, other than those discussed in this proxy
statement/prospectus, that will be presented at the meeting. However, if any
other matters are properly brought before the meeting
-113-
<PAGE>
and any adjournment thereof, any proxy given pursuant to this solicitation will
be voted in accordance with the recommendations of the management of the
company.
AVAILABLE INFORMATION
Neither Clearfield nor Penn Laurel is subject to the information
requirements of the Exchange Act. Neither Clearfield common stock nor Penn
Laurel common stock is authorized for quotation on the Nasdaq or on any stock
exchange, but trades on a limited basis in the over-the-counter market and is
quoted and transactions are reported on the OTC Bulletin Board and in privately
negotiated transactions.
This proxy statement/prospectus forms a part of a Registration Statement
that Penn Laurel has filed with the Commission under the Securities Act of 1933,
with respect to the Penn Laurel common stock that Penn Laurel intends to issue
in the merger. This proxy statement/prospectus does not contain all of the
information in the Registration Statement. The Commission's rules and
regulations permit omission of certain information. You may inspect and copy the
Registration Statement, including any amendments and exhibits at the executive
offices of Penn Laurel Financial Corp. at 434 State Street, Curwensville,
Pennsylvania. Statements contained in this proxy statement/prospectus as to the
contents of any contract or other document are not necessarily complete. We
refer you to the copy of the contract or other document, filed as an exhibit to
the Registration Statement. We also qualify our discussions by these documents.
All information which relates to Clearfield has been provided or verified
by Clearfield. All information in this proxy statement/prospectus that relates
to Penn Laurel Financial Corp. has been provided or verified by Penn Laurel
Financial Corp.
-114-
<PAGE>
CLEARFIELD BANK & TRUST COMPANY
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY FINANCIAL INFORMATION
Page
----
Selected Financial Data and Pro Forma Information 14
Management's Discussion and Analysis 85
YEARS ENDED DECEMBER 31, 1998 AND 1997
Independent Auditor's Report F-2
Consolidated Statement of Condition F-3
Consolidated Statement of Income F-4
Consolidated Statement of Changes in Stockholders' Equity F-5
Consolidated Statement of Cash Flows F-6
Notes to Financial Statements F-7
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Clearfield Bank & Trust Company
We have audited the accompanying consolidated statements of condition of the
Clearfield Bank & Trust Company as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Bank's
Management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by Management, as well as, evaluating the overall
consolidated 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 the Clearfield Bank
& Trust Company as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Young, Oakes, Brown & Company, P.C.
Altoona, Pennsylvania
January 21, 1999
F-2
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Consolidated Statement of Condition
As of December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
Assets
- ------
<S> <C> <C>
Cash and Balances Due from Banks $ 8,710,713 $ 5,269,635
Interest Bearing Deposits with Banks 100,887 49,873
Federal Funds Sold 3,481,000 2,700,000
Investment Securities Available for Sale 37,787,413 35,520,396
Investment Securities to be Held to Maturity 12,974,070 22,169,841
Loans $ 119,978,900 $ 107,442,758
Less: Unearned Income (5,289,816) (4,867,671)
Allowance for Possible Loan Losses (1,100,181) (1,096,771)
- -----------------------------------------------------------------------------------------------------------------------
Net Loans $ 113,588,903 $ 101,478,316
- -----------------------------------------------------------------------------------------------------------------------
Bank Premises and Equipment $ 5,256,610 $ 5,211,599
Accrued Income and Other Assets 2,803,214 2,715,273
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $ 184,702,810 $ 175,114,933
=======================================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
Demand Deposits $ 20,578,680 $ 18,437,260
Savings and NOW Deposits 55,471,804 53,253,319
Time Deposits 86,755,830 81,560,779
- -----------------------------------------------------------------------------------------------------------------------
Total Deposits $ 162,806,314 $ 153,251,358
Other Borrowed Money - 0 - 1,000,000
Accrued Expense and Other Liabilities 1,534,470 1,585,707
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities $ 164,340,784 $ 155,837,065
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common Stock (Par Value $1.5625)
Authorized 617,600 Shares: Issued and Outstanding
576,809 Shares $ 901,264 $ 901,264
Surplus 3,500,000 3,500,000
Undivided Profits 15,580,292 14,604,711
Accumulated Other Comprehensive Income 380,470 271,893
- -----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity $ 20,362,026 $ 19,277,868
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 184,702,810 $ 175,114,933
=======================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-3
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Consolidated Statement of Income
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Interest Income 1998 1997 1996
- --------------- ---- ---- ----
<S> <C> <C> <C>
Interest and Fees on Loans $ 8,976,633 $8,260,244 $6,558,305
Interest on Investment Securities Available for Sale 2,220,559 2,503,801 2,340,232
Interest on Investment Securities to be Held to Maturity 830,690 1,119,289 1,505,570
Interest on Federal Funds Sold 119,529 71,784 64,700
Interest on Deposits with Banks 17,973 2,251 2,571
- ------------------------------------------------------------------------------------------------------------------------
Total Interest Income $12,165,384 $11,957,369 $10,471,378
- ------------------------------------------------------------------------------------------------------------------------
Interest Expense
Interest on Deposits:
Savings and NOW Deposits $ 1,457,299 $2,104,243 $2,070,102
Time Deposits 4,499,361 3,643,082 2,944,754
- ------------------------------------------------------------------------------------------------------------------------
Total Interest on Deposits $ 5,956,660 $5,747,325 $5,014,856
- ------------------------------------------------------------------------------------------------------------------------
Interest on Federal Funds Purchased $6,333 $80,496 $8,938
Interest on Other Borrowed Money 22,509 37,776 - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Total Interest Expense $ 5,985,502 $5,865,597 $5,023,794
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income $ 6,179,882 $6,091,772 $5,447,584
Provision for Possible Loan Losses (341,000) (257,000) (140,000)
- ------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for
Possible Loan Losses $ 5,838,882 $5,834,772 $5,307,584
- ------------------------------------------------------------------------------------------------------------------------
Other Income
Income from Fiduciary Activities $ 456,342 $435,278 $402,000
Service Charges on Deposit Accounts 333,782 304,012 265,175
Net Realized Gains (Losses) on Sales of Investment
Securities Available for Sale 7,343 36,797 (6,497)
Other Operating Income 220,670 195,895 175,739
- ------------------------------------------------------------------------------------------------------------------------
Total Other Income $ 1,018,137 $971,982 $836,417
- ------------------------------------------------------------------------------------------------------------------------
Other Expense
Salaries and Wages $ 1,927,756 $1,789,731 $1,516,115
Pension, Profit Sharing and Other Employee Benefits 922,763 890,300 829,113
Net Occupancy Expense 470,604 437,138 389,784
Furniture and Equipment Expense 447,015 341,334 312,364
Other Operating Expense 608,186 1,030,876 770,660
- ------------------------------------------------------------------------------------------------------------------------
Total Other Expense $ 4,376,324 $4,489,379 $3,818,036
- ------------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes $ 2,480,695 $2,317,375 $2,325,965
Applicable Income Taxes 559,148 526,910 544,758
- ------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,921,547 $1,790,465 $1,781,207
========================================================================================================================
Earnings Per Share: Based on Average Shares Outstanding
Earnings Before Taxes $ 4.30 $4.01 $4.03
Applicable Income Taxes 0.97 0.91 0.94
Net Earnings $ 3.33 $3.10 $3.09
========================================================================================================================
Cash Dividends Declared $ 1.64 $1.61 $1.57
========================================================================================================================
The accompanying notes are an integral part of financial statements.
</TABLE>
F-4
<PAGE>
Clearfield Bank & Trust Company
- ------------------------------------------------------------------------------
Consolidated Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Undivided Comprehensive Stockholders'
Stock Surplus Profits Income Equity
-------- ---------- ----------- ------------- -------------
Balance - January 1, 1996 $901,264 $3,500,000 $12,867,291 $331,436 $17,599,99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 Additions (Deductions):
Comprehensive Income
Net Income - 0 - - 0 - 1,781,207 - 0 - 1,781,207
Unrealized Gains/Losses
Net of Income Taxes of ($10,142) - 0 - - 0 - - 0 - (311,748) (311,748)
- --------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $1,469,459
- -------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
($1.57 Per Share) - 0 - - 0 - (905,590) - 0 - (905,590)
- --------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1996 $901,264 $3,500,000 $13,742,908 $19,688 $18,163,860
- --------------------------------------------------------------------------------------------------------------------
1997 Additions (Deductions):
Comprehensive Income
Net Income - 0 - - 0 - 1,790,465 - 0 - 1,790,465
Unrealized Gains/Losses
Net of Income Taxes of ($140,066) - 0 - - 0 - - 0 - 252,205 252,205
- -------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $2,042,670
- -------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
($1.61 Per Share) - 0 - - 0 - (928,662) - 0 - (928,662)
- -------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1997 $901,264 $3,500,000 $14,604,711 $271,893 $19,277,868
- -------------------------------------------------------------------------------------------------------------------
1998 Additions (Deductions):
Comprehensive Income
Net Income - 0 - - 0 - 1,921,547 - 0 - 1,921,547
Unrealized Gains/Losses
Net of Income Taxes
of ($196,000) - 0 - - 0 - - 0 - 108,577 108,577
- --------------------------------------------------------------------------------------------------------------------
Total Comprehensive Income $2,030,124
- --------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
($1.64 Per Share) - 0 - - 0 - (945,966) - 0 - (945,966)
- --------------------------------------------------------------------------------------------------------------------
Balance - December 31, 1998 $901,264 $3,500,000 $15,580,292 $380,470 $20,362,026
===================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-5
<PAGE>
Clearfield Bank & Trust Company
- ------------------------------------------------------------------------------
Consolidated Statement of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Cash Flows from Operating Activities: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Income $1,921,547 $1,790,465 $1,781,207
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 452,577 354,976 262,041
Provision for Possible Loans Losses 341,000 257,000 140,000
Deferred Income Taxes 8,305 (41,916) (50,456)
Net Realized (Gains) Losses on Investment Securities
Available for Sale (7,343) (36,797) 6,497
Net Amortization of Premiums (Accretion
of Discounts) on Investment Securities (11,471) 25,474 65,135
(Increase) Decrease in Accrued Income
and Other Assets (230,511) (24,576) (125,527)
Increase (Decrease) in Accrued Expense
and Other Liabilities (51,237) 189,101 38,475
- --------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities $2,422,867 $2,513,727 $2,117,372
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Net (Increase) Decrease in Interest Bearing
Deposits with Banks ($51,014) ($17,074) $21,862
Net (Increase) Decrease in Federal Funds Sold (781,000) (2,700,000) 4,900,000
Purchases of Investment Securities Available for Sale (15,481,866) (7,533,892) (13,004,106)
Proceeds from Sales of Investment Securities
Available for Sale - 0 - 3,036,797 4,157,188
Proceeds from Maturities of Investment Securities
Available for Sale 13,383,944 10,743,759 8,577,366
Purchases of Investment Securities to be Held
to Maturity - 0 - - 0 - (1,374,901)
Proceeds from Maturities of Investment Securities
to be Held to Maturity 9,210,000 340,000 1,000,000
Net (Increase) Decrease in Loans (12,451,587) (13,516,197) (16,221,696)
Purchases of Premises and Equipment (419,256) (1,138,197) (178,680)
Purchases of Goodwill from Branch Acquisition - 0 - (1,174,959) - 0 -
- -------------------------------------------------------------------------------------------------------------------
Net Cash Used by Investing Activities ($6,590,779) ($11,959,763) ($12,122,967)
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Increase (Decrease) in Demand Deposits,
Savings and NOW Accounts $4,359,905 $826,455 $2,521,059
Net Increase (Decrease) in Time Deposits 5,195,051 12,025,453 5,165,047
Net Increase (Decrease) in Federal Funds Purchased - 0 - (2,700,000) 2,700,000
Net Increase (Decrease) in Other Borrowed Money (1,000,000) 1,000,000 - 0 -
Cash Dividends Paid (945,967) (922,894) (899,822)
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities $7,608,989 $10,229,014 $9,486,284
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash and Due from Banks $3,441,077 $782,978 ($519,311)
Cash and Due from Banks at the Beginning of the Year 5,269,636 4,486,657 5,005,968
- -------------------------------------------------------------------------------------------------------------------
Cash and Due from Banks at the End of the Year $8,710,713 $5,269,635 $4,486,657
====================================================================================================================
Supplemental Disclosures:
Income Taxes Paid $590,000 $552,038 $615,407
====================================================================================================================
Interest Paid $6,016,706 $5,759,569 $5,020,671
===================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-6
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
Nature of Operations: The Bank provides a variety of financial services to
individual and corporate customers through its branches in Clearfield,
Curwensville, DuBois and Philipsburg, Pennsylvania. The Bank provides a full
range of banking services including interest bearing checking accounts and
certificates of deposits. The primary lending products are real estate
mortgages, installment loans and commercial business loans.
Basis for Financial Reporting and Accounting Estimates: The accounting policies
of the Bank and its wholly-owned subsidiary conform with generally accepted
accounting principles. In preparing the accompanying financial statements,
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements include the
accounts of the Clearfield Bank & Trust Company and its wholly-owned subsidiary,
Diamond Financial Services. All significant intercompany transactions and
balances have been eliminated in consolidation.
Cash and Balances Due from Banks: Cash and Balances Due from Banks represents
cash in the vault and balances held with correspondent banks.
Investment Securities: The classification of investment securities is determined
at the time of purchase and reevaluated periodically. Investment securities are
classified as to be held to maturity based on Management's positive intent and
ability to hold such securities to maturity. Held to maturity securities are
reported at cost, adjusted for amortization of premiums and accretion of
discounts.
Investment securities available for sale are those securities that
Management intends to hold for an indefinite period of time but not necessarily
to maturity. Available for sale securities are stated at market value, with
unrealized holding gains and losses, net of taxes, reported as a separate
component of stockholders' equity. The amortization of premiums and accretion of
discounts are recognized in interest income.
Realized gains and losses, determined on the basis of the cost of specific
securities sold, and declines in value judged to be more than temporary are
included in net realized gains (losses) on sale of investment securities
available for sale.
Allowance for Possible Loan Losses: The allowance is maintained at a level
adequate to absorb probable losses in the loan portfolio. Management determines
the adequacy of the allowance based upon a continuing review of individual
loans, recent loss experience, current economic conditions, the risk
characteristics of the various categories of loans and other pertinent factors.
Loans deemed uncollectible are charged off and deducted from the allowance.
Provision for loan losses and recoveries on loans previously charged off
are added to the allowance. Because of uncertainties inherent in the estimation
process, Management's estimate of credit losses, inherent in the loan portfolio
and the related allowance, may change in the near term.
Premises and Equipment: Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation is computed on the
straight-line method for financial reporting. Depreciation for tax purposes is
computed using the applicable permissible Internal Revenue methods. The cost of
maintenance and repairs is charged to operating expenses as incurred, and the
cost of major additions and improvements is capitalized.
Goodwill: In 1997, the Bank acquired the Mid-State Bank's Clearfield Community
Office including all deposits, equipment and real estate. Acquisition costs
exceeded the fair value of net assets by $1,174,959. This amount of goodwill is
being amortized using the straight-line method over fifteen years for both book
and tax purposes. Amortization expense was $78,331 and $65,276 for 1998 and
1997, respectively.
Other Real Estate Owned (OREO): Other Real Estate Owned represents properties
acquired through foreclosure or other proceedings and is initially recorded at
the lower of cost or fair market valued at the date acquired in Accrued Income
and Other Assets on the consolidated statement of condition. Losses arising at
the time of the acquisition of such properties are charged against the allowance
for possible loan losses. Revenue and expenses from the operation of OREO and
changes in value are charged to other operating expense.
Interest Income on Loans: Interest on loans is accrued and credited to income
based upon the principal amount outstanding.
The accrual of interest on loans is discontinued when, in the opinion of
Management, there is an indication that the borrower may be unable to meet
payments as they become due. When a loan is placed in non-accrual status, all
interest previously accrued but not collected is reversed against current period
income. Income on such loans is then recognized only to the extent that cash is
received.
F-7
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
Loan Origination Fees and Costs: Loan origination fees and certain direct loan
origination costs are capitalized and recognized over the life of the related
loan as an adjustment to interest income.
Income Taxes: Provisions for income taxes are based on amounts reported in the
consolidated statement of income (after exclusion of nontaxable income such as
interest on state and municipal securities) and include deferred income taxes on
temporary differences in the recognition of income and expense for tax and
financial statement purposes. Deferred tax assets and liabilities are included
in the consolidated financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled as prescribed in Financial Accounting
Standards Board Statement of Financial Accounting Standard (FASB) Number 109,
"Accounting for Income Taxes." As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes.
Charitable Contributions: In accordance with Financial Accounting Standards
Board Statement of Financial Accounting Standard (FASB) Number 116, "Accounting
for Contributions Received and Contributions Made,"the Bank has reflected as an
expense and corresponding liability any unpaid unconditional promise to give in
the period made at their fair value.
Earnings Per Common Share: Earnings per common share is computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the period.
Reclassification: Certain prior year amounts have been reclassified to conform
with the 1998 presentation.
Trust Assets and Income: Assets of the Trust Department, other than cash on
deposit for its customers, are not included in the consolidated financial
statements since such items are not assets of the Bank. Income from the Trust
Department is reported on the cash basis, which is not materially different from
the accrual basis.
2. Investment Securities:
The aggregate book and market values of all Investment Securities as of
December 31, were:
<TABLE>
<CAPTION>
Investment Securities Available for Sale- Book Market Unrealized Unrealized
December 31, 1998 Value Value Gain Loss
----- ----- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities $6,801,683 $6,966,164 $164,481 $ - 0 -
U.S. Government Agencies and Corporations 16,493,352 16,528,080 99,772 65,044
Mortgage Backed Securities-U.S. Government 1,130,687 1,154,303 23,616 - 0 -
State and Municipal Securities 11,591,072 11,924,816 333,744 - 0 -
State and Municipal Securities - Taxable 605,000 624,900 19,900 - 0 -
Other Securities 589,150 589,150 - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Securities Available for Sale $37,210,944 $37,787,413 $641,513 $65,044
=========================================================================================================================
Investment Securities to be Held to Maturity- Book Market Unrealized Unrealized
December 31, 1998 Value Value Gain Loss
----- ----- ---- ----
U.S. Treasury Securities $1,001,796 $1,010,310 $8,514 $ - 0 -
U.S. Government Agencies and Corporations 8,999,202 8,753,870 - 0 - 245,332
Mortgage Backed Securities-U.S. Government - 0 - - 0 - - 0 - - 0 -
State and Municipal Securities 2,973,072 3,025,427 52,355 - 0 -
State and Municipal Securities - Taxable - 0 - - 0 - - 0 - - 0 -
Other Securities - 0 - - 0 - - 0 - - 0 -
- -------------------------------------------------------------------------------------------------------------------------
Total Investment Securities to be Held to
Maturity $12,974,070 $12,789,607 $60,869 $245,332
================================================== ================ ================= ================= ================
</TABLE>
F-8
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Investment Securities Available for Sale - Book Market Unrealized Unrealized
December 31, 1997 Value Value Gain Loss
----- ----- ---- ----
<S> <C> <C> <C> <C>
U.S. Treasury Securities $8,832,183 $8,926,918 $95,265 $530
U.S. Government Agencies and Corporations 15,475,660 15,480,470 102,411 97,601
Mortgage Backed Securities-US Government 1,593,263 1,634,499 41,236 - 0 -
State and Municipal Securities 8,051,831 8,306,809 254,978 - 0 -
State and Municipal Securities - Taxable 605,000 621,200 16,200 - 0 -
Other Securities 550,500 550,500 - 0 - - 0 -
- -------------------------------------------------------------------------------------------------------------------------
Total Investment Securities Available for Sale $35,108,437 $35,520,396 $510,090 $98,131
=========================================================================================================================
=========================================================================================================================
Investment Securities to be Held to Maturity - Book Market Unrealized Unrealized
December 31, 1997 Value Value Gain Loss
----- ----- ---- ----
U.S. Treasury Securities $1,004,073 $1,005,630 $1,557 $ - 0 -
U.S. Government Agencies and Corporations 14,498,110 13,994,175 3,630 507,565
Mortgage Backed Securities-US Government - 0 - - 0 - - 0 -
State and Municipal Securities 6,667,658 6,732,671 65,112 99
State and Municipal Securities - Taxable - 0 - - 0 - - 0 - - 0 -
Other Securities - 0 - - 0 - - 0 - - 0 -
- -------------------------------------------------------------------------------------------------------------------------
Total Investment Securities to be Held to
Maturity $22,169,841 $21,732,476 $70,299 $507,664
=========================================================================================================================
</TABLE>
Securities with a book value of $9,298,539 and $9,316,187, as of
December 31, 1998 and 1997, respectively, were pledged as collateral for public
and trust funds and for other purposes required by law.
Gross realized gains and losses on sale of investment securities available
for sale for the three years ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Gross Realized Gains: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. Treasury Securities $- 0 - $ - 0 - $ - 0 -
U.S. Government Agencies and Corporations - 0 - 10,313 - 0 -
Mortgage Backed Securities-U.S. Government - 0 - - 0 - - 0 -
State and Municipal Securities - 0 - - 0 - 5,815
State and Municipal Securities - Taxable 7,343 34,297 - 0 -
Other Securities - 0 - - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Gross Realized Gains $7,343 $44,610 $5,815
========================================================================================================================
Gross Realized Losses: 1998 1997 1996
---- ---- ----
U.S. Treasury Securities $ - 0 - $ - 0 - $12,312
U.S. Government Agencies and Corporations - 0 - 7,813 - 0 -
Mortgage Backed Securities-U.S. Government - 0 - - 0 - - 0 -
State and Municipal Securities - 0 - - 0 - - 0 -
State and Municipal Securities - Taxable - 0 - - 0 - - 0 -
Other Securities - 0 - - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Gross Realized Losses $ - 0 - $7,813 $12,312
- ------------------------------------------------------------------------------------------------------------------------
Net Realized Gains (Losses) on Sale of
Investment Securities Available for Sale $7,343 $36,797 ($6,497)
=================================================== ==================== ======================== ====================
</TABLE>
In 1998 and 1997 the Bank received a distribution from the Taxable
Municipal Bond Securities Litigation Settlement Fund. The Gross Realized Gains
on State and Municipal Securities - Taxable represents this recovery of an
amount previously reported as a Gross Realized Loss.
F-9
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The following presentation summarizes the maturities of the investment
security portfolio as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998
----
Investment Securities to be Investment Securities
Held to Maturity Available for Sale
---------------- ------------------
Book Market Book Market
Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Due in One Year or Less $2,585,740 $2,581,842 $3,595,536 $3,614,162
Due from One Year to Five Years 7,999,922 7,769,381 16,392,569 16,539,044
Due from Five Years to Ten Years 1,012,431 1,022,269 10,540,334 10,769,095
Due After Ten Years 1,375,977 1,416,115 6,682,505 6,865,112
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Securities $12,974,070 $12,789,607 $37,210,944 $37,787,413
========================================================================================================================
1997
----
Investment Securities to be Investment Securities
Held to Maturity Available for Sale
---------------- ------------------
Book Market Book Market
Value Value Value Value
----- ----- ----- -----
Due in One Year or Less $1,798,904 $1,781,328 $4,158,024 $4,141,515
Due from One Year to Five Years 10,531,741 10,220,695 13,604,684 13,747,854
Due from Five Years to Ten Years 7,015,653 6,870,282 9,988,689 10,104,487
Due After Ten Years 2,823,543 2,860,171 7,357,040 7,526,540
- ------------------------------------------------------------------------------------------------------------------------
Total Investment Securities $22,169,841 $21,732,476 $35,108,437 $35,520,396
========================================================================================================================
</TABLE>
3. Loans
The composition of the loan portfolio as of December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial Loans $45,852,465 38.2% $37,462,026 34.9%
Consumer Loans 32,803,200 27.3% 30,978,749 28.8%
Real Estate Loans 39,190,269 32.7% 37,189,888 34.6%
Home Equity Loans 1,492,853 1.3% 1,542,314 1.4%
Personal Lines of Credit 640,113 0.5% 269,781 0.3%
- ---------------------------------------------------------------------------------------------------------------------------
Total Loans $119,978,900 100.0% $107,442,758 100.0%
===========================================================================================================================
</TABLE>
The following presentation summarizes the maturities of the loan portfolio
as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Due in One Year or Less $11,375,452 $8,512,661
Due from One Year to Five Years 35,408,485 36,689,185
Due from Five Years to Ten Years 33,543,796 34,816,233
Due After Ten Years 39,651,167 27,424,679
- ------------------------------------------------------------------------------------------------------------------------
Total Loans $119,978,900 $107,442,758
========================================================================================================================
</TABLE>
F-10
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
4. Non-performing and Past Due Loans:
Non-performing and Past Due Loans as of December 31, were as follows:
<TABLE>
<CAPTION>
Nonaccural Loans: 1998 1997
---- ----
<S> <C> <C>
Commercial Loans $152,275 $40,052
Consumer Loans 73,890 50,830
Real Estate Loans 157,024 96,480
Home Equity Loans 14,056 - 0 -
Personal Lines of Credit - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Total Nonaccrual Loans $397,245 $187,362
Restructured Loans - 0 - - 0 -
- ------------------------------------------------------------------------------------------------------------------------
Total Non-performing Loans $397,245 $187,362
========================================================================================================================
Loans Past Due 90 days or more and still accruing interest $75,304 $247,421
========================================================================================================================
Interest Not Recognized in Operations $7,790 $13,476
========================================================================================================================
</TABLE>
5. Allowance for Possible Loan Losses:
Transactions in the Allowance for Possible Loan Losses for the three years
ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at Beginning of Year $1,096,771 $949,113 $869,142
Amounts Charged Off (363,210) (151,952) (84,751)
Recoveries of Charged Off Loans 25,620 42,610 24,722
- ------------------------------------------------------------------------------------------------------------------------
Net Charged Off ($337,590) ($109,342) ($60,029)
- ------------------------------------------------------------------------------------------------------------------------
Provision Charged to Operating Expense 341,000 257,000 140,000
- ------------------------------------------------------------------------------------------------------------------------
Balance at End of Year $1,100,181 $1,096,771 $949,113
========================================================================================================================
</TABLE>
6. Bank Premises and Equipment:
The composition of the Bank Premises and Equipment accounts as of
December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $791,665 $791,665
Bank Premises and Improvements 5,531,749 5,435,326
Furniture, Fixtures and Equipment 2,213,755 2,225,088
- ------------------------------------------------------------------------------------------------------------------------
Total Cost $8,537,169 $8,452,079
Less: Accumulated Depreciation and Amortization (3,280,559) (3,240,480)
- ------------------------------------------------------------------------------------------------------------------------
Net Bank Premises and Equipment $5,256,610 $5,211,599
========================================================================================================================
</TABLE>
Depreciation expense on Bank Premises and Equipment was $374,307, $289,700,
and $262,041, for 1998, 1997, and 1996, respectively.
7. Accrued Income and Other Assets:
The composition of the Accrued Income and Other Assets account as of
December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Income Earned, Not Collected on Loans $478,176 $427,032
Income Earned, Not Collected on Investments 604,815 746,186
Net Deferred Income Taxes 139,175 203,414
Other Real Estate Owned 23,192 1
Intangible Assets (Net of Amortization) 1,031,353 1,109,684
Other Assets 526,503 228,956
- ----------------------------------------------------------------------------------------------------------------------
Total Accrued Income and Other Assets $2,803,214 $2,715,273
======================================================================================================================
</TABLE>
F-11
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
8. Deposits:
Deposits as of December 31, are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
% of Total % of Total
Amount Deposits Amount Deposits
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Demand Deposits $20,578,680 12.6% $18,437,260 12.0%
- ------------------------------------------------------------------------------------------------------------------------
Savings Deposits $27,156,015 16.7% $25,176,208 16.5%
NOW Accounts 14,242,921 8.8% 13,960,846 9.1%
Insured Money Market Accounts 14,072,868 8.6% 14,116,265 9.2%
- ------------------------------------------------------------------------------------------------------------------------
Total Savings Deposits $55,471,804 34.1% $53,253,319 34.8%
- ------------------------------------------------------------------------------------------------------------------------
Time Deposits with Maturities of:
Less than $100,000
Due in Three Months or Less $9,966,787 6.1% $22,140,356 14.5%
Due from Three Months to Six Months 13,382,332 8.2% 10,148,668 6.6%
Due from Six Months to Twelve Months 15,863,095 9.8% 7,472,208 4.9%
Due from One Year to Two Years 29,416,032 18.1% 28,044,260 18.3%
Due from Two Years to Five Years 4,225,007 2.6% 4,205,452 2.7%
- ------------------------------------------------------------------------------------------------------------------------
Total Time Deposits Less Than $100,000 $72,853,253 44.8% $72,010,944 47.0%
- ------------------------------------------------------------------------------------------------------------------------
Greater Than or Equal to $100,00
Due in Three Months or Less $3,778,790 2.3% $2,802,624 1.8%
Due from Three Months to Six Months 3,725,913 2.3% 672,597 0.4%
Due from Six Months to Twelve Months 1,920,116 1.2% 695,905 0.5%
Due from One Year to Two Years 3,264,048 2.0% 5,152,259 3.4%
Due from Two Years to Five Years 1,213,710 0.7% 226,450 0.1%
- ------------------------------------------------------------------------------------------------------------------------
Total Time Deposits Greater Than or Equal to
$100,000 $13,902,577 8.5% $9,549,835 6.2%
- ------------------------------------------------------------------------------------------------------------------------
Total Time Deposits $86,755,830 53.3% $81,560,779 53.2%
- ------------------------------------------------------------------------------------------------------------------------
Total Deposits $162,806,314 100.0% $153,251,358 100.0%
========================================================================================================================
</TABLE>
9. Other Borrowed Money:
The Bank has lines of credit established with various financial
institutions for overnight funding needs. These lines of credit were $6,500,000
on December 31, 1998 and $9,500,000 on December 31, 1997, with interest payable
at the daily federal funds rate. There were no borrowings as of December 31,
1998 and 1997. Additionally, the Bank has a line of credit with the Federal Home
Loan Bank of Pittsburgh (FHLB) for its overnight funding needs. This line of
credit was $4,081,000 and $3,729,000 on December 31, 1998 and 1997,
respectively. There were no borrowings with the FHLB as of December 31, 1998 and
1997.
The Bank has a long term line of credit established with FHLB of Pittsburgh
with a maximum borrowing capacity of $46,276,000 and $40,246,000 as of December
31, 1998 and 1997, respectively. The Bank is required to maintain certain
eligible assets as collateral. As of December 31, other borrowings with the FHLB
consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Total Federal Home Loan Advance 6.20% due 9/16/99 $ - 0 - $1,000,000
- -------------------------------------------------------------------------------------------------------------------
Total Federal Home Loan Advances - 0 - $1,000,000
===================================================================================================================
</TABLE>
10. Accrued Expense and Other Liabilities:
The composition of the Accrued Expense and Other Liabilities accounts as
of December 31, as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest Accrued and Unpaid on Deposits $686,004 $710,684
Other Expenses Accrued and Unpaid 669,655 684,059
Other Liabilities 178,811 190,964
- -----------------------------------------------------------------------------------------------------------------------
Total Accrued Expense and Other Liabilities $1,534,470 $1,585,707
=======================================================================================================================
</TABLE>
F-12
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
11. Operating Leases:
Certain Bank equipment is leased under various operating leases. Rental
expense was $51,167 for 1998, $51,930 for 1997 and $46,347 for 1996. Future
minimum rental commitments under noncancelable leases are:
<TABLE>
<CAPTION>
Total
Equipment
---------
<S> <C>
1999 $53,972
2000 28,076
2001 6,754
2002 - 0 -
2003 - 0 -
Thereafter - 0 -
- ------------------------------------------------------------------------------------------------------
Total Minimum Rental Commitments $88,802
======================================================================================================
</TABLE>
12. Retirement and Benefit Plans:
PENSION PLAN - The Bank has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of service
and employee's compensation during the three highest consecutive years of
employment. The Bank's funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes. Contributions are
intended to provide not only for benefits attributed to service date, but also
for those expected to be earned in the future.
The following summarizes the components of the net periodic pension cost:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Service Cost - Benefits Earned During the Period $87,318 $84,796
Interest Costs on Projected Benefit Obligation 85,437 84,674
Actual Return on Plan Assets (68,628) (57,166)
Gain / (Loss) Deferral - 0 - - 0 -
Net Amortization and Deferral 12,426 10,575
Pension Obligation Settlements - 0 - - 0 -
- -----------------------------------------------------------------------------------------------------------------------
Net Periodic Pension Cost $116,553 $122,879
=======================================================================================================================
</TABLE>
The following summarizes the plan's funded status and amounts recognized in
the Bank's consolidated statement of financial position as of December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Actuarial Present Value of Benefit Obligations:
Accumulated Benefit Obligation, including Vested Benefits
of $819,563 in 1998 and $657,330 in 1997 ($835,725) $708,006
=======================================================================================================================
Projected Benefit Obligations for Service Rendered to Date ($1,226,097) ($1,163,423)
Plan Assets at Fair Value, Primarily Listed Stocks and U.S. Bonds 1,011,337 802,641
- -----------------------------------------------------------------------------------------------------------------------
Funded Status ($214,760) ($360,782)
Unrecognized Transition Obligation (Asset) 68,692 79,267
Unrecognized Prior Service Cost 29,242 - 0 -
Unrecognized Net (Gain) Loss (26,991) 90,428
- -----------------------------------------------------------------------------------------------------------------------
Net Prepaid Pension Cost (Pension Liability) ($143,817) ($191,087)
=======================================================================================================================
</TABLE>
The actuarial assumptions used in determinating the projected benefit
obligation are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Return on Assets 8.00% 8.00%
Discount Rate 8.00% 8.00%
Salary Scale 4.00% 5.00%
Cost of Living 4.00% 4.00%
</TABLE>
F-13
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
PROFIT SHARING PLAN - Employees become eligible to participate in the profit
sharing plan upon meeting the attained age and service requirements. The annual
contribution to the trust fund established under the plan is authorized by the
Board of Directors. The contribution was $217,134 in 1998, $244,255 in 1997 and
$212,325 in 1996.
POSTRETIREMENT BENEFITS - The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (FASB) Number 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." FASB 106 requires
sponsors of plans that provide certain life and health care benefits to retired
employees to expense the cost of these benefits over the estimated working lives
of those employees, rather than expense the cost as paid.
The Bank shares in the cost of providing certain health care and life
insurance benefits for certain retired employees. These health care benefits may
include the cost of medicare supplement and major medical programs.
Effective December 31, 1994, the Bank adopted FASB 106 by electing to
recognize the entire accrued obligation of retirees into expense. A deferred tax
benefit was also recognized due to the timing difference of this expense for tax
purposes; a tax deduction may be taken only when payments are actually made. The
postretirement benefit for fully eligible and other active plan participants is
being amortized over twenty years.
<TABLE>
<CAPTION>
Accumulated Postretirement Benefit Obligation: 1998 1997
---- ----
<S> <C> <C>
Retirees ($175,032) ($151,435)
Fully Eligible Active Plan Participants (59,851) (103,732)
Other Active Plan Participants (79,331) (87,067)
- -----------------------------------------------------------------------------------------------------------------------
Total Accumulated Postretirement Benefit Obligation (314,214) (342,234)
Unrealized Net Gains (Losses) (21,362) 18,253
Unrecognized Transition Amount 104,388 110,529
- -----------------------------------------------------------------------------------------------------------------------
Accrued Postretirement Cost ($231,188) ($213,452)
=======================================================================================================================
Net Periodic Postretirement Benefit Costs:
Service Cost $15,409 $15,856
Interest Cost on Accumulated Postretirement Benefit Obligation 20,995 22,705
Amortization of Transition Obligation 6,141 6,141
- -----------------------------------------------------------------------------------------------------------------------
Net Periodic Postretirement Benefit Cost $42,545 $44,702
=======================================================================================================================
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.00% and 7.50% as of December 31, 1998 and 1997,
respectively.
13. Income Taxes:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (FASB) Number 109, "Accounting for Income Taxes." FASB 109
requires an asset and liability method of accounting for income taxes.
Under the asset and liability method of FASB 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years whose temporary differences are expected to
be recovered or settled. Under FASB 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Current and deferred income taxes for the years ended December 31,
consists of the following:
<TABLE>
<CAPTION>
Taxes on Operating Income: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred Income Taxes on:
Allowance for Possible Loan Losses ($1,160) ($50,204) ($27,190)
Depreciation and Amortization (346) 27,213 4,074
Loan Origination Fees and Costs (2,163) (6,306) (9,050)
Employee Retirement Benefits 10,041 (10,388) (19,145)
Other 1,933 (2,231) 855
- -----------------------------------------------------------------------------------------------------------------------
Deferred Tax Expense $8,305 ($41,916) ($50,456)
Current Income Taxes 550,843 568,826 595,214
- -----------------------------------------------------------------------------------------------------------------------
Total Tax Expense $559,148 $526,910 $544,758
=======================================================================================================================
</TABLE>
F-14
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
The reasons for the differences between current income tax assets expense
and the amount computed by using applicable statutory federal income tax rate to
operating income are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating Income $843,436 $787,907 $790,827
Tax Exempt Income (324,355) (306,727) (288,689)
Depreciation and Amortization (24,610) (27,119) (4,074)
TEFRA Interest Limitation 39,587 37,025 33,635
Bond Discounts (9,120) (6,877) (3,835)
Bad Debt Deductions 1,159 50,204 27,190
Tax Gain on Securities Matured 18,668 7,544 565
Loan Organization Fees and Costs 2,137 6,306 9,050
Postretirement Benefits 6,030 9,388 19,145
Employee Retirements Benefits (16,072) 1,000 1,759
Other 13,983 10,175 9,641
Current Income Taxes $550,843 $568,826 $595,214
=======================================================================================================================
Statutory Federal Tax Rate Used 34% 34% 34%
=======================================================================================================================
</TABLE>
The temporary differences which give rise to the deferred tax and
liabilities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Deferred Tax Assets: 1998 1997
---- ----
<S> <C> <C>
Allowance for Possible Loan Losses $249,742 $248,583
Employee Retirement Benefits 48,898 64,969
Loan Origination Fees and Costs 35,786 33,622
Postretirement Benefits 78,604 72,574
Other 2,649 4,582
- -----------------------------------------------------------------------------------------------------------------------
Total Deferred Tax Assets $415,679 $424,330
Valuation Allowance for Deferred Tax Assets - 0 - - 0 -
- -----------------------------------------------------------------------------------------------------------------------
Net Deferred Tax Assets $415,679 $424,330
- ------------------------------------------------------ ---------------------- --------------------------------------
Deferred Tax Liabilities:
Net Unrealized Appreciation on
Investment Securities Available for Sale $196,000 $140,066
Depreciation and Amortization 80,504 80,850
- -----------------------------------------------------------------------------------------------------------------------
Net Deferred Tax Liabilities $276,504 $220,916
- -----------------------------------------------------------------------------------------------------------------------
Net Deferred Tax $139,175 $203,414
=======================================================================================================================
</TABLE>
F-15
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
14. Related Party Transactions:
The Bank has entered into transactions with its directors, executive
officers, principal shareholders and their related interests. Such transactions
were made in the ordinary course of business on substantially the same terms and
conditions, including collateral and interest rates, as those prevailing at the
same time for comparable transactions with other customers, and did not, in the
opinion of Management, involve more than a normal credit risk or present other
unfavorable features. The aggregate amount of loans to such related parties at
December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance at Beginning of Year $630,737 $264,957
New Loans 712,368 504,454
Repayments (542,367) (138,674)
- -----------------------------------------------------------------------------------------------------------------------
Balance at End of Year $800,738 $630,737
=======================================================================================================================
Loans Past Due 30 Days or More $ - 0 - $ - 0 -
=======================================================================================================================
Unused Lines of Credit $2,359,259 $2,417,808
=======================================================================================================================
</TABLE>
15. Commitments and Contingencies:
The consolidated financial statements do not reflect various commitments,
such as commitments to extend credit, letters of credit, and loan guarantees
undertaken in the normal course of business. Management uses the same credit
policies in making these commitments and contingencies as it does for balance
sheet loans. Management does not anticipate any significant risk of loss as a
result of these transactions.
The following is a summary of significant commitments as of December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Standby Letters of Credit $346,965 $264,500
Commitments to Extend Credit:
Commercial Loans Secured by Real Estate $2,067,689 $639,163
Home Equity Loans 1,332,509 1,366,241
Personal Lines of Credit 2,109,009 851,704
Other Unused Commitments 13,641,669 10,597,639
</TABLE>
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. All significant
letters of credit have been issued for one year or less. Commitments to extend
credit are agreements to lend to a customer under certain conditions established
in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the standby
letters of credit and commitments are expected to expire without being drawn
upon, the total amounts do not necessarily represent future cash requirements.
The Bank evaluates each customer's credit worthiness and the collateral obtained
on a case by case basis using the Bank's established credit policies.
The Bank is also involved in various litigation of a routine nature
arising in the ordinary course of business. It is the opinion of Management that
the ultimate resolution will not have a material effect on the Bank's financial
position.
16. Regulatory Matters:
The Pennsylvania Banking Code has a restriction on the availability of
surplus for dividend purposes. As of December 31, 1998, $3,500,000 was not
available for dividends.
The Bank is also required to maintain minimum amounts and ratios of total
and Tier I capital to risk weighted assets, and Tier I capital to average
assets, as defined by banking regulators. Total capital includes common stock,
capital surplus and undivided profits. Tier I capital includes the allowance for
possible loan losses up to 1.25% of risk adjusted assets. Tier I leverage ratio
divides total capital by average assets.
The capital requirements are summarized as follows:
<TABLE>
<CAPTION>
Well Minimum
1998 1997 Capitalized Requirements
---- ---- ----------- ------------
<S> <C> <C> <C> <C>
Total Capital to Risk Weighted Assets 18.09% 18.41% 10.00% 8.00%
Tier I Capital to Risk Weighted Assets 17.10% 17.33% 6.00% 4.00%
Tier I Leverage Capital to Average Assets 10.38% 10.31% 5.00% 4.00%
</TABLE>
F-16
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
17. Fair Value of Financial Instruments:
The Financial Accounting Standards Board Statement of Financial Accounting
Standards (FASB) Number 107, "Disclosure About the Fair Value of Financial
Instruments", requires disclosure of the estimated fair values of the Bank's
financial instruments. The following describes the estimated fair values of the
Bank's financial instruments as well as the significant methods and assumptions
used to determine these estimated values.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a force liquidation sale. Because no quoted market prices exist
for a significant part of the Bank's financial instruments, the fair values have
been derived based on Management's assumptions with respect to future economic
conditions, the amount and timing of future cash flows and estimated discount
rates. The estimation methods are described in more detail below.
In addition, the estimates are only indicative of the financial
instrument's value and should not be considered an indication of the fair value
of the Bank.
Cash and Balances Due from Banks, Interest Bearing Deposits with Banks and
Federal Funds Sold - The fair value approximates the carrying amount due to the
short maturity of these instruments.
Investment Securities Available for Sale - The fair value is determined by
quoted market prices.
Investment Securities to be Held to Maturity - The fair value is determined
by quoted market prices.
Loans - The fair values are estimated for the loan portfolio with similar
financial characteristics. Loans are segregated by type. Each loan category is
further segmented into fixed and variable rate terms. The floating rate loans
are segregated by index and repricing frequency. The fair value of loans was
estimated by discounting estimated cash flows using the Bank's December 31 rate
for similar loans. Prepayments are calculated using the Bank's historical
averages.
Income Earned Not Collected - The fair value approximates the carrying
amount.
Deposits - The fair values for fixed rate deposits with stated maturities
were calculated by discounting the difference between the cash flows on a
contractual basis and the Bank's December 31 rate for instruments of similar
maturities. For variable rate deposits, the carrying amount was considered to
approximate fair value.
Other Borrowed Money - The fair values are estimated by discounting
estimated cash flows using the Banks December 31 rate for similar borrowings.
Interest Accrued and Unpaid on Deposits - The fair value approximates the
carrying amount.
The book and fair values of financial instruments on December 31, were as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Book Market Book Market
Financial Assets Value Value Value Value
----- ----- ----- -----
<S> <C> <C> <C> <C>
Cash and Balances Due from Banks $8,710,713 $8,710,713 $5,269,635 $5,269,635
Interest Bearing Deposits with Banks 100,887 100,887 49,873 49,873
Federal Funds Sold 3,481,000 3,481,000 2,700,000 2,700,000
Investment Securities Available for Sale 37,787,413 37,787,413 35,520,396 35,520,396
Investment Securities to be Held to
Maturity 12,974,070 12,789,607 22,169,841 21,732,476
Loans, Net of Unearned Income 114,689,084 115,373,037 102,575,087 103,507,726
Allowance for Possible Loan Losses (1,100,181) - 0 - (1,096,771) - 0 -
Income Earned Not Collected 1,082,991 1,082,991 1,173,218 1,173,218
- -------------------------------------------------------------------------------------------------------------------------
Total Financial Assets $177,725,977 $179,325,648 $168,361,279 $169,953,324
=========================================================================================================================
Financial Liabilities
Demand Deposits $20,578,680 $20,578,680 $18,437,260 $18,437,260
Savings and NOW Deposits 55,471,804 55,471,804 52,253,319 52,253,319
Time Deposits 86,755,830 87,648,222 81,560,779 82,151,061
Other Borrowed Money - 0 - - 0 - 1,000,000 999,418
Interest Accrued and Unpaid on Deposits 686,004 686,004 710,684 710,684
- -------------------------------------------------------------------------------------------------------------------------
Total Financial Liabilities $163,492,318 $164,384,710 $153,962,042 $154,551,742
=========================================================================================================================
</TABLE>
F-17
<PAGE>
Clearfield Bank & Trust Company
- -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
18. Year 2000 Compliance:
The Bank has adopted a Year 2000 policy to address the concern that certain
information systems and automated equipment will not properly recognize and
process dates beyond January 1, 2000. If not corrected, these systems could
produce inaccurate or unpredictable results beginning January 1, 2000. Potential
problems to the Bank may arise from software, computer hardware and other
equipment, both within and outside of the Bank's direct control.
In order to address the issue, the Bank has developed and implemented a
five phase compliance plan divided into the following components: awareness,
assessment, renovation, validation and testing, and implementation. The Bank has
successfully tested the major mission critical applications. It is expected that
any remaining applications will be tested by March 1999.
Another important segment is to identify those suppliers and customers
whose lack of preparedness might expose the bank to financial loss, and to
highlight any services that might present Year 2000 operating problems.
The Bank anticipates that the total Year 2000 cost will not exceed $50,000.
This estimated project cost is based on current available information. This cost
estimate may change as the Bank obtains additional information and conducts
further testing.
Despite the Bank's activities in regard to the Year 2000 issue, there can
be no assurance that partial or total systems interruption, or the cost
necessary to update hardware and software, would not have a material or adverse
effect on the Bank's business, financial condition, results of operations, and
business prospects.
19. Subsidiary Information:
During 1998, the Bank formed a wholly-owned subsidiary, Diamond Financial
Services, Inc., for the purpose of marketing insurance products and related
services. The corporation was capitalized with $1,000. During 1998, total
commissions earned were $12,341 less applicable expenses of $5,247, for a net
income of $7,094. These amounts are included in the financial statements with
all intercompany balances eliminated in the consolidation.
20. Subsequent Events :
On December 31, 1998 the Board of Directors of the Clearfield Bank & Trust
Company and Penn Laurel Financial Corp., parent company of CSB Bank, announced
that they have reached a definitive agreement where the Clearfield Bank & Trust
Company and CSB Bank will merge. This agreement provides that the resulting bank
of the merger will be named Penn Laurel Bank & Trust Company and will be
headquartered in Clearfield, Pennsylvania. The resulting institution will be a
wholly-owned subsidiary of Penn Laurel Financial Corp.
Under the terms of the agreement, stockholders of the Clearfield Bank &
Trust Company will receive .97 shares of Penn Laurel Financial Corp. common
stock, par value $5.00 per share, for each share of Clearfield Bank & Trust
Company common stock, par value $1.5625 per share, previously owned. The
transaction will result in a company with approximately $317 million in assets
and a leading banking franchise in Clearfield County.
Subject to the receipt of all required regulatory and stockholder
approvals, the parties anticipate consummating the transaction by the late
second quarter of 1999.
F-18
<PAGE>
PENN LAUREL FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY FINANCIAL INFORMATION
Page
----
Selected Financial Data and Pro Forma Information 15
Management's Discussion and Analysis 101
YEARS ENDED DECEMBER 31, 1998 AND 1997
Independent Auditor's Report F-20
Consolidated Statements of Condition F-21
Consolidated Statements of Income F-22
Consolidated Statements of Comprehensive Income F-23
Consolidated Statements of Cash Flows F-24
Consolidated Statements of Changes in Stockholders' Equity F-25
Notes to Consolidated Financial Statements F-26
F-19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
Penn Laurel Financial Corp.
We have audited the accompanying consolidated statements of condition of Penn
Laurel Financial Corp. and its wholly-owned subsidiary, CSB Bank, as of December
31, 1998 and 1997 and the related consolidated statements of income,
comprehensive income, changes in stockholders' equity, and cash flows for the
years then ended. 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 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 statements 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 Penn Laurel
Financial Corp. and its wholly-owned subsidiary, CSB Bank, as of December 31,
1998 and 1997, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
WALTER HOPKINS & COMPANY
Clearfield, Pennsylvania
January 20, 1999
F-20
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
ASSETS
- ------
Cash and due from banks $ 4,637,490 $ 3,450,367
Securities available for sale 33,115,947 29,987,499
Securities held to maturity 1,977,044 2,623,685
Loans, less allowance for loan losses of
$771,478 and $788,807, respectively 91,369,174 81,879,858
Bank premises and equipment 1,880,517 1,983,621
Other assets 2,200,646 1,617,499
------------ ------------
TOTAL ASSETS $135,180,818 $121,542,529
------------ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits: $ 9,733,429 $ 7,999,628
Demand 104,111,487 97,587,235
------------- -------------
Time and savings 113,844,916 105,586,863
Funds purchased and security
repurchase agreements 1,306,525 --
Accrued interest 537,538 510,537
Other liabilities 1,773,365 1,545,300
Long-term debt -- 485,845
FHLB advances 3,000,000 --
Total liabilities 120,462,344 108,128,545
------------- -------------
Stockholders' equity:
Common stock, par value $5;
Authorized 2,500,000 shares,
360,000 shares issued, 357,259 and 345,735
shares outstanding 1,800,000 1,800,000
Additional paid-in capital 1,754,401 1,500,974
Retained earnings 9,389,355 8,565,240
Accumulated other comprehensive income 1,841,958 1,897,580
Treasury stock, at cost (67,240) (349,810)
Total stockholders' equity 14,718,474 13,413,984
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 135,180,818 $ 121,542,529
============= =============
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF INCOME
DECEMBER 31, 1998 AND 1997
1998 1997
---------- ----------
Interest Income:
Interest and fees on loans $8,191,944 $7,567,946
Interest on investment securities:
U.S. Treasury securities 223,852 235,690
Obligations of other U.S. government agencies 496,710 537,134
Obligations of state and political subdivisions 508,162 436,050
Other securities 484,175 526,722
Interest on federal funds sold 67,957 71,161
---------- ----------
9,972,800 9,374,703
---------- ----------
Interest Expenses:
Interest on deposits 4,810,988 4,419,031
Interest on federal funds purchased and
repurchase agreements 15,788 6,606
---------- ----------
4,826,766 4,425,637
---------- ----------
Net interest income 5,146,024 4,949,066
Provision for loan losses 319,100 300,000
---------- ----------
Net interest income after provision for loan 4,826,924 4,649,066
losses
---------- ----------
Other Income:
Service fees 447,553 364,853
Security gains 534,239 67,639
Other 264,802 153,197
---------- ----------
1,246,594 585,689
---------- ----------
Other Expenses:
Salaries 1,746,319 1,392,055
Pension and other employee benefits 439,245 331,271
Occupancy expense 326,078 315,782
Other operating expenses 1,853,364 1,426,014
---------- ----------
4,365,006 3,465,122
---------- ----------
Income before income taxes 1,708,512 1,769,633
Applicable income taxes 427,396 447,930
---------- ----------
Net income $1,281,116 $1,321,703
========== ==========
Net income per share of common stock
(based on weighted average shares outstanding)
Net income per share $ 3.70 $ 3.82
========== ==========
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Net Income $ 1,281,116 $ 1,321,703
----------- -----------
Other comprehensive income, before tax:
Unrealized gains on securities
Unrealized holding gains arising during period 657,092 1,445,083
Less: Reclassification adjustment for gains included in net
income (534,239) (67,639)
----------- -----------
Other comprehensive income, before tax: 122,853 1,377,444
Income tax expense related to other comprehensive income 178,475 330,727
Other comprehensive income, net of tax (55,622) 1,046,717
----------- -----------
Comprehensive income $ 1,225,494 $ 2,368,420
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net Income $ 1,281,116 $ 1,321,703
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation 180,861 192,427
Provision for loan losses 319,100 300,000
Provision for deferred taxes (31,245) 59,491
Gain on sale of investment securities (534,239) (67,639)
(Decrease) increase in taxes payable 3,000 (7,895)
(Increase) decrease in interest receivable (26,252) (120,394)
Increase (decrease) in interest payable 27,001 67,546
Increase (decrease) in accrued expenses 38,212 (161,858)
Decrease (increase) in other assets (517,271) (36,690)
------------ ------------
Net cash provided by operating activities 740,283 1,546,691
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of securities held to maturity 4,614,955 2,134,457
Proceeds from sales of securities available for sale 7,045,587 4,993,010
Proceeds from maturities of securities available for sale 5,705,000 4,831,054
Purchase of securities available for sale (15,221,944) (11,272,446)
Purchase of securities held to maturity (3,968,314) (995,086)
Net increase in loans (9,808,416) (4,982,406)
Capital expenditures (77,757) (288,730)
------------ ------------
Net cash used in investing activities (11,710,889) (5,580,147)
------------ ------------
Cash flows from financing activities:
FHLB advances 3,000,000 --
Net increase in demand, time and savings deposits 8,258,053 5,816,560
Dividends paid (457,001) (435,626)
Increase (decrease) in funds purchased and security
repurchase agreements 1,306,525 (625,000)
Payments on long-term debt (485,845) (15,926)
Sale (purchase) treasury stock 535,997 (38,940)
------------ ------------
Net cash provided by financing activities 12,157,729 4,701,068
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,187,123 667,612
------------ ------------
Cash and due from banks at beginning of year 3,450,367 2,782,755
------------ ------------
============ ============
Cash and due from banks at end of year $ 4,637,490 $ 3,450,367
============ ============
Supplemental disclosures:
Interest paid on deposits $ 4,799,775 $ 4,358,091
Income taxes paid $ 453,958 $ 396,334
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Treasury Stockholders'
Stock Capital Earnings Income Stock Equity
------------ ------------ ------------ ------------ ------------ ------------
Balance
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996 $ 1,800,000 $ 1,500,974 $ 7,679,163 $ 850,863 $ (310,870) $ 11,520,130
============ ============ ============ ============ ============ ============
Net income $ 1,321,703 $ 1,321,703
Cash dividends declared
(435,626) (435,626)
Comprehensive income
$ 1,046,717 1,046,717
Purchase treasury stock
$ (38,940) (38,940)
------------ ------------ ------------ ------------ ------------ ------------
Balance
December 31, 1997 $ 1,800,000 $ 1,500,974 $ 8,565,240 $ 1,897,580 $ (349,810) $ 13,413,984
============ ============ ============ ============ ============ ============
Net income $ 1,281,116 $ 1,281,116
Cash dividends declared
(457,001) (457,001)
Comprehensive income
$ (55,622) (55,622)
Sale treasury stock $ 253,427 $ 282,570 535,997
------------ ------------ ------------ ------------ ------------ ------------
Balance
December 31, 1998 $ 1,800,000 $ 1,754,401 $ 9,389,355 $ 1,841,958 $ (67,240) $ 14,718,474
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. Summary of Significant Accounting Policies
Business and Organization - Penn Laurel Financial Corp. (the "Corporation") is a
Pennsylvania corporation organized as the holding company of CSB Bank (the
"Bank"). The Bank is a state chartered commercial bank located in Curwensville,
Pennsylvania, which provides a full range of banking and related services to
individual and corporate customers within the central region of Pennsylvania.
On September 19, 1998, CSB Bank purchased an independent insurance agency. CSB
Financial Services, Inc. provides all lines of insurance products and services.
Principles of Consolidation - The consolidated financial statements include the
accounts of: Penn Laurel Financial Corp. the parent company; its wholly owned
banking subsidiary CSB Bank, and its subsidiary CSB Financial Services, Inc.
These statements have been prepared in accordance with generally accepted
accounting principles. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Statement of Cash Flows - For purposes of the statement of cash flows, cash and
due from banks are the only items considered as cash and cash equivalents.
Investment Securities - Securities are classified when purchased as either held
to maturity, available for sale or trading securities.
Management classifies securities as held to maturity when it has both the
ability and positive intent to hold the securities to maturity. Securities held
to maturity are stated at cost adjusted for amortization of premium and
accretion of discount computed under the interest method.
Management classifies securities as trading securities when its intent is to
sell them in the near term. Trading securities are carried at market value with
unrealized gains and losses included in other income. Management had no
securities classified as trading at December 31, 1998 and 1997.
Securities not classified as held to maturity or trading securities are
designated as available for sale. Securities available for sale are recorded at
fair value, with aggregate unrealized holding gains and losses reported net of
tax as a separate component of shareholders' equity until realized.
Realized gains and losses on the sale of securities available for sale and held
to maturity are computed on the specific identification method.
F-26
<PAGE>
The fair value of securities is based on quoted market prices or bid quotations
received from securities dealers.
Loans and Allowance for Loan Losses - Loans are stated at the amount of unpaid
principal, reduced by unearned discount and an allowance for loan losses.
Unearned discount on installment loans is recognized as income over the terms of
the loans by the interest method. Interest on other loans is calculated by using
the simple interest method on daily balances of the principal amount
outstanding. The allowance for loan losses is established through a provision
for loan losses charged to expenses. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible, based
on evaluations of the collectibility of loans and prior loan loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrowers'
ability to pay. Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and collection
efforts, that the borrowers' financial condition is such that collection of
interest is doubtful.
Loan Fees - Loan origination fees and certain direct incremental loan
origination costs are deferred and amortized over the life of the related loans
as yield adjustments using primarily the level yield method. When the loans are
sold or paid off, the unamortized fees and costs are transferred to income.
Premises and Equipment - Office premises and equipment are stated at cost less
accumulated depreciation computed on both the straight-line and accelerated
methods over the estimated useful lives of the assets. Costs incurred for
maintenance and repairs are expensed currently.
Other Assets - Included in this caption is other real estate which consists of
real estate acquired through foreclosure or in settlement of debt and is stated
at the lower of fair value or cost. Loan losses arising from the acquisition of
such property are charged as current operating expense. For December 31, 1998
and 1997 other real estate recorded was $132,291 and $42,000, respectively.
Income Taxes - The Bank follows the Financial Accounting Standards Board's
Statement No. 109, "Accounting for Income Taxes" (FAS 109). Under the asset and
liability method provided for by FAS 109, deferred tax assets and liabilities
are recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences between
financial statement carrying amounts and the tax bases of existing assets and
liabilities.
Earnings per Share - Earnings per share are calculated on the weighted average
number of common shares outstanding during the year. For December 31, 1998 and
1997 the weighted average number of shares was 346,048 and 345,932,
respectively.
Comprehensive Income - On January 1, 1998, the Corporation adopted the Financial
Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards to provide prominent disclosure of
comprehensive income items. Comprehensive income is the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. Other comprehensive income consists of net
unrealized gains on investment securities available for sale. Subsequent to the
adoption date, all prior-period amounts are required to be restated to confirm
to the provision of SFAS No. 130. Comprehensive income for December 31, 1998 and
1997 was $(55,622) and $1,046,717, respectively. The adoption of SFAS No. 130
did not have a material impact on the Corporation's financial position or
results of operation.
Treasury Stock - The acquisition of treasury stock is recorded under the cost
method. The subsequent disposition or sale of the treasury stock is recorded
using the average cost inventory method.
F-27
<PAGE>
Segment Reporting - In June 1997, the Financial Accounting Standards Board
issued Statement 131, "Disclosures About Segments of an Enterprise and Related
Information," which was effective for the December 31, 1998 financial
statements. This statement redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. Management has determined, under current
conditions, the corporation will report as one business segment.
2. Investment Securities
The fair value, gross unrealized holding gains and losses, and amortized
cost of securities at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1998:
Securities Available for Sale:
U.S. Treasury Securities $ 3,985,703 $ 58,047 $ -- $ 4,043,750
Obligations of Other U.S.
Government Agencies 6,999,471 60,648 4,359 7,055,760
Obligations of States and
Political Subdivisions 10,734,135 247,384 15,348 10,966,171
Marketable Equities 3,075,968 2,605,495 170,431 5,511,032
Other Securities 5,529,844 27,769 18,379 5,539,234
----------- ----------- ----------- -----------
TOTAL $30,325,121 $ 2,999,343 $ 208,517 $33,115,947
=========== =========== =========== ===========
Securities Held to Maturity:
Other Securities $ 1,977,044 $ -- $ -- $ 1,977,044
=========== =========== =========== ===========
December 31, 1997:
Securities Available for Sale:
U.S. Treasury Securities $ 3,989,754 $ 15,733 $ 12,675 $ 3,992,812
Obligations of Other U.S.
Government Agencies 8,752,786 52,731 15,770 8,789,747
Obligations of States and
Political Subdivisions 7,514,517 112,688 53 7,627,152
Marketable Equities 1,591,809 2,514,906 -- 4,106,715
Other Securities 5,472,006 23,273 24,206 5,471,073
----------- ----------- ----------- -----------
TOTAL $27,320,872 $ 2,719,331 $ 52,704 $29,987,499
=========== =========== =========== ===========
F-28
<PAGE>
Securities Held to Maturity
Obligations of States and
Political Subdivisions $1,628,598 $ 51,926 $ -- $1,680,524
Other Securities 995,087 -- -- 995,087
---------- ---------- ---------- ----------
$2,623,685 $ 51,926 $ -- $2,676,611
========== ========== ========== ==========
</TABLE>
Investment securities with a par value of $4,805,000 and
$4,655,000 at December 31, 1998 and 1997 were pledged to secure public deposits
and for other purposes as required or permitted by law.
The following is a schedule of the contractual maturity of securities
except marketable equities at December 31, 1998:
Amortized Fair
Cost Value
----------- -----------
1 year or less $ 5,333,350 $ 5,352,377
1 year - 5 years 14,999,253 15,189,914
5 years - 10 years 3,139,699 3,237,862
Thereafter 3,914,867 3,961,507
Collateralized mortgage obligations
and other asset-backed securities 1,839,028 1,840,299
Total Securities $29,226,197 $29,581,959
=========== ===========
Collateralized mortgage obligations and other asset-backed securities are
not due at a single date; periodic payments are received based on the payment
patterns of the underlying collateral.
3. Loans
The Bank grants commercial and residential loans to customers primarily in
central Pennsylvania. Although the Bank has a diversified portfolio, its
debtors' ability to honor their contracts is substantially dependent upon the
general economic conditions of the region. The Bank manages its loan portfolio
to avoid concentration by industry or loan size to minimize its credit exposure.
Commercial loans may be collateralized by the assets underlying the borrowers'
business such as accounts receivable, equipment, inventory and real property.
Residential mortgage and home equity loans are generally secured by the real
property financed. Commercial real estate loans are generally secured by the
underlying real property and lease agreements.
Major classifications of loans are as follows:
December 31
1998 1997
------------ ------------
Commercial, financial and agricultural $ 26,472,381 $ 25,956,075
Real estate 35,200,147 28,608,637
Installment 30,739,970 28,861,122
------------ ------------
92,412,498 83,425,834
Unearned discount (271,846) (757,169)
------------ ------------
92,140,652 82,668,665
Allowance for loan losses (771,478) (788,807)
------------ ------------
$ 91,369,174 $ 81,879,858
============ ============
Changes in the allowance for loan losses were as follows:
F-29
<PAGE>
December 31
1998 1997
--------- ---------
Balance, beginning of year $ 788,807 $ 720,949
Provision charged to operations 319,100 300,000
Loans charged of (486,281) (400,290)
Recoveries 149,852 168,148
--------- ---------
Balance, end of year $ 771,478 $ 788,807
========= =========
Non-accrual loans on which the accrual of interest has been discontinued
amounted to $121,132 and $523,114 for December 31, 1998 and 1997, respectively.
4. Bank Premises and Equipment
Major classifications of these assets are summarized as follows:
December 31
1998 1997
---------- ----------
Land $ 471,041 $ 519,018
Buildings 1,769,743 1,744,463
Equipment 1,967,720 1,867,267
Leasehold improvements 136,360 136,360
---------- ----------
4,344,864 4,267,108
Accumulated depreciation and amortization 2,464,347 2,283,487
---------- ----------
$1,880,517 $1,983,621
========== ==========
Depreciation expense amounted to $180,861 in 1998 and $192,427 in 1997.
5. Income Taxes
The total income taxes in the statements of income are as follows:
December 31
1998 1997
--------- ---------
Currently payable $ 458,641 $ 388,439
Deferred (31,245) 59,491
--------- ---------
$ 427,396 $ 447,930
========= =========
Deferred income taxes according to the timing differences which caused them
were as follows:
F-30
<PAGE>
December 31
1998 1997
-------- --------
Depreciation $ (321) $(11,149)
Deferred compensation (7,569) 44,471
Other (23,355) 26,169
-------- --------
Deferred tax expense (credit) $(31,245) $ 59,491
======== ========
Interest income on obligations of states and political subdivisions
totaling $531,720 and $450,304 for 1998 and 1997, respectively, is exempt from
federal income taxes; accordingly, the tax provision is less than that obtained
by using the statutory federal corporate income tax rate.
6. Leases
The Bank leases Banking facilities and equipment under long-term lease
agreements which expire in various years between April 20, 1997 and April 23,
2002. Total rental payments were $176,059 and $136,950 in 1998 and 1997
respectively.
Operating Leases
Schedule of Minimum Future Rental Payments
Year Ending
December 31
1999 $ 144,403
2000 120,600
2001 118,834
2002 29,561
----------
$ 413,398
==========
7. Commitments and Contingencies
In the normal course of business, the Bank makes various commitments and
incurs certain contingent liabilities that are not presented in the accompanying
financial statements. The commitments and contingent liabilities include various
guarantees, commitments to extend credit, and standby letters of credit. The
Bank does not anticipate any material losses as a result of these transactions.
The following is a summary of significant commitments as of December 31:
1998 1997
---------- ----------
Standby letters of credit $ 129,000 $ 184,000
Commitments to extend credit:
Commercial loans secured by real estate 271,000 503,000
Home equity lines 2,530,000 2,413,000
Other unused commitments 6,184,000 4,796,000
---------- ----------
$9,114,000 $7,896,000
========== ==========
8. Related Party Transactions
In the ordinary course of business, the Bank has transactions, including
loans, with their officers, directors and their affiliated companies. These
transactions are on substantially the same terms as those prevailing at the time
for comparable transactions with unaffiliated parties and do not involve more
than the normal risk. These loans totaled $2,651,010 and $2,278,924 at December
31, 1998 and 1997 respectively. Aggregate loan transactions with related parties
are as follows:
F-31
<PAGE>
December 31
-----------
1998 1997
----------- -----------
Balance, beginning of
year $ 2,278,924 $ 2,270,986
New Loans 1,171,769 256,911
Payments (799,683) (248,973)
----------- -----------
Balance, end of year $ 2,651,010 $ 2,278,924
=========== ===========
9. Restrictions and Capital Requirements
The amount of funds available to the parent from its subsidiary Bank is
limited by restrictions imposed by the Pennsylvania Department of Banking. As of
December 31, 1998, dividends from the subsidiary Bank were restricted not to
exceed $8,740,579.
As of December 31, 1998 and 1997, the Bank was required by the Federal
Reserve Bank to maintain an average cash balance of approximately $572,000 and
$548,000 respectively.
The Bank maintains an investment in Federal Home Loan Bank of Pittsburgh
stock of $355,500 and $336,300, as of December 31, 1998 and 1997, respectively,
which is included with investment securities.
The Bank is also required to maintain minimum amounts and ratios of total
and Tier I capital to risk weighted assets, and Tier I capital to average
assets, as defined by banking regulators. Total capital includes common stock,
capital surplus and undivided profits. Tier I capital includes the allowance for
possible loan losses up to 1.25% of risk adjusted assets. Tier I leverage ratio
divides total capital by average assets.
The capital requirements are summarized as follows:
<TABLE>
<CAPTION>
Well Minimum
1998 1997 Capitalized Requirements
---- ---- ----------- ------------
<S> <C> <C> <C> <C>
Total Capital to Risk Weighted Assets 12.50% 13.31% 10.00% 8.00%
Tier I Capital to Risk Weighted Assets 11.35% 12.39% 6.00% 4.00%
Tier I Leverage Capital to Average Assets 9.30% 9.53% 5.00% 4.00%
</TABLE>
10. Employee Savings Plan
The Bank maintains a 401(K) deferred savings plan, to which eligible
participating employees may elect to contribute up to 20% of their gross
compensation to an investment trust, not to exceed the employee deferral limit.
The limit is indexed annually by the Internal Revenue Service. In addition, a
discretionary employer contribution shall be determined for each plan year by a
resolution passed by the employer's board of directors.
In December 1998, the Employee's Savings Plan acquired 10,672 shares of
Penn Laurel Financial Corporation's treasury stock for the purpose of
integrating the 401(K) into a KSOP plan.
The expense for the above plan amounted to $54,000 and $51,152 for December
31, 1998 and 1997, respectively.
Group-based incentive plans include both long-term and annual incentive
programs designed to focus management and employee efforts on profit performance
objectives and revenue growth targets. An executive supplemental income plan was
established in 1998 and indirectly funded by purchasing corporate owned life
insurance products. At December 31, 1998, the Bank has recorded assets of
$276,917 and liabilities of $16,742. The expense of the plan for 1998 was
$16,742,
F-32
<PAGE>
11. Directors' Deferred Income Plans
The Bank maintains two deferred income plans for its directors.
In 1997, Plan 1 was amended, eliminating the unrecognized obligation. Each
director now has an account balance equal to the director's fee deferred, plus
compounded interest. This plan is partially funded with Bank owned life
insurance policies.
In 1998, Plan 2 was formed, providing the directors an opportunity to defer
the next five years compensation. The deferred fees would be retained and
compounded until selected pay-out age. This plan is supplemented with Bank owned
insurance policies where the Bank is also the beneficiary.
The following sets forth the funded status and amounts recognized in the
consolidated statements of condition as of December 31:
1998 1997
--------- ---------
Plan 1
Cash surrender value of life insurance $ 217,362 $ 229,314
========= =========
Accrued plan cost $(447,005) $(469,269)
========= =========
Net periodic cost $ 43,810 $(105,538)
========= =========
Plan 2
Insurance assets $ 66,483 --
=========
Accrued plan costs $ (50,800) --
=========
Net periodic cost $ 57,800 --
=========
12. Long-Term Debt
A Bank promissory note with an interest rate of 8.00%, due in monthly
installments of $4,475 including interest, maturing in March 2014, but retired
early, has an outstanding balance of $0 and $485,845 at December 31, 1998 and
1997, respectively.
13. FHLB Advances
The Bank is a member of the FHLB of Pittsburgh and, as such, is eligible
for advances.
Pursuant to a blanket collateral agreement, advances from the FHLB are
collateralized by first mortgage loans and securities. Advances available under
this agreement are limited by available and qualifying collateral and the amount
of FHLB stock held by the borrower.
Advances from the FHLB at December 31, 1998 are summarized as follows:
Due April 25, 2005, 5.5% $1,000,000
Due May 27, 2008, 5.02% 2,000,000
----------
$3,000,000
==========
14. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
Cash and Short Term Assets:
The carrying amount approximates fair value because of the short maturity
of these instruments. For purposes of this disclosure only, short-term assets
include due from Bank and federal funds sold.
F-33
<PAGE>
Investment Securities:
The fair value of investment securities are based on quoted market prices
or bid quotations received from securities dealers.
Loans:
For fixed rate loans, fair value is estimated by discounting contractual
cash flows adjusted for prepayment estimates using discount rates adjusted to
reflect operating costs. For variable rate loans, fair value is estimated by
discounting scheduled cash flows through the estimated maturity using discount
rates that reflect the credit and interest rate risk inherent in the loan.
Deposits:
The fair value of deposits with no stated maturity, such as non-interest
bearing demand deposits, savings, now, money market and checking accounts, is
equal to the amount payable on demand as of December 31. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows.
Short Term Borrowings:
The carrying amount approximates fair value because of the short-term
nature of these borrowings.
Long Term Borrowings:
The fair value is calculated by discounting scheduled cash flows through
the estimated maturity.
The fair value of financial instruments as of December 31 (in thousands) is
as follows:
1998 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Assets:
Cash and short term assets $ 4,637 $ 4,637 $ 3,450 $ 3,450
Investment securities 35,093 35,093 32,611 32,663
Loans 91,369 92,687 81,880 83,066
Liabilities:
Deposits $113,845 $115,414 $105,587 $106,254
Short term borrowing 4,307 4,307 -- --
Long term debt -- -- 486 528
15. Parent Company Financial Information
Penn Laurel Financial Corp. (parent company only) financial information is
as follows:
December 31
STATEMENTS OF CONDITION 1998 1997
------------ ------------
ASSETS
Cash $ 265,692 $ 174,268
Investments in:
Bank subsidiary 11,895,360 11,479,172
Securities available for sale 2,485,023 1,936,761
Bank premises 761,072 795,622
Other assets 34,613 3,411
------------ ------------
TOTAL ASSETS $ 15,441,760 $ 14,389,234
============ ============
LIABILITIES
Dividend payable $ 163,225 $ 161,665
F-34
<PAGE>
Long-term debt -- 485,845
Deferred income taxes 560,061 327,740
SHAREHOLDERS EQUITY 14,718,474 13,413,984
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 15,441,760 $ 14,389,234
============ ============
STATEMENTS OF INCOME
INCOME
Dividends from:
Bank subsidiary $ 732,000 $ 610,626
Other non-subsidiary investments 42,890 36,468
Rental income 60,000 60,025
Security gains (loss) 30,378 (2,898)
------------ ------------
Total income 865,268 704,221
EXPENSES 102,214 78,562
------------ ------------
Income before income taxes and equity
in undistributed net income of Banking
subsidiary 763,054 625,659
Equity in undistributed net income of
Banking subsidiary 518,062 696,044
------------ ------------
NET INCOME $ 1,281,116 $ 1,321,703
============ ============
STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income $ 1,281,116 $ 1,321,703
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 11,854 11,800
(Gain) on sale of investment securities (30,378) 2,898
Equity in undistributed net income of
subsidiary (518,062) (696,044)
Decrease (increase) in other assets (31,202) 150
Increase (decrease) in payables 1,560 (4,049)
------------ ------------
Net cash provided by operating
activities 714,888 636,458
------------ ------------
Cash flows from investing activities:
Capital Expenditures (25,281) (156,584)
Proceeds from sales of securities available
for sale 192,222 92,865
Proceeds of investments (431,533) (96,586)
Proceeds from sale of assets 47,977 --
------------ ------------
Net cash provided (used) by investing activities (216,615) (160,305)
------------ ------------
Cash flow from financing activities:
Payments on long-term debt (485,845) (15,926)
F-35
<PAGE>
Dividends paid (457,001) (435,626)
Sale (purchase) Treasury Stock 535,997 (38,940)
------------ ------------
Net cash used by financing activities (406,849) (490,492)
------------ ------------
Net increase (decrease) in cash and cash
equivalents 91,424 (14,339)
Cash and cash equivalents, beginning 174,268 188,607
------------ ------------
Cash and cash equivalents, ending $ 265,692 $ 174,268
============ ============
16. Subsequent Events
On September 16, 1998, the Bank entered into a building and land lease
agreement for the construction of a banking facility in St. Marys, Pennsylvania
with a tentative opening date of July 1999. The amount and term of the lease
will be determined upon completion of the facility.
On December 31, 1998, Penn Laurel Financial Corp. announced that an
agreement to merge CSB Bank and Clearfield Bank & Trust Company had been
reached. Clearfield Bank & Trust Company is approximately a $181 million bank
and trust company with its main office in Clearfield, Pennsylvania, and five
branches in Clearfield County.
Subject to the receipt of all required regulatory and shareholder
approvals, the parties anticipate consummating the transaction by late in the
second quarter of 1999.
F-36
<PAGE>
ANNEXES
A Agreement and Plan of Reorganization
B Ryan, Beck & Co., Inc. Fairness Opinion
C Garland McPherson & Associates, Inc. Fairness Opinion
D Statutes Regarding Dissenters' Rights
E Restated Articles of Incorporation of Penn Laurel Financial Corp.
F Amended and Restated Bylaws of Penn Laurel Financial Corp.
<PAGE>
Annex A
Agreement and Plan of Reorgaization
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
PENN LAUREL FINANCIAL CORP.
CSB BANK
AND
CLEARFIELD BANK & TRUST COMPANY
December 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I AGREEMENT AND PLAN OF MERGER......................................................... 1
1.1 Agreement and Plan of Merger................................................ 1
ARTICLE II CONVERSION OF SHARES AND EXCHANGE
OF STOCK CERTIFICATES............................................................... 2
2.1 Conversion of Shares........................................................ 2
2.2 Exchange of Stock Certificates.............................................. 3
ARTICLE III REPRESENTATIONS AND WARRANTIES
OF CLEARFIELD....................................................................... 5
3.1 Authority................................................................... 5
3.2 Organization and Standing................................................... 6
3.3 No Subsidiaries............................................................. 6
3.4 Capitalization.............................................................. 6
3.5 Articles of Incorporation, Bylaws and Minute Books.......................... 6
3.6 Consents.................................................................... 7
3.7 Financial Statements and Regulatory Reports................................. 7
3.8 Absence of Undisclosed Liabilities.......................................... 7
3.9 Absence of Changes.......................................................... 8
3.10 Dividends, Distributions and Stock Purchases................................ 8
3.11 Taxes....................................................................... 8
3.12 Title to and Condition of Assets............................................ 8
3.13 Contracts................................................................... 9
3.14 Litigation and Governmental Directives...................................... 9
3.15 Compliance with Laws; Governmental Authorizations.......................... 10
3.16 Insurance................................................................... 10
3.17 Financial Institutions Bonds................................................ 10
3.18 Labor Relations............................................................. 11
3.19 Employee Benefit Plans...................................................... 11
3.20 Related Party Transactions.................................................. 12
3.21 Complete and Accurate Disclosure............................................ 12
3.22 Beneficial Ownership of Penn Laurel Financial Corp.
Common Stock................................................................ 12
3.23 Environmental Matters....................................................... 12
3.24 Proxy Statement/Prospectus.................................................. 14
3.25 Non-Registration Under the Securities Exchange Act of 1934.................. 15
3.26 Deposit Insurance........................................................... 15
3.27 Repurchase Agreements....................................................... 15
i
<PAGE>
<CAPTION>
Page
----
<S> <C> <C>
3.28 Assumability of Contracts and Leases........................................ 15
3.29 Loans....................................................................... 15
3.30 Adjustable Rate Mortgages................................................... 15
3.31 CRA Compliance.............................................................. 16
3.32 Loan Loss Reserve........................................................... 16
3.33 Trust Department and Fiduciary Relationships................................ 16
3.34 Member Federal Reserve System............................................... 16
3.35 Year 2000 Compliance........................................................ 16
3.36 Accuracy of Representations................................................. 16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PENN LAUREL........................................ 16
4.1 Authority................................................................... 16
4.2 Organization and Standing................................................... 17
4.3 Subsidiaries................................................................ 17
4.4 Capitalization.............................................................. 17
4.5 Articles of Incorporation, Bylaws and Minute Books.......................... 17
4.6 Consents.................................................................... 17
4.7 Financial Statements and Regulatory Reports................................. 18
4.8 Absence of Undisclosed Liabilities.......................................... 18
4.9 Absence of Changes.......................................................... 18
4.10 Dividends, Distributions and Stock Purchases................................ 18
4.11 Taxes....................................................................... 19
4.12 Title to and Condition of Assets............................................ 19
4.13 Contracts................................................................... 19
4.14 Litigation and Governmental Directives...................................... 20
4.15 Compliance with Laws; Governmental Authorizations........................... 21
4.16 Insurance................................................................... 21
4.17 Labor Relations............................................................. 21
4.18 Employee Benefit Plans...................................................... 21
4.19 Related Party Transactions.................................................. 22
4.20 Complete and Accurate Disclosure............................................ 23
4.21 Beneficial Ownership and Clearfield Common Stock............................ 23
4.22 Environmental Matters....................................................... 23
4.23 Proxy Statement/Prospectus.................................................. 24
4.24 Non-Registration Under the Securities Exchange Act of 1934.................. 24
4.25 Repurchase Agreements....................................................... 25
4.26 Assumability of Contracts and Leases........................................ 25
4.27 Accuracy of Representations................................................. 25
ARTICLE V REPRESENTATIONS AND WARRANTIES OF CSB................................................ 25
5.1 Capital Structure of CSB.................................................... 25
5.2 Organization and Standing................................................... 25
5.3 Authorized and Effective Agreement.......................................... 25
ii
<PAGE>
<CAPTION>
Page
----
<S> <C> <C>
5.4 Financial Institutions Bonds................................................ 26
5.5 Deposit Insurance........................................................... 26
5.6 Loans....................................................................... 26
5.7 Ajustable Rate Mortgages.................................................... 26
5.8 CRA Compliance.............................................................. 26
5.9 Loan Loss Reserve........................................................... 26
5.10 Member Federal Reserve System............................................... 26
5.11 Year 2000 Compliance........................................................ 26
5.12 Accuracy of Representations ................................................ 27
ARTICLE VI COVENANTS OF CLEARFIELD.............................................................. 27
6.1 Conduct of Business......................................................... 27
6.2 Best Efforts................................................................ 30
6.3 Access to Properties and Records............................................ 31
6.4 Subsequent Financial Statements............................................. 31
6.5 Board and Committee Minutes................................................. 31
6.6 Update Information.......................................................... 31
6.7 Notice...................................................................... 31
6.8 Other Proposals............................................................. 31
6.9 Dividends................................................................... 32
6.10 Core Deposits............................................................... 32
6.11 Affiliate Letters........................................................... 32
6.12 No Purchases or Sales of Penn Laurel Common
Stock During Price Determination Period .................................... 32
6.13 Accounting Treatment........................................................ 32
6.14 Press Releases.............................................................. 32
6.15 Phase I Environmental Audit......................... ....................... 33
ARTICLE VII COVENANTS OF PENN LAUREL AND CSB..................................................... 33
7.1 Conduct of Business......................................................... 33
7.2 Best Efforts................................................................ 36
7.3 Access to Properties and Records............................................ 37
7.4 Subsequent Financial Statements............................................. 37
7.5 Board and Committee Minutes................................................. 38
7.6 Update Information.......................................................... 38
7.7 Notice...................................................................... 38
7.8 Other Proposals............................................................. 38
7.9 Dividends................................................................... 38
7.10 Core Deposits............................................................... 38
7.11 No Purchase or Sales of Penn Laurel Common Stock
During Price Determination Period........................................... 38
7.12 Accounting Treatment........................................................ 39
iii
<PAGE>
<CAPTION>
Page
----
<S> <C> <C>
7.13 Press Releases.............................................................. 39
7.14 Phase I Environmental Audit ................................................ 39
ARTICLE VIII CONDITIONS PRECEDENT................................................................. 39
8.1 Common Conditions........................................................... 39
8.2 Conditions Precedent to Obligations of Penn Laurel and CSB.................. 41
8.3 Conditions Precedent to the Obligations of Clearfield....................... 45
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.................................................... 48
9.1 Termination................................................................. 48
9.2 Effect of Termination....................................................... 48
9.3 Amendment................................................................... 49
9.4 Waiver...................................................................... 49
ARTICLE X RIGHTS OF DISSENTING SHAREHOLDERS..................................................... 49
10.1 Rights of Dissenting Shareholders........................................... 49
ARTICLE XI CLOSING AND EFFECTIVE DATE............................................................ 50
11.1 Closing..................................................................... 50
11.2 Effective Date.............................................................. 50
ARTICLE XII NO SURVIVAL OF REPRESENTATIONS
AND WARRANTIES....................................................................... 50
12.1 No Survival................................................................. 50
ARTICLE XIII POST-MERGER AGREEMENTS............................................................... 50
13.1 Employees................................................................... 50
13.2 Officers.................................................................... 51
13.3 Board Appointments.......................................................... 51
ARTICLE XIV GENERAL PROVISIONS.................................................................... 51
14.1 Expenses.................................................................... 51
14.2 Access; Confidentiality..................................................... 51
14.3 Notices..................................................................... 52
14.4 Captions.................................................................... 53
14.5 Counterparts................................................................ 53
iv
<PAGE>
<CAPTION>
Page
----
<S> <C> <C>
14.6 Severability................................................................ 53
14.7 Parties in Interest......................................................... 53
14.8 Entire Agreement............................................................ 53
14.9 Governing Law............................................................... 53
EXHIBITS: AGREEMENT AND PLAN OF MERGER......................................................... A-1
("BANK MERGER AGREEMENT")
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("Agreement") is dated and made
this 31st of December, 1998, by and among Penn Laurel Financial Corp., a
Pennsylvania business corporation having its corporate headquarters at 434 State
Street, Curwensville, Clearfield County, Pennsylvania 16833 ("Penn Laurel"), CSB
Bank, a Pennsylvania chartered banking institution and the wholly-owned
subsidiary of Penn Laurel, having its corporate headquarters at 434 State
Street, Curwensville, Clearfield County, Pennsylvania 16833 ("CSB"), and
Clearfield Bank & Trust Company, a Pennsylvania chartered bank and trust company
having its corporate headquarters at 11 North Second Street, Clearfield County,
Clearfield, Pennsylvania 16830 ("Clearfield").
Background:
Penn Laurel is a Pennsylvania business corporation and a registered bank
holding company. CSB is a Pennsylvania chartered banking institution and a
wholly-owned subsidiary of Penn Laurel. Clearfield is a Pennsylvania chartered
bank and trust company. Penn Laurel, CSB and Clearfield wish to affiliate
through a business combination to form a stronger, more effective community
financial institution. Subject to the terms and conditions of this Agreement,
the foregoing transaction will be accomplished by means of a reorganization and
merger pursuant to which Clearfield will merge with CSB. The resulting bank of
the merger shall change its name to Penn Laurel Bank & Trust, relocate its
corporate headquarters to 11 North Second Street, Clearfield, Pennsylvania and
all of the outstanding shares of capital stock of Clearfield, par value $1.5625
per share (the "Clearfield Common Stock") will be converted into and become the
right to receive shares of common stock of Penn Laurel, par value $5.00 per
share (the "Penn Laurel Common Stock") in the manner, on the terms, and subject
to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises, mutual promises,
covenants, agreements, representations and warranties hereinafter set forth, and
of other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the parties
agree as follows:
ARTICLE I
AGREEMENT AND PLAN OF MERGER
Section 1.1. Agreement and Plan of Merger. Subject to the terms and
conditions of this Agreement, Clearfield shall merge with CSB (the "Merger") in
accordance with the Agreement and Plan of Merger attached as Exhibit A to this
Agreement (the "Bank Merger Agreement") and pursuant to the provisions of the
Pennsylvania Banking Code of 1965, as amended (the "Banking Code").
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ARTICLE II
CONVERSION OF SHARES AND
EXCHANGE OF STOCK CERTIFICATES
Section 2.1. Conversion of Shares. On the Effective Date (as defined in
Section 11.2 of this Agreement) the shares of Clearfield Common Stock then
outstanding shall be converted into and become the right to receive shares of
Penn Laurel Common Stock, as follows:
(a) General. Subject to the provisions of Section 2.1(b); 2.1(c) and
2.1(d) of this Article II, each share of Clearfield Common Stock issued and
outstanding immediately before the Effective Date shall, on the Effective
Date, be converted into and become, without any action on the part of the
holder thereof, the right to receive .97 shares of Penn Laurel Common
Stock. Subject to the provisions of Section 2.1(b), the aggregate number of
shares of Penn Laurel Common Stock to be issued under this Agreement shall
not exceed 559,505 shares.
(b) Anti-dilution Provision. In the event that Penn Laurel shall at
any time before the Effective Date: (i) declare or pay a dividend in shares
of Penn Laurel Common Stock, (ii) combine the outstanding shares of Penn
Laurel Common Stock into a smaller number of shares, or (iii) subdivide the
outstanding shares of Penn Laurel Common Stock into a greater number of
shares, or (iv) reclassify the shares of Penn Laurel Common Stock, then the
exchange provisions of Section 2.1 (a) of this Article II shall be
proportionately adjusted.
(c) No Fractional Shares. No fractional shares of Penn Laurel Common
Stock, and no scrip or certificates therefor, shall be issued in connection
with the Merger. In lieu of the issuance of any fractional share to which a
former shareholder would otherwise be entitled, the former shareholder
shall receive, in cash, an amount equal to the fair market value of his
fractional interest. The fair market value of the fractional interest shall
be the arithmetic average of the average of the per share closing bid and
asked reported prices for Penn Laurel Common Stock for the fifteen (15)
trading days immediately preceding the date of receipt of the last required
regulatory approval for the transactions contemplated by this Agreement
and, the Bank Merger Agreement ( the "Approval Date"), as reported i) by
Ryan, Beck & Co. and by F. J. Morrissey & Co., Inc.; or, in the event that
neither of these firms is then making a market in Penn Laurel Common Stock,
(ii) by two brokerage firms then making a market in Penn Laurel Common
Stock to be selected by Penn Laurel and approved by Clearfield. The
foregoing fifteen (15) trading days being hereinafter sometimes referred to
as the "Price Determination Period." (For example, if March 3, 1999 is the
Approval Date, the Price Determination Period, would be February 7, 10, 11,
12, 13, 14, 18, 19, 20, 21, 22, 25, 26, 27 and 28, 1999).
(d) Clearfield Treasury Stock. Each share of Clearfield Common Stock
issued and held in the treasury of Clearfield as of the Effective Date, if
any, shall be canceled, and no cash, stock, or other property shall be
delivered in exchange therefor.
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(e) Penn Laurel Common Stock.
(i) Each share of Penn Laurel Common Stock issued and outstanding
immediately prior to the Effective Date, shall, on and after the
Effective Date, continue to be issued and outstanding as an identical
share of Penn Laurel Common Stock.
(ii) Each share of Penn Laurel Common Stock issued and held in
the treasury of Penn Laurel as of the Effective Date, if any, shall,
on and after the Effective Date, continue to be issued and held in the
treasury of Penn Laurel.
(f) Each share of Clearfield Common Stock owned by Penn Laurel or a
wholly-owned subsidiary of Penn Laurel, other than shares held in trust,
managed, custodial or nominee accounts and the like, that in any such case
are beneficially owned by third parties, on the Effective Date, shall be
cancelled and retired and shall cease to exist and no shares of Penn Laurel
or other consideration shall be deliverable in exchange therefor.
Section 2.2. Exchange of Stock Certificates. Clearfield Common Stock
certificates shall be exchanged for Penn Laurel Common Stock certificates in
accordance with the following procedures:
(a) Exchange Agent. The transfer agent of Penn Laurel shall act as
exchange agent (the "Exchange Agent") to receive Clearfield Common Stock
certificates from the holders thereof and to exchange the certificates for
Penn Laurel Common Stock certificates and (if applicable) to pay cash for
fractional shares of Clearfield Common Stock pursuant to Section 2.1(c)
above. The Exchange Agent shall, on or promptly after the Effective Date,
mail to each former shareholder of Clearfield a notice specifying the
procedures to be followed in surrendering Clearfield Common Stock
certificates.
(b) Surrender of Certificates. As promptly as possible after receipt
of the Exchange Agent's notice, each former shareholder of Clearfield shall
surrender his Clearfield Common Stock certificates to the Exchange Agent;
provided, that if any former shareholder of Clearfield shall be unable to
surrender his Clearfield Common Stock certificates due to loss or
mutilation thereof, he may make a constructive surrender by following
procedures comparable to those customarily used by Penn Laurel for issuing
replacement certificates to Penn Laurel shareholders whose Penn Laurel
Common Stock certificates have been lost or mutilated. Upon receiving a
proper actual or constructive surrender of Clearfield Common Stock
certificates from a former Clearfield shareholder, the Exchange Agent shall
issue to the shareholder, in exchange therefor, a Penn Laurel Common Stock
certificate representing the whole number of shares of Penn Laurel Common
Stock into which the shareholder's shares of Clearfield Common Stock have
been converted in accordance with this Article II, together with a check in
the amount of any cash to which the shareholder is entitled, pursuant to
Section 2.1(c) of this Agreement, in lieu of the issuance of a fractional
share.
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(c) Dividend Withholding. Dividends, if any, payable by Penn Laurel
after the Effective Date to any former shareholder of Clearfield who has
not, prior to the payment date, surrendered his Clearfield Common Stock
certificates may, at the option of Penn Laurel, be withheld. Any dividends
so withheld shall be paid, without interest, to the former shareholder of
Clearfield upon proper surrender of the Clearfield Common Stock
certificates. Subject to the accounting rules regarding pooling of interest
method of accounting, each party shall use their best efforts to cooperate
in the declaration and timing of the payment of dividends to assure that
neither a windfall nor a detriment to each party's respective shareholders
shall occur concerning the amount and timing of the payment of dividends.
(d) Failure to Surrender Certificates. All Clearfield Common Stock
certificates must be surrendered to the Exchange Agent within two (2) years
after the Effective Date. In the event that any former shareholder of
Clearfield shall not have properly surrendered his Clearfield Common Stock
certificates within two (2) years after the Effective Date, the shares of
Penn Laurel Common Stock that would otherwise have been issued to the
shareholder may, at the option of Penn Laurel, be sold and the net proceeds
of the sale, together with the cash (if any) to which the shareholder is
entitled in lieu of the issuance of a fractional share and any previously
accrued dividends, shall be held in a non-interest bearing account for the
benefit of the former shareholder. From and after any sale, the sole right
of the former shareholder of Clearfield shall be the right to collect the
net proceeds, cash and accumulated dividends. Subject to all applicable
laws of escheat, the net proceeds, cash and accumulated dividends shall be
paid to the former shareholder of Clearfield, without interest, upon proper
surrender of the former shareholder's certificates.
(e) Expenses of Share Surrender and Exchange. All costs and expenses
associated with the foregoing surrender and exchange procedure shall be
borne by Penn Laurel. Notwithstanding the foregoing, no party hereto will
be liable to any holder of Clearfield Common Stock for any amount paid in
good faith to a public official or agency pursuant to any applicable
abandoned property, escheat or similar law.
(f) Exchange Procedures. Each certificate for shares of Clearfield
Common Stock delivered for exchange under this Article II must be endorsed
in blank by the registered holder thereof or be accompanied by a power of
attorney to transfer the shares endorsed in blank by the holder. If more
than one certificate is surrendered at one time and in one transmittal
package for the same shareholder account, the number of whole shares of
Penn Laurel Common Stock for which certificates will be issued pursuant to
this Article II will be computed on the basis of the aggregate number of
shares represented by the certificates so surrendered. If shares of
Clearfield Common Stock or payments of cash are to be issued or made to a
person other than the one in whose name the surrendered certificate is
registered, the certificate so surrendered must be properly endorsed in
blank, with signature(s) guaranteed, or otherwise in proper form for
transfer, and the person to whom certificates for shares of Penn Laurel
Common Stock is to be issued or to whom cash is to be paid shall pay any
transfer or other taxes required by reason of the issuance or payment to a
person other than the registered holder of the certificate for shares of
Clearfield Common Stock that are surrendered. As promptly as practicable
after the Effective Date, Penn Laurel shall send or
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cause to be sent to each shareholder of record of Clearfield Common Stock
transmittal materials for use in exchanging certificates representing
Clearfield Common Stock for certificates representing Penn Laurel Common
Stock into which the former have been converted in the Merger.
(g) Closing of Stock Transfer Books; Cancellation of Clearfield
Certificates. Upon the Effective Date, the stock transfer books for
Clearfield Common Stock will be closed and no further transfers of shares
of Clearfield Common Stock will thereafter be made or recognized. All
certificates for shares of Clearfield Common Stock surrendered pursuant to
this Article II will be canceled by Penn Laurel.
(h) Rights Evidenced by Certificate. Each certificate for shares of
Penn Laurel Common Stock issued in exchange for certificates for Clearfield
Common Stock pursuant to Section 2.2(f) hereof will be dated as of the
Effective Date and be entitled to dividends and all other rights and
privileges pertaining to the shares of Penn Laurel Common Stock from and
after the Effective Date. Until surrendered, each certificate theretofore
evidencing shares of Clearfield Common Stock will, from and after the
Effective Date, evidence solely the right to receive certificates for
shares of Penn Laurel Common Stock pursuant to Section 2.2(f) of this
Agreement. If certificates for shares of Clearfield Common Stock are
exchanged for Penn Laurel Common Stock at a date following one or more
record dates for the payment of dividends or of any other distribution on
the shares of Penn Laurel Common Stock subsequent to the Effective Date,
Penn Laurel will pay cash in an amount equal to dividends theretofore
payable on the Penn Laurel Common Stock and pay or deliver any other
distribution to which holders of shares of Penn Laurel Common Stock have
theretofore become entitled. No interest will accrue or be payable in
respect of dividends or cash otherwise payable under this Section 2.2 upon
surrender of certificates for shares of Penn Laurel Common Stock.
Notwithstanding the foregoing, no party hereto will be liable to any holder
of Clearfield Common Stock for any amount paid in good faith to a public
official or agency pursuant to any applicable abandoned property, escheat
or similar law. Until the certificates for shares of Clearfield Common
Stock are surrendered by a Clearfield shareholder to Penn Laurel for
exchange, Penn Laurel shall have the right to withhold dividends or any
other distributions, without interest, on the shares of the Penn Laurel
Common Stock issuable to the shareholder.
(i) Payment Procedures. As soon as practical after the Effective Date,
Penn Laurel shall make payment of the cash consideration provided for in
Section 2.1(c) to each person entitled thereto.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CLEARFIELD
Clearfield represents and warrants to Penn Laurel and CSB, as of this date,
as follows:
Section 3.1. Authority. Clearfield has all requisite corporate power and
authority to enter into and perform all of its obligations under this Agreement
and the Bank Merger Agreement. The execution and delivery of this Agreement and
the Bank Merger Agreement and the performance of the transactions contemplated
herein and therein have been duly and validly authorized by the Board of
Directors of Clearfield and, except for the approval of this Agreement and the
Bank Merger Agreement by its shareholders, Clearfield has taken all corporate
action necessary on its part to authorize this Agreement and the Bank Merger
Agreement and the performance of the transactions contemplated herein and
therein. This Agreement and the Bank Merger Agreement have been duly executed
and delivered by Clearfield and, assuming due authorization, execution and
delivery by Penn Laurel and CSB, constitute valid and binding obligations of
Clearfield, in each case enforceable against it in accordance with their
respective terms, subject to bankruptcy, insolvency, and other laws of general
applicability relating to or affecting creditors' rights and general equity
principles. Neither the execution and delivery of this Agreement and the Bank
Merger Agreement, nor consummation of the transactions contemplated hereby or
thereby, nor compliance by Clearfield with any of the provisions hereof or
thereof (i) conflict with or result in a breach of any provisions of the
Articles of Incorporation or By-laws of Clearfield, (ii) constitute or result in
a material breach of any term, condition or provisions of, or constitute a
default under or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any lien, charge,
security interest or other encumbrance upon any property or assets of Clearfield
pursuant to any note, bond, mortgage, indenture, deed of trust, license,
agreement or other instrument or obligation, which will have, in the aggregate,
a material adverse effect on Clearfield, or (iii) violate any order, writ,
injunction, decree, statute, code, ordinance, rule, regulation or judgment
applicable to Clearfield.
Section 3.2. Organization and Standing. Clearfield is a duly organized bank
and trust company, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Clearfield has full power and authority to carry
out its business as now conducted and is duly qualified to do business in the
states of the United States and foreign jurisdictions where its ownership or
leasing of property or the conduct of its business requires qualification and
where failure to so qualify would have a material adverse effect on the
financial condition, results of operations, business or prospects of Clearfield.
Section 3.3. No Subsidiaries. Except as previously disclosed, Clearfield
owns no subsidiaries, directly or indirectly.
Section 3.4. Capitalization. The authorized capital stock of Clearfield
consists solely of 617,600 shares of capital stock, par value $1.5625 per share,
Clearfield Common Stock, of which, at the date hereof, 576,809 shares are issued
and outstanding. All outstanding shares of Clearfield Common Stock have been
duly authorized and are validly issued, fully paid and nonassessable. None of
the shares of Clearfield Common Stock have been issued in violation of the
preemptive
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rights of any person or entity. At the date hereof, there are no authorized,
issued and outstanding options, convertible securities, warrants or other
rights to purchase or acquire any of the Clearfield Common Stock from
Clearfield. There are no outstanding agreements, restrictions, contracts,
commitments or demands of any character to which Clearfield is a party, that
relate to the transfer or restrict the transfer of any shares of Clearfield
Common Stock. There are no shareholder agreements, understandings or commitments
relating to the right of Clearfield to vote or dispose of its shares.
Section 3.5. Articles of Incorporation, Bylaws and Minute Books. The copies
of the Articles of Incorporation and Bylaws of Clearfield that have been
delivered to Penn Laurel and CSB are true, correct and complete. Except as
previously disclosed, all minute books of Clearfield have been made available to
Penn Laurel and CSB for inspection and are true, correct and complete in all
material respects and record the actions taken by the Board of Directors of
Clearfield at the meetings documented in the minutes.
Section 3.6. Consents. Except for the consents, approvals, filings and
registrations contemplated by Sections 8.1(a) and (c) hereof, and compliance
with any conditions contained therein, and the approval of this Agreement and
the Bank Merger Agreement by the shareholders of Clearfield, no consents or
approvals of, or filings or registrations with, any public body or authority are
necessary, and no consents or approvals of any third parties are necessary, or
will be, in connection with the execution and delivery of this Agreement or the
Bank Merger Agreement by Clearfield, and the consummation by Clearfield of the
transactions contemplated hereby. Clearfield has no reason to believe that any
required consents or approvals will not be received or will be received with
conditions, limitations or restrictions unacceptable to it or that would
adversely impact Clearfield's ability to consummate the transactions
contemplated by this Agreement.
Section 3.7. Financial Statements and Regulatory Reports. Clearfield has
delivered to Penn Laurel and CSB its (i) Balance Sheets, Statements of Income,
Statements of Stockholders' Equity and Statements of Cash Flows as of and for
the years ended December 31, 1997 and December 31, 1996, certified by Young,
Oakes, Brown & Company, P.C., of Altoona, Pennsylvania, Clearfield's independent
auditors, and set forth in the Annual Report to the Shareholders of Clearfield
for the year ended on December 31, 1997 (the "Clearfield Financial Statements")
and (ii) Call Reports, Consolidated Reports of Condition and Income, (the
aforementioned consolidated report of condition and income as of September 30,
1998, is referred to herein as the "Clearfield Balance Sheet") and accompanying
schedules, filed by Clearfield with any regulatory authority for each calendar
quarter, beginning with the quarter ended September 30, 1998, through the
Effective Date ("Clearfield Regulatory Reports"). Each of the foregoing
financial statements fairly presents the financial condition, assets and
liabilities, and results of operations of Clearfield at their respective dates
and for the respective periods then ended and have been prepared in accordance
with generally accepted accounting principles consistently applied, except as
otherwise noted in a footnote thereto and subject, in the case of the interim
financial statements contained in the aforesaid Clearfield Regulatory Report, to
normal recurring year-end adjustments, that are not material in any case or in
the aggregate. The books and records of Clearfield are maintained in accordance
with generally accepted accounting principles consistently applied. The
Clearfield Regulatory Reports have been, or will be, prepared in accordance with
applicable regulatory accounting principles and practices
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applied on a consistent basis throughout the periods covered by the
statements, and fairly present, or will fairly present, the financial position,
results of operations and changes in shareholders' equity of Clearfield as of
and for the periods ended on the dates thereof, in accordance with applicable
regulatory accounting principles applied on a consistent basis.
Section 3.8. Absence of Undisclosed Liabilities. Except as previously
disclosed, or as reflected, noted or adequately reserved against in the
Clearfield Balance Sheet, as at September 30, 1998, Clearfield had no
liabilities (whether accrued, absolute, contingent or otherwise) or asset
impairment that are required to be reflected, noted or reserved against therein
under generally accepted accounting principles or that are, in any case or in
the aggregate, material. Except as previously disclosed, since September 30,
1998, Clearfield has not incurred any liability, other than liabilities of the
same nature as those set forth in the Clearfield Balance Sheet, all of which
have been reasonably incurred in the ordinary course of business consistent with
customary business practices of prudently managed banks (hereinafter referred to
as "Ordinary Course of Business").
Section 3.9. Absence of Changes. Since September 30, 1998, Clearfield
has conducted its business in the Ordinary Course of Business and, except as
previously disclosed, Clearfield has not undergone any change in condition
(financial or otherwise), assets, liabilities, business or operations, other
than changes in the Ordinary Course of Business that have not been, either in
any case or in the aggregate, materially adverse.
Section 3.10. Dividends, Distributions and Stock Purchases. Except as
previously disclosed, since September 30, 1998, Clearfield has not declared, set
aside, made or paid any dividend or other distribution in respect of the
Clearfield Common Stock, or purchased, issued or sold any shares of Clearfield
Common Stock.
Section 3.11. Taxes. Clearfield has filed all federal, state, county,
municipal and foreign tax returns, reports and declarations that are required to
be filed by Clearfield. Except as previously disclosed, (i) Clearfield has paid
all taxes, penalties and interest that have become due pursuant thereto or that
became due pursuant to assessments, and (ii) Clearfield has not received any
notice of deficiency or assessment of additional taxes and no tax audits are in
process. The Internal Revenue Service (the "IRS") has not, to the knowledge of
Clearfield, commenced, or given notice of its intention to commence any
examination or audit of the federal income tax returns of Clearfield for any
year through and including the year ended December 31, 1997. Clearfield has not
granted any waiver of any statute of limitations or otherwise agreed to any
extension of a period for the assessment of any federal, state, county,
municipal or foreign income tax. Except as previously disclosed, the accruals
and reserves reflected in the Clearfield Balance Sheet are adequate to cover all
taxes (including interest and penalties, if any, thereon) payable or accrued as
a result of its operations for all periods prior to the date of the Clearfield
Balance Sheet.
Section 3.12. Title to and Condition of Assets. Clearfield has good and
marketable title to all real and personal properties and assets reflected in the
Clearfield Balance Sheet or acquired subsequent to September 30, 1998 (other
than property and assets disposed of in the Ordinary Course of Business), free
and clear of all liens or encumbrances of any kind whatsoever other than: (i) as
reflected in the Clearfield Balance Sheet; (ii) liens of current taxes not yet
due; and (iii)
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imperfections of title, encumbrances and easements, if any, that are not
substantial in character, amount or extent and do not materially detract from
the value, or interfere with the present or proposed use, of the properties and
assets subject thereto. The structures and other improvements to real estate,
furniture, fixtures and equipment reflected in the Clearfield Balance Sheet or
acquired subsequent to September 30, 1998, are in good operating condition and
repair (ordinary wear and tear excepted) and comply in all material respects
with all applicable laws, ordinances and regulations, including without
limitation all building codes, zoning ordinances and other similar laws.
Clearfield owns or has the right to use all real and personal properties and
assets necessary to the conduct of its business as now conducted.
Section 3.13. Contracts. All contracts, agreements, leases, licenses and
other commitments are valid and in full force and effect, and all parties
thereto have in all material respects performed all obligations required to be
performed by them to date and are not in default in any material respect.
Except as disclosed on Schedule 3.13, Clearfield is not a party to or
subject to (i) any employment, consulting or severance contract or arrangement
with any past or present officer, director or employee, except for "at will"
arrangements (ii) any plan, arrangement or contract providing for bonuses,
options, deferred compensation, profit sharing or similar arrangements for or
with any past or present officers, directors or employees of Clearfield; (iii)
any collective bargaining agreement with any labor union relating to employees
of Clearfield; (iv) any agreement that by its terms limits the payment of
dividends by Clearfield; (v) any instrument evidencing or related to
indebtedness for borrowed money in excess of $20,000, whether directly or
indirectly, by way of purchase money obligation, conditional sale, lease
purchase, guaranty or otherwise, in respect of which Clearfield is an obligor to
any person, which instrument evidences or relates to indebtedness other than
deposits, repurchase agreements, bankers acceptances and "treasury tax and loan"
accounts established in the Ordinary Course of Business and transactions in
federal funds or that contains financial covenants or other restrictions (other
than those relating to the payment of principal and interest when due) that
would be applicable on or after the Effective Date to Penn Laurel or any Penn
Laurel subsidiary; (vi) any contract (other than this Agreement) limiting the
freedom of Clearfield to engage in any type of banking or banking-related
business permissible under law; or (vii) any contract, plan or arrangement that
provides for payments or benefits in certain circumstances that, together with
other payments or benefits payable to any participant therein or party thereto,
might render any portion of any payments or benefits subject to disallowance of
deduction therefor as a result of the application of Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code").
No party to any material contract, plan, arrangement or instrument that
requires annual payments in excess of $10,000 will have the right to terminate
any or all of the provisions of any contract, plan, arrangement or instrument as
a result of the transactions contemplated by this Agreement, and none of the
employees of Clearfield possess the right to terminate their employment as a
result of the execution of this Agreement. Except as otherwise previously
disclosed, no plan, employment agreement, termination agreement, or similar
agreement or arrangement to which Clearfield is a party or under which
Clearfield may be liable contains provisions that permit an employee or
independent contractor to terminate it without cause and continue to accrue
future
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benefits thereunder. No agreement, plan or arrangement provides for
acceleration in the vesting of benefits or payments due thereunder upon the
occurrence of a change in ownership or control of Clearfield absent the
occurrence of a subsequent event; provides for benefits that may cause the
disallowance of a federal income tax deduction under Section 280G of the Code;
or requires Clearfield to provide a benefit in the form of Clearfield Common
Stock or determined by reference to the value of Clearfield Common Stock.
Section 3.14. Litigation and Governmental Directives. There is no
litigation, investigation or proceeding pending, or to the knowledge of
Clearfield threatened, that involves Clearfield or its properties and that, if
determined adversely, would materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business, operations or future
prospects of Clearfield; there are no outstanding orders, writs, injunctions,
judgments, decrees, regulations, directives, consent agreements or memoranda of
understanding issued by any federal, state or local court or governmental
authority or arbitration tribunal issued against or with the consent of
Clearfield that materially and adversely affect the condition (financial or
otherwise), assets, liabilities, business, operations or future prospects of
Clearfield or that in any manner restrict Clearfield's right to conduct its
business as presently conducted, or challenge the validity or propriety of any
of the transactions contemplated by the Agreement, or that could adversely
affect the ability of Clearfield to perform under this Agreement; and Clearfield
is not aware of any fact or condition presently existing that might give rise to
any litigation, investigation or proceeding that, if determined adversely to
Clearfield, would materially and adversely affect the condition (financial or
otherwise), assets, liabilities, business, operations or future prospects of
Clearfield.
Section 3.15. Compliance with Laws; Governmental Authorizations. Clearfield
is in compliance with all statutes, laws, ordinances, rules, regulations,
judgments, orders, decrees, directives, consent agreements, memoranda of
understanding, permits, concessions, grants, franchises, licenses, and other
governmental authorizations or approvals applicable to Clearfield or to any of
its properties; all permits, concessions, grants, franchises, licenses and other
governmental authorizations and approvals necessary for the conduct of the
business of Clearfield as presently conducted have been duly obtained and are in
full force and effect, and there are no proceedings pending, or to the knowledge
of Clearfield threatened, that may result in the revocation, cancellation,
suspension or materially adverse modification of any thereof; and Clearfield has
not received any notification or communication from any regulatory authority (A)
asserting that it is not in substantial compliance with any of the statues,
regulations or ordinances that the regulatory authorities enforce; (B) requiring
or threatening to require Clearfield, or indicating that Clearfield may be
required, to enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or limiting, or purporting to
restrict or limit, in any manner the operations of Clearfield, including without
limitation, any restriction on the payment of dividends (any notice,
communication, memorandum, agreement or order described herein is referred to as
a "Regulatory Agreement"); (C) threatening to revoke any license, franchise,
permit or governmental authorization that is material to Clearfield; (D)
requiring Clearfield to enter into any Regulatory Agreement; or (E) requesting
that board resolutions be adopted pursuant to regulatory action.
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Section 3.16. Insurance. All policies of insurance, including all policies
of title insurance and financial institutions bonds, held by or on behalf of
Clearfield are in full force and effect and no notices of cancellation have been
received in connection therewith. All the policies of insurance have been issued
by reputable insurers and, in respect of amounts, types and risks, the insurance
is customary with industry practices for the business conducted by Clearfield.
Section 3.17. Financial Institutions Bonds. Since January 1, 1991,
Clearfield has continuously maintained in full force and effect a financial
institutions bond insuring Clearfield against acts of dishonesty by each of its
employees. Except as previously disclosed, no claim has been made under any
bond, and Clearfield is not aware of any fact or condition presently existing
that might form the basis of a claim under any bond. Clearfield has no reason to
believe that its present financial institutions bond will not be renewed by its
carrier on substantially the same terms and at the same rate as now in effect.
Section 3.18. Labor Relations. Clearfield is not a party to or bound by any
collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is Clearfield the subject of a
proceeding asserting that Clearfield has committed an unfair labor practice or
seeking to compel Clearfield to bargain with any labor organization as to wages
and conditions of employment, nor is there any strike or other labor dispute
involving Clearfield pending, or to the knowledge of Clearfield, threatened,
that might materially adversely affect the condition (financial or otherwise),
assets, liabilities, business or operations of Clearfield. Clearfield is not
subject to or a party in any Complaint or action before the Pennsylvania Human
Relations Commission, the Equal Employment Opportunity Commission, or the
Department of Labor. There are no labor disputes pending, or to the knowledge of
Clearfield threatened, that might materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business or operations of
Clearfield.
Section 3.19. Employee Benefit Plans. Each "employee benefit plan", as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), that now covers any employee of Clearfield, its
predecessors or affiliates, complies in all material respects with all
applicable requirements of ERISA, the Code and other applicable laws. Neither
Clearfield nor any of its predecessors or affiliates has engaged in any
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) or any breach of fiduciary responsibility under Part 4 of Title I of
ERISA, with respect to which a prohibited transaction is likely to result in any
material penalties or taxes under Section 502 of ERISA or Section 4975 of the
Code, or any material liability to any participant or beneficiary of the plan.
No material liability to the Pension Benefit Guaranty Corporation has been or is
expected to be incurred by Clearfield with respect to itself or its predecessors
or affiliates with respect to any plan that is subject to Title IV of ERISA, or
with respect to any "single employer plan" (as defined in Section 4001(a)(15) of
ERISA) currently or formerly maintained. No plan had an "accumulated funding
deficiency" (as defined in Section 302 of ERISA) (whether or not waived) as of
the last day of the end of the most recent plan year ending prior to the date
hereof. The fair market value of the assets of each plan exceeds the present
value of the "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA)
under each plan as of the end of the most recent plan year, calculated on the
basis of the actuarial assumptions used in the most recent actuarial valuation
for each plan. No notice of a "reportable event" (as defined in Section
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4043 of ERISA) for which the 30-day reporting requirement has not been
waived has been required to be filed for any of the plans within the 12-month
period ending on the date hereof. Neither Clearfield, its predecessors or
affiliates has provided, or is required to provide, security to any plans
pursuant to Section 401(a)(29) of the Code. Clearfield, its predecessors and
affiliates have contributed to no "multi-employer plan", as defined in Section
3(37) of ERISA, on or after September 26, 1980. All actuarial valuations and
other documents and information concerning benefit plans delivered or made
available in connection with this Agreement are true and correct as of the
date(s) shown thereon, and all actuarial methods and assumptions are appropriate
for the plans, and are consistent with the methods and assumptions permitted by
the Code and ERISA. All the plans are funded to the extent that the assets of
each plan would then be sufficient to pay all vested accrued benefits
thereunder, and there would be no employer liability under Title IV of ERISA.
Except as previously disclosed, since 1990, there has been no audit of any
benefit plan of Clearfield by the Department of Labor, the IRS or the Pension
Benefit Guaranty Corporation ("PBGC"). There has not been any audit of the
Pension Plan or any of Clearfield's other employee benefit plans by the
Department of Labor, the IRS or the PBGC since 1988. Clearfield, its
predecessors and affiliates, have no obligation for retiree health and life
benefits under any benefit plan, contract, or arrangement. Clearfield has no
obligation for any post-retirement benefits under any plan, contract or
arrangement except as previously disclosed on Schedule 3.19.
Section 3.20. Related Party Transactions. Except as previously disclosed,
Clearfield has no contract, extension of credit, business arrangement or other
relationship of any kind with any of the following persons: (i) any present or
former officer or director of Clearfield; (ii) any shareholder owning five
percent or more of the outstanding Clearfield Common Stock; and (iii) any
"associate" (as defined in Rule 405 promulgated by the Securities and Exchange
Commission (the "Commission")) of the foregoing persons or any business in which
any of the foregoing persons is an officer, director, employee or five percent
or greater equity owner. Each extension of credit previously disclosed has been
made in the Ordinary Course of Business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable arms' length transactions with other persons that do not involve more
than a normal risk of collectibility or present other unfavorable features.
Section 3.21. Complete and Accurate Disclosure. Neither this Agreement
(insofar as it relates to Clearfield, Clearfield Common Stock and Clearfield's
involvement in the transactions contemplated hereby) nor any financial
statement, schedule, certificate, or other statement or document delivered by
Clearfield to Penn Laurel or CSB in connection herewith contains any statement
that, at the time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact or omits to state any
material fact necessary to make the statements contained herein or therein not
false or misleading. In particular, without limiting the generality of the
foregoing sentence, the information provided and the representations made by
Clearfield to Penn Laurel and CSB in connection with the Registration Statement
(as defined in Section 7.2(b) of this Agreement), both at the time the
information and representations are provided and made and at the Effective Date,
will be true and accurate in all material respects and will not contain any
false or misleading statement with respect to any material fact or omit to state
any material fact necessary (i) to make the statements made therein not false or
misleading, or (ii) to
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correct any statement contained in an earlier communication with respect to
the information or representations that has become false or misleading.
Section 3.22. Beneficial Ownership of Penn Laurel Common Stock. Prior to
the Effective Date, Clearfield and its officers and directors will not
beneficially own, in the aggregate, (within the meaning of Commission Rule
13d-3(d)(1)) more than five percent of the outstanding shares of Penn Laurel
Common Stock, except as may be held by the Clearfield Trust Department.
Section 3.23. Environmental Matters. For purposes of this Section 3.23 and
Section 4.22 below, the following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any governmental entity relating to: the protection, preservation or
restoration of the environment (including, without limitation, air, water
vapor, surface water, groundwater, drinking water supply, surface soil,
subsurface soil, plant and animal life or any other natural resource); and
the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of
Hazardous Substances. The term Environmental Law includes without
limitation: the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. ss.9601, et seq., the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. ss.6901, et seq., the
Clean Air Act, as amended, 42 U.S.C. ss.7401, et seq., the Federal Water
Pollution Control Act, as amended, 33 U.S.C. ss.1251, et seq., the Toxic
Substances Control Act, as amended, 15 U.S.C. ss.9601, et seq., the
Emergency Planning and Community Right to Know Act, 42 U.S.C. ss.11001, et
seq., the Safe Drinking Water Act, 42 U.S.C. ss.300f, et seq., and all
comparable state and local laws; and any common law (including without
limitation common law that may impose strict liability) that may impose
liability or obligation for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous or
otherwise regulated under any Environmental Law, whether by type or by
quantity, including any material containing any such substance as a
component. Hazardous Substances include, without limitation, petroleum or
any derivative or by-product thereof, asbestos, radioactive material, and
polychlorinated biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means those
properties serving as collateral for loans in CSB's or Clearfield's loan
portfolio as the case may be, or properties owned or operated by CSB or
Clearfield (including, without limitation, in a fiduciary capacity), as the
case may be.
Except as previously disclosed:
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(a) Clearfield has not been and is not in violation of or liable under
any Environmental Law.
(b) To the knowledge of Clearfield, , none of the Loan Portfolio
Properties and Other Properties Owned have been or are in violation of or
liable under any Environmental Law.
(c) Clearfield has no knowledge that any environmental contaminant,
pollutant, toxic or hazardous waste or other similar substance has been
generated, used, stored, processed, disposed of or discharged onto any of
the real estate now or previously owned or acquired (including without
limitation any real estate acquired by means of foreclosure or exercise of
any other creditor's right) or leased by Clearfield, except as previously
disclosed. In particular, without limiting the generality of the foregoing
sentence, except as previously disclosed, Clearfield has no knowledge that:
(i) any materials containing asbestos have been used or incorporated in any
building or other structure or improvement located on any of the real
estate now or previously owned or acquired (including without limitation
any real estate acquired by means of foreclosure or exercise of any other
creditor's right) or leased by Clearfield; (ii) any electrical
transformers, fluorescent light fixtures with ballasts or other equipment
containing PCB's are or have been located on any of the real estate now or
previously owned or acquired (including without limitation any real estate
acquired by means of foreclosure or exercise of any other creditor's right)
or leased by Clearfield; (iii) any underground storage tanks for the
storage of gasoline, petroleum products or other toxic or hazardous
substances are or have ever been located on any of the real estate now or
previously owned or acquired (including without limitation any real estate
acquired by means of foreclosure or exercise of any other creditor's right)
or leased by Clearfield.
(d) Except as previously disclosed, there is no legal, administrative,
arbitration or other proceeding, claim, action, or to the knowledge of
Clearfield cause of action or governmental investigation of any nature
seeking to impose, or that could result in the imposition, on Clearfield of
any liability arising under any local, state or federal environmental
statute, regulation or ordinance including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, pending or to the knowledge of Clearfield threatened
against Clearfield; there is no reasonable basis for any such proceeding,
claim, action or governmental investigation; and Clearfield is not subject
to any agreement, order, judgment, decree or memorandum by or with any
court, governmental authority, regulatory agency or third party imposing
any such liability.
Section 3.24. Proxy Statement/Prospectus. At the time the Proxy
Statement/Prospectus (as defined in Section 7.2(b) of this Agreement) is mailed
to the shareholders of Clearfield, and at all times subsequent to the mailing,
up to and including the Effective Date, the Proxy Statement/Prospectus
(including any pre- and post-effective amendments and supplements thereto),
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with respect to all information relating to Clearfield, Clearfield Common
Stock, and actions taken and statements made by Clearfield in connection with
the transactions contemplated herein (except for information provided by Penn
Laurel and CSB) will: (i) comply in all material respects with applicable
provisions of the Securities Act of 1933, as amended (the "Securities Act"), and
the pertinent rules and regulations thereunder; and (ii) not contain any
statement that, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or omits to
state any material fact that is necessary to be stated therein in order (A) to
make the statements therein not false or misleading, or (B) to correct any
statement in an earlier communication with respect to the Proxy
Statement/Prospectus that has become false or misleading.
Section 3.25. Non-Registration Under the Securities Exchange Act of 1934.
Clearfield Common Stock is neither registered nor required to be registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and is not subject to the periodic reporting requirements
imposed by Section 13 or 15(d) of the Exchange Act.
Section 3.26. Deposit Insurance. The deposits of Clearfield are insured by
the Bank Insurance Fund, as administered by the Federal Deposit Insurance
Corporation (the "FDIC") in accordance with the Federal Deposit Insurance Act,
as amended (the "FDIA") and Clearfield has paid all assessments and filed all
reports required by the FDIA.
Section 3.27. Repurchase Agreements. With respect to any agreement,
pursuant to which Clearfield has purchased securities subject to an agreement to
resell, if any, Clearfield has a valid, perfected first lien or security
interest in the government securities or other collateral securing the
repurchase agreement, and the value of the collateral equals or exceeds the
amount of the debt secured thereby.
Section 3.28. Assumability of Contracts and Leases. Except as previously
disclosed, all Material Contracts between Clearfield and any other entity or
person are assumable and assignable and do not contain any term or provision
that would accelerate or increase payments that would otherwise be due by
Clearfield to the person or entity, or change or modify the provisions or terms
of the leases, contracts and agreements by reason of this Agreement or the
transactions contemplated hereby. Except as previously disclosed, each lease
pursuant to which Clearfield, as lessee, leases real or personal property is
valid and in effect in accordance with its respective terms, and there is not,
under any of the leases, on the part of the lessee any material existing default
or any event that, with notice or lapse of time, or both, would constitute a
default, other than defaults that would not individually or in the aggregate
have a material adverse effect on the financial condition, business, prospects,
or operating results of Clearfield.
Section 3.29. Loans. Except as previously disclosed, each loan reflected as
an asset on Clearfield's financial statements as of September 30, 1998, or
acquired since that date, is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms, subject to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles. All loans, and the
collateral and other security therefor, and the documentation for the same, meet
the requirements, rules, regulations or directives of the FDIC, or other
applicable governmental authorities.
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Section 3.30. Adjustable Rate Mortgages. Clearfield has made all interest
rate adjustments to any mortgage loan according to the terms of said mortgage
loan and has complied and is in compliance in all material respects with all
federal, state and other applicable laws, rules and regulations, including
orders, writs, decrees, injunctions and other requirements of any court or
governmental authorities having jurisdiction over adjustable rate mortgages.
Section 3.31. CRA Compliance. Clearfield has received a satisfactory
compliance rating and has received a satisfactory Community Reinvestment Act
rating. Clearfield has no knowledge of any facts or circumstances that would
prevent it from receiving satisfactory ratings upon its next appropriate
examination.
Section 3.32. Loan Loss Reserve. The loan loss reserve of Clearfield is and
shall remain adequate in light of generally accepted accounting principles,
directives of governmental authorities, and all regulations, rules and
directives of the Banking Department of the Commonwealth of Pennsylvania (the
"Banking Department") and the FDIC. No regulatory authority requested Clearfield
to increase the allowance for loan losses during 1998, 1997 or 1996.
Section 3.33. Trust Department and Fiduciary Relationships. Clearfield has
established, maintained and administered all fiduciary and custodian
relationships, accounts and agreements; and undertaken and performed all
fiduciary and custodian duties, obligations, and responsibilities in compliance
with all applicable laws, statutes, rules, regulations and the governing
instruments of the fiduciary and custodian relationships.
Section 3.34. Member Federal Reserve System. Clearfield is not a member of
the Federal Reserve System.
Section 3.35. Year 2000 Compliance. Clearfield is in compliance with all
requirements announced or promulgated by the Clearfield Regulatory Agencies and
by the Federal Financial Institutions Examination Council in connection with
Year 2000 preparedness and compliance.
Section 3.36. Accuracy of Representations. Clearfield will promptly notify
Penn Laurel if any of the representations contained in this Article III cease to
be true and correct subsequent to the date hereof. Further, no representations
made by Clearfield pursuant to this Agreement contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PENN LAUREL
Penn Laurel represents and warrants to Clearfield, as of this date, as
follows:
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Section 4.1. Authority. Penn Laurel has all requisite corporate power
and authority to enter into and perform all of its obligations under this
Agreement and the Bank Merger Agreement. The execution and delivery of this
Agreement and the Bank Merger Agreement and the consummation of the transactions
contemplated herein and therein have been duly and validly authorized by the
Board of Directors of Penn Laurel, and no other corporate action on the part of
Penn Laurel, except approval by the shareholders of Penn Laurel, is necessary to
authorize this Agreement and the Bank Merger Agreement or the consummation of
the transactions contemplated herein and therein. This Agreement and the Bank
Merger Agreement have been duly executed and delivered by Penn Laurel and,
assuming due authorization, execution and delivery by Clearfield, and receipt of
all required regulatory and shareholder approvals, constitutes a valid and
binding obligation of Penn Laurel. Assuming regulatory and shareholder approval,
the execution, delivery and consummation of this Agreement will not constitute a
violation or breach of or default under the Articles of Incorporation or the
Bylaws of Penn Laurel or any statute, rule, regulation, order, decree,
directive, agreement, indenture or other instrument to which Penn Laurel is a
party or by which Penn Laurel or any of its properties are bound.
Section 4.2. Organization and Standing. Penn Laurel is a business
corporation that is duly organized, validly existing and in good standing under
the laws of the Commonwealth of Pennsylvania. Penn Laurel is a registered bank
holding company under the Bank Holding Company Act of 1956, as amended, and has
full power and lawful authority to own and hold its properties and to carry on
its present business. Penn Laurel owns all of the issued and outstanding shares
of capital stock of CSB. CSB is a Pennsylvania chartered banking institution
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania, and is duly authorized to engage in the banking business as an
insured bank under the FDIA.
Section 4.3. Subsidiaries. Except for CSB and CSB Financial Services, Inc.,
except as previously disclosed, Penn Laurel owns no subsidiaries, directly or
indirectly.
Section 4.4. Capitalization. The authorized capital stock of Penn Laurel
consists of 2,500,000 shares of Penn Laurel Common Stock, par value $5.00 per
share, of which, at September 30, 1998, 346,587 shares were issued and
outstanding. All outstanding shares of Penn Laurel Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable. The shares of
Penn Laurel Common Stock to be issued in connection with the Merger have been
duly authorized and, when issued in accordance with the terms of this Agreement
and the Bank Merger Agreement, will be validly issued, fully paid and
nonassessable. Other than 9,000 options to purchase shares of its Common Stock
and its K-SOP Plan, Penn Laurel has no other outstanding options, agreements,
convertible securities, warrants or other rights to purchase its stock.
Section 4.5. Articles of Incorporation, Bylaws and Minute Books. The copies
of the Articles of Incorporation and Bylaws of Penn Laurel and CSB that have
been delivered to Clearfield are true, correct and complete. Except as
previously disclosed, all minute books of Penn Laurel and CSB have been made
available to Clearfield for inspection and are true, correct and complete in all
material respects and record the actions taken by the Board of Directors of Penn
Laurel and CSB at the meetings documented in the minutes.
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Section 4.6. Consents. Except for the consents, approvals, filings and
registrations contemplated by Sections 8.1(a) and (c) hereof, and compliance
with any conditions contained therein, and the approval of this Agreement and
the Bank Merger Agreement by the Board of Directors and shareholders of Penn
Laurel and the shareholder of CSB, no consents or approvals of, or filings or
registrations with, any public body or authority are necessary, and no consents
or approvals of any third parties are necessary, or will be, in connection with
the execution and delivery of this Agreement or the Bank Merger Agreement by
Penn Laurel and CSB, and the consummation by Penn Laurel and CSB of the
transactions contemplated hereby. Penn Laurel and CSB have no reason to believe
that any required consents or approvals will not be received or will be received
with conditions, limitations or restrictions unacceptable to it or that would
adversely impact Penn Laurel's or CSB's ability to consummate the transactions
contemplated by this Agreement.
Section 4.7. Financial Statements and Regulatory Reports. Penn Laurel has
delivered to Clearfield its: (i) Consolidated Balance Sheets, Consolidated
Statements of Income, Consolidated Statements of Shareholders' Equity, and
Consolidated Statements of Cash Flows as of and for the years ended December 31,
1997 and December 31, 1996, certified by Walter Hopkins and Company, Public
Accountants, of Clearfield, Pennsylvania, Penn Laurel's independent auditors,
and set forth in the Annual Report to the shareholders of Penn Laurel for the
year ended on December 31, 1997 (the "Penn Laurel Financial Statements"); and
(ii) Call Reports, Consolidated Reports of Condition and Income (the foregoing
Consolidated Statement of Condition being hereinafter referred to as the "Penn
Laurel Balance Sheet"). Each of the foregoing financial statements fairly
presents the consolidated financial position, assets, liabilities and results of
operations of Penn Laurel at their respective dates and for the respective
periods then ended and has been prepared in accordance with generally accepted
accounting principles consistently applied, except as otherwise noted in a
footnote thereto and subject, in the case of the interim financial statements
contained in the aforesaid Penn Laurel Regulatory Reports, to normal recurring
year-end adjustments, that are not material in any case or in the aggregate. The
books and records of Penn Laurel and CSB are maintained in accordance with
generally accepted accounting principles consistently applied. The Penn Laurel
Regulatory Reports have been, or will be, prepared in accordance with applicable
regulatory accounting principles and practices applied on a consistent basis
throughout the periods covered by the statements, and fairly present, or will
fairly present, the financial position, results of operations and changes in
shareholders' equity of Penn Laurel or CSB, as the case may be, as of and for
the periods ended on the dates thereof, in accordance with applicable regulatory
accounting principles applied on a consistent basis.
Section 4.8. Absence of Undisclosed Liabilities. Except as previously
disclosed, or as reflected, noted or adequately reserved against in the Penn
Laurel Balance Sheet, at September 30, 1998, Penn Laurel had no material
liabilities (whether accrued, absolute, contingent or otherwise) that are
required to be reflected, noted or reserved against therein under generally
accepted accounting principles or which are in any case or in the aggregate
material. Except as previously disclosed, since September 30, 1998, Penn Laurel
has not incurred any such liability other than liabilities of the same nature as
those set forth in the Penn Laurel Balance Sheet, all of which have been
reasonably incurred in the Ordinary Course of Business.
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Section 4.9. Absence of Changes. Since September 30, 1998, Penn Laurel and
CSB have conducted their business in the Ordinary Course of Business and, except
as previously disclosed, Penn Laurel and CSB have not undergone any change in
condition (financial or otherwise), assets, liabilities, business or operations,
other than changes in the Ordinary Course of Business that have not been, either
in any case or in the aggregate, materially adverse.
Section 4.10. Dividends, Distributions and Stock Purchases. Except as
previously disclosed, since September 30, 1998, Penn Laurel has not declared,
set aside, made or paid any dividend or other distribution in respect of the
Penn Laurel Common Stock, or purchased, issued or sold any shares of Penn Laurel
Common Stock.
Section 4.11. Taxes. Penn Laurel has filed all federal, state, county,
municipal and foreign tax returns, reports and declarations that are required to
be filed by Penn Laurel. Except as previously disclosed, (i) Penn Laurel has
paid all taxes, penalties and interest that have become due pursuant thereto or
that became due pursuant to assessments, and (ii) Penn Laurel has not received
any notice of deficiency or assessment of additional taxes and no tax audits are
in process. The IRS has not, to the knowledge of Penn Laurel, commenced, or
given notice of its intention to commence any examination or audit of the
federal income tax returns of Penn Laurel for any year through and including the
year ended December 31, 1997. Penn Laurel has not granted any waiver of any
statute of limitations or otherwise agreed to any extension of a period for the
assessment of any federal, state, county, municipal or foreign income tax.
Except as previously disclosed, the accruals and reserves reflected in the Penn
Laurel Balance Sheet are adequate to cover all taxes (including interest and
penalties, if any, thereon) payable or accrued as a result of its operations for
all periods prior to the date of the Penn Laurel Balance Sheet.
Section 4.12. Title to and Condition of Assets. Penn Laurel has good and
marketable title to all real and personal properties and assets reflected in the
Penn Laurel Balance Sheet or acquired subsequent to September 30, 1998 (other
than property and assets disposed of in the Ordinary Course of Business), free
and clear of all liens or encumbrances of any kind whatsoever other than: (i) as
reflected in the Penn Laurel Balance Sheet; (ii) liens of current taxes not yet
due; and (iii) imperfections of title, encumbrances and easements, if any, that
are not substantial in character, amount or extent and do not materially detract
from the value, or interfere with the present or proposed use, of the properties
and assets subject thereto. The structures and other improvements to real
estate, furniture, fixtures and equipment reflected in the Penn Laurel Balance
Sheet or acquired subsequent to September 30, 1998, are in good operating
condition and repair (ordinary wear and tear excepted) and comply in all
material respects with all applicable laws, ordinances and regulations,
including without limitation all building codes, zoning ordinances and other
similar laws. Penn Laurel and CSB own or have the right to use all real and
personal properties and assets necessary to the conduct of their business as now
conducted.
Section 4.13. Contracts. All contracts, agreements, leases, licenses and
other commitments are valid and in full force and effect, and all parties
thereto have in all material respects performed all obligations required to be
performed by them to date and are not in default in any material respect.
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Except as previously disclosed, neither Penn Laurel nor CSB is a party to
or subject to (i) any employment, consulting or severance contract or
arrangement with any past or present officer, director or employee, except for
"at will" arrangements (ii) any plan, arrangement or contract providing for
bonuses, options, deferred compensation, profit sharing or similar arrangements
for or with any past or present officers, directors or employees of Penn Laurel
or CSB; (iii) any collective bargaining agreement with any labor union relating
to employees of Penn Laurel or CSB; (iv) any agreement that by its terms limits
the payment of dividends by Penn Laurel or CSB; (v) any instrument evidencing or
related to indebtedness for borrowed money in excess of $20,000, whether
directly or indirectly, by way of purchase money obligation, conditional sale,
lease purchase, guaranty or otherwise, in respect of which Penn Laurel or CSB is
an obligor to any person, which instrument evidences or relates to indebtedness
other than deposits, repurchase agreements, bankers acceptances and "treasury
tax and loan" accounts established in the Ordinary Course of Business and
transactions in federal funds or that contains financial covenants or other
restrictions (other than those relating to the payment of principal and interest
when due) that would be applicable on or after the Effective Date to Penn Laurel
or any Penn Laurel subsidiary; (vi) any contract (other than this Agreement)
limiting the freedom of Penn Laurel or CSB to engage in any type of banking or
banking-related business permissible under law; or (vii) any contract, plan or
arrangement that provides for payments or benefits in certain circumstances
that, together with other payments or benefits payable to any participant
therein or party thereto, might render any portion of any payments or benefits
subject to disallowance of deduction therefor as a result of the application of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code").
No party to any material contract, plan, arrangement or instrument that
requires annual payments in excess of $10,000 will have the right to terminate
any or all of the provisions of any contract, plan, arrangement or instrument as
a result of the transactions contemplated by this Agreement, and except as
previously disclosed, none of the employees of Penn Laurel or CSB possess the
right to terminate their employment as a result of the execution of this
Agreement. No plan, employment agreement, termination agreement, or similar
agreement or arrangement to which Penn Laurel or CSB is a party or under which
Penn Laurel or CSB may be liable contains provisions that permit an employee or
independent contractor to terminate it without cause and continue to accrue
future benefits thereunder. Except as previously disclosed, no agreement, plan
or arrangement provides for acceleration in the vesting of benefits or payments
due thereunder upon the occurrence of a change in ownership or control of Penn
Laurel or CSB absent the occurrence of a subsequent event; provides for benefits
that may cause the disallowance of a federal income tax deduction under Section
280G of the Code; or requires Penn Laurel or CSB to provide a benefit in the
form of Penn Laurel Common Stock or determined by reference to the value of Penn
Laurel Common Stock.
Section 4.14. Litigation and Governmental Directives. Except as previously
disclosed, there is no litigation, investigation or proceeding pending, or to
the knowledge of Penn Laurel threatened, that involves Penn Laurel or CSB or
their properties and that, if determined adversely, would materially and
adversely affect the condition (financial or otherwise), assets, liabilities,
business, operations or future prospects of Penn Laurel or CSB; there are no
outstanding orders, writs, injunctions, judgments, decrees, regulations,
directives, consent agreements or memoranda of understanding issued by any
federal, state or local court or governmental authority or arbitration
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tribunal issued against or with the consent of Penn Laurel or CSB hat
materially and adversely affect the condition (financial or otherwise), assets,
liabilities, business, operations or future prospects of Penn Laurel or CSB or
that in any manner restrict Penn Laurel's or CSB's right to conduct its business
as presently conducted, or challenge the validity or propriety of any of the
transactions contemplated by the Agreement, or that could adversely affect the
ability of Penn Laurel or CSB to perform under this Agreement; and Penn Laurel
is not aware of any fact or condition presently existing that might give rise to
any litigation, investigation or proceeding that, if determined adversely to
Penn Laurel or CSB, would materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business, operations or future
prospects of Penn Laurel or CSB.
Section 4.15. Compliance with Laws; Governmental Authorizations. Penn
Laurel and CSB are in compliance with all statutes, laws, ordinances, rules,
regulations, judgments, orders, decrees, directives, consent agreements,
memoranda of understanding, permits, concessions, grants, franchises, licenses,
and other governmental authorizations or approvals applicable to Penn Laurel or
CSB or to any of their properties; all permits, concessions, grants, franchises,
licenses and other governmental authorizations and approvals necessary for the
conduct of the business of Penn Laurel and of CSB, as presently conducted, have
been duly obtained and are in full force and effect, and there are no
proceedings pending, or to the knowledge of Penn Laurel threatened, that may
result in the revocation, cancellation, suspension or materially adverse
modification of any thereof; and Penn Laurel has not received any notification
or communication from any regulatory authority (A) asserting that Penn Laurel or
CSB is not in substantial compliance with any of the statues, regulations or
ordinances that the regulatory authorities enforce; (B) requiring or threatening
to require Penn Laurel or CSB, or indicating that Penn Laurel or CSB may be
required, to enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or limiting, or purporting to
restrict or limit, in any manner the operations of Penn Laurel or CSB, including
without limitation, any restriction on the payment of dividends (any notice,
communication, memorandum, agreement or order described herein is referred to as
a "Regulatory Agreement"); (C) threatening to revoke any license, franchise,
permit or governmental authorization that is material to Penn Laurel or CSB; (D)
requiring Penn Laurel to enter into any Regulatory Agreement or; (E) requesting
board resolutions be adopted pursuant to regulatory action.
Section 4.16. Insurance. All policies of insurance, including all policies
of title insurance and financial institutions bonds, held by or on behalf of
Penn Laurel or CSB are in full force and effect and no notices of cancellation
have been received in connection therewith. All the policies of insurance have
been issued by reputable insurers and, in respect of amounts, types and risks,
the insurance is customary with industry practices for the business conducted by
Penn Laurel or CSB, as the case may be.
Section 4.17. Labor Relations. Neither Penn Laurel nor CSB is a party to or
bound by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is Penn Laurel or
CSB the subject of a proceeding asserting that Penn Laurel or CSB has committed
an unfair labor practice or seeking to compel Penn Laurel or CSB to bargain with
any labor organization as to wages and conditions of employment, nor is there
any strike or other labor dispute involving Penn Laurel or CSB pending, or to
the knowledge of Penn
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Laurel or CSB, threatened, that might materially adversely affect the
condition (financial or otherwise), assets, liabilities, business or operations
of Penn Laurel or CSB, as the case may be. Neither Penn Laurel nor CSB is
subject to or a party in any Complaint or action before the Pennsylvania Human
Relations Commission, the Equal Employment Opportunity Commission, or the
Department of Labor. There are no labor disputes pending, or to the knowledge of
Penn Laurel threatened, that might materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business or operations of Penn
Laurel or CSB.
Section 4.18. Employee Benefit Plans. Each "employee benefit plan", as
defined in Section 3(3) of ERISA, that now covers any employee of Penn Laurel or
CSB, its predecessors or affiliates, complies in all material respects with all
applicable requirements of ERISA, the Code and other applicable laws. Neither
Penn Laurel nor any of its predecessors or affiliates has engaged in any
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) or any breach of fiduciary responsibility under Part 4 of Title I of
ERISA, with respect to which a prohibited transaction is likely to result in any
material penalties or taxes under Section 502 of ERISA or Section 4975 of the
Code, or any material liability to any participant or beneficiary of the plan.
No material liability to the Pension Benefit Guaranty Corporation has been or is
expected to be incurred by Penn Laurel with respect to itself or its
predecessors or affiliates with respect to any plan that is subject to Title IV
of ERISA, or with respect to any "single employer plan" (as defined in Section
4001(a)(15) of ERISA) currently or formerly maintained. No plan had an
"accumulated funding deficiency" (as defined in Section 302 of ERISA) (whether
or not waived) as of the last day of the end of the most recent plan year ending
prior to the date hereof. The fair market value of the assets of each plan
exceeds the present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under each plan as of the end of the most recent plan
year, calculated on the basis of the actuarial assumptions used in the most
recent actuarial valuation for each plan. No notice of a "reportable event" (as
defined in Section 4043 of ERISA) for which the 30-day reporting requirement has
not been waived has been required to be filed for any of the plans within the
12-month period ending on the date hereof. Neither Penn Laurel, its
predecessors nor affiliates has provided, or is required to provide, security to
any plans pursuant to Section 401(a)(29) of the Code. Penn Laurel, its
predecessors and affiliates have contributed to no "multi-employer plan", as
defined in Section 3(37) of ERISA, on or after September 26, 1980. All actuarial
valuations and other documents and information concerning benefit plans
delivered or made available in connection with this Agreement are true and
correct as of the date(s) shown thereon, and all actuarial methods and
assumptions are appropriate for the plans, and are consistent with the methods
and assumptions permitted by the Code and ERISA. All the plans are funded to the
extent that the assets of each plan would then be sufficient to pay all vested
accrued benefits thereunder, and there would be no employer liability under
Title IV of ERISA. Since 1990, there has been no audit of any benefit plan of
Penn Laurel or of CSB by the Department of Labor, the IRS or the PBGC. There has
not been any audit of the Pension Plan or any of Penn Laurel's or CSB's other
employee benefit plans by the Department of Labor, the IRS or the PBGC since
1988. Except as previously disclosed, Penn Laurel, its predecessors and
affiliates, have no obligation for retiree health and life benefits under any
benefit plan, contract, or arrangement. Penn Laurel and CSB have no obligation
for any post-retirement benefits under any plan, contract or arrangement except
as previously disclosed.
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Section 4.19. Related Party Transactions. Except as previously disclosed,
Penn Laurel and CSB have no contract, extension of credit, business arrangement
or other relationship of any kind with any of the following persons: (i) any
present or former officer or director of Penn Laurel or CSB; (ii) any
shareholder owning five percent or more of the outstanding Penn Laurel Common
Stock; and (iii) any "associate" (as defined in Rule 405 promulgated by the
Commission of the foregoing persons or any business in which any of the
foregoing persons is an officer, director, employee or five percent or greater
equity owner. Each extension of credit previously disclosed has been made in the
Ordinary Course of Business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable arms'
length transactions with other persons that do not involve more than a normal
risk of collectibility or present other unfavorable features.
Section 4.20. Complete and Accurate Disclosure. Neither this Agreement
(insofar as it relates to Penn Laurel, CSB, Penn Laurel Common Stock and Penn
Laurel's and CSB's involvement in the transactions contemplated hereby) nor any
financial statement, schedule, certificate, or other statement or document
delivered by Penn Laurel or CSB to Clearfield in connection herewith contains
any statement that, at the time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact or omits to
state any material fact necessary to make the statements contained herein or
therein not false or misleading. In particular, without limiting the generality
of the foregoing sentence, the information provided and the representations made
by Penn Laurel or CSB to Clearfield in connection with the Registration
Statement (as defined in Section 7.2b) of this Agreement), both at the time the
information and representations are provided and made and at the Effective Date,
will be true and accurate in all material respects and will not contain any
false or misleading statement with respect to any material fact or omit to state
any material fact necessary (i) to make the statements made therein not false or
misleading, or (ii) to correct any statement contained in an earlier
communication with respect to the information or representations that has become
false or misleading.
Section 4.21. Beneficial Ownership of Clearfield Common Stock. Prior to the
Effective Date, Penn Laurel, CSB and their officers and directors will not
beneficially own, in the aggregate, (within the meaning of Commission Rule
13d-3(d)(1)) more than five percent of the outstanding shares of Clearfield
Common Stock.
Section 4.22. Environmental Matters. Except as previously disclosed:
(a) Penn Laurel and CSB have not been and are not in violation of or
liable under any Environmental Law.
(b) To the knowledge of Penn Laurel, none of the Loan Portfolio
Properties and Other Properties Owned have been or are in violation of or
liable under any Environmental Law.
(c) Penn Laurel has no knowledge that any environmental contaminant,
pollutant, toxic or hazardous waste or other similar substance has been
generated, used, stored, processed, disposed of or discharged onto
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any of the real estate now or previously owned or acquired (including
without limitation any real estate acquired by means of foreclosure or
exercise of any other creditor's right) or leased by Penn Laurel, except as
previously disclosed. In particular, without limiting the generality of the
foregoing sentence, except as previously disclosed, Penn Laurel has no
knowledge that: (i) any materials containing asbestos have been used or
incorporated in any building or other structure or improvement located on
any of the real estate now or previously owned or acquired (including
without limitation any real estate acquired by means of foreclosure or
exercise of any other creditor's right) or leased by Penn Laurel or CSB;
(ii) any electrical transformers, fluorescent light fixtures with ballasts
or other equipment containing PCB's are or have been located on any of the
real estate now or previously owned or acquired (including without
limitation any real estate acquired by means of foreclosure or exercise of
any other creditor's right) or leased by Penn Laurel or CSB; (iii) any
underground storage tanks for the storage of gasoline, petroleum products
or other toxic or hazardous substances are or have ever been located on any
of the real estate now or previously owned or acquired (including without
limitation any real estate acquired by means of foreclosure or exercise of
any other creditor's right) or leased by Penn Laurel or CSB.
(d) Except as previously disclosed, there is no legal, administrative,
arbitration or other proceeding, claim, action, or to the knowledge of Penn
Laurel cause of action or governmental investigation of any nature seeking
to impose, or that could result in the imposition, on Penn Laurel or CSB of
any liability arising under any local, state or federal environmental
statute, regulation or ordinance including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, pending or to the knowledge of Penn Laurel threatened
against Penn Laurel or CSB; there is no reasonable basis for any such
proceeding, claim, action or governmental investigation; and neither Penn
Laurel nor CSB is subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency
or third party imposing any such liability.
Section 4.23. Proxy Statement/Prospectus. At the time the Proxy Statement/
Prospectus (as defined in Section 7.2b) of this Agreement) is mailed to the
shareholders of Clearfield, and at all times subsequent to the mailing, up to
and including the Effective Date, the Proxy Statement/Prospectus (including any
pre- and post-effective amendments and supplements thereto), (other than
information provided by Clearfield), will: (i) comply in all material respects
with applicable provisions of the Securities Act and the Exchange Act and the
pertinent rules and regulations thereunder; and (ii) not contain any statement
that, at the time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omits to state any
material fact that is necessary to be stated therein in order (A) to make the
statements therein not false or misleading, or (B) to correct any statement in
an earlier communication with respect to the Proxy Statement/Prospectus that has
become false or misleading.
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Section 4.24. Non-Registration Under the Securities Exchange Act of
1934. Penn Laurel Common Stock is neither registered nor required to be
registered under Section 12 of the Exchange Act and is not subject to the
periodic reporting requirements imposed by Section 13 or 15(d) of the Exchange
Act.
Section 4.25. Repurchase Agreements. With respect to any agreement,
pursuant to which Penn Laurel or CSB has purchased securities subject to an
agreement to resell, if any, Penn Laurel or CSB, as the case may be, has a
valid, perfected first lien or security interest in the government securities or
other collateral securing the repurchase agreement, and the value of the
collateral equals or exceeds the amount of the debt secured thereby.
Section 4.26. Assumability of Contracts and Leases. Except as previously
disclosed, all Material Contracts between Penn Laurel or CSB, as the case may
be, and any other entity or person do not contain any term or provision that
would accelerate or increase payments that would otherwise be due by Penn Laurel
or CSB to the person or entity, or change or modify the provisions or terms of
the leases, contracts and agreements by reason of this Agreement or the
transactions contemplated hereby. Except as previously disclosed, each lease
pursuant to which Penn Laurel or CSB, as lessee, leases real or personal
property is valid and in effect in accordance with its respective terms, and
there is not, under any of the leases, on the part of the lessee any material
existing default or any event that, with notice or lapse of time, or both, would
constitute a default, other than defaults that would not individually or in the
aggregate have a material adverse effect on the financial condition, business,
prospects, or operating results of Penn Laurel or CSB.
Section 4.27. Accuracy of Representations. Penn Laurel will promptly notify
Clearfield if any of the representations contained in this Article IV cease to
be true and correct subsequent to the date hereof. Further, no representations
made by Penn Laurel pursuant to this Agreement contain any untrue statement of
material fact or omit to state a material fact necessary to make the statements
not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CSB
CSB represents and warrants to Clearfield, as this date, as follows:
Section 5.1. Capital Structure of CSB. CSB is authorized to issue 150,000
shares of capital stock, par value $5.00 per share, of which 120,000 shares are
outstanding and held by Penn Laurel.
Section 5.2. Organization and Standing. CSB is a Pennsylvania chartered
banking institution that is duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. CSB has full power
and lawful authority to own and hold its properties and to carry on its present
business.
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Section 5.3. Authorized and Effective Agreement. The execution, delivery
and performance of this Agreement and the Bank Merger Agreement have been duly
and validly authorized by the Board of Directors of CSB. Subject to appropriate
shareholder and regulatory approvals, neither the execution and delivery of this
Agreement or the Bank Merger Agreement nor the consummation of the transactions
provided for herein or therein will violate any agreement to which CSB is a
party or by which it is bound or any law, regulation, order, decree or any
provision of its Articles of Incorporation or By-laws.
Section 5.4. Financial Institutions Bonds. Since January 1, 1991, CSB has
continuously maintained in full force and effect a financial institutions bond
insuring CSB against acts of dishonesty by each of its employees. Except as
previously disclosed, no claim has been made under any bond, and CSB is not
aware of any fact or condition presently existing that might form the basis of a
claim under any bond. CSB has no reason to believe that its present financial
institutions bond will not be renewed by its carrier on substantially the same
terms and at the same rate as now in effect.
Section 5.5. Deposit Insurance. The deposits of CSB are insured by the Bank
Insurance Fund, as administered by the FDIC in accordance with the FDIA and CSB
has paid all assessments and filed all reports required by the FDIA.
Section 5.6. Loans. Except as previously disclosed, each loan reflected as
an asset on CSB's financial statements as of September 30, 1998, or acquired
since that date, is the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles. All loans, and the
collateral and other security therefor, and the documentation for the same, meet
the requirements, rules, regulations or directives of the FDIC, or other
applicable governmental authorities.
Section 5.7. Adjustable Rate Mortgages. CSB has made all interest rate
adjustments to any mortgage loan according to the terms of said mortgage loan
and has complied and is in compliance in all material respects with all federal,
state and other applicable laws, rules and regulations, including orders, writs,
decrees, injunctions and other requirements of any court or governmental
authorities having jurisdiction over adjustable rate mortgages.
Section 5.8. CRA Compliance. CSB has received a satisfactory compliance
rating and has received a satisfactory Community Reinvestment Act rating. CSB
has no knowledge of any facts or circumstances that would prevent it from
receiving satisfactory ratings upon its next appropriate examination.
Section 5.9. Loan Loss Reserve. The loan loss reserve of CSB is and shall
remain adequate in light of generally accepted accounting principles, directives
of governmental authorities, and all regulations, rules and directives of the
Banking Department and the FDIC. No regulatory authority requested CSB to
increase the allowance for loan losses during 1998, 1997, 1996 or 1995.
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Section 5.10. Member Federal Reserve System. CSB is not a member of the
Federal Reserve System.
Section 5.11. Year 2000 Compliance. CSB is in compliance with all
requirements announced or promulgated by the CSB Regulatory Agencies and by the
Federal Financial Institutions Examination Council in connection with Year 2000
preparedness and compliance.
Section 5.12. Accuracy of Representations. CSB will promptly notify
Clearfield if any of the representations contained in this Article V cease to be
true and correct subsequent to the date hereof. Further, no representations made
by CSB pursuant to this Agreement contain any untrue statement of material fact
or omit to state a material fact necessary to make the statements not
misleading.
ARTICLE VI
COVENANTS OF CLEARFIELD
From the date of this Agreement until the Effective Date (as defined in
Section 11.2 of this Agreement), Clearfield covenants and agrees to do the
following:
Section 6.1. Conduct of Business. Except as otherwise consented to by Penn
Laurel and CSB in writing, Clearfield shall:
(a) use all reasonable efforts to carry on its business in, and only
in, the Ordinary Course of Business, consistent with past practices and
written policies;
(b) to the extent consistent with prudent business judgment, use all
reasonable efforts to preserve its present business organization, to retain
the services of its present officers and employees, to maintain good
relationships with its employees, and to maintain its relationships with
customers, suppliers and others having business dealings with Clearfield;
(c) maintain all of Clearfield's structures, equipment and other real
property and tangible personal property in good repair, order and
condition, except for ordinary wear and tear and damage by unavoidable
casualty;
(d) use all reasonable efforts to preserve or collect all material
claims and causes of action belonging to Clearfield;
(e) keep in full force and effect all insurance policies now carried
by Clearfield;
(f) perform in all material respects each of Clearfield's obligations
under all material agreements, contracts, instruments and other commitments
to which Clearfield is
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a party or by which Clearfield may be bound or that relate to or affect its
properties, assets and business;
(g) maintain its books of account and other records in the Ordinary
Course of Business;
(h) comply in all material respects with all statutes, laws,
ordinances, rules and regulations, decrees, orders, consent agreements,
examination reports, memoranda of understanding and other federal, state,
county, local and municipal governmental directives applicable to
Clearfield and to the conduct of its business;
(i) not amend Clearfield's Articles of Incorporation or Bylaws;
(j) except in the Ordinary Course of Business, not enter into or
assume any material contract, incur any material liability or obligation,
make any material commitment, acquire or dispose of any property or asset
or engage in any transaction or subject any of Clearfield's properties or
assets to any material lien, claim, charge, or encumbrance of any kind
whatsoever;
(k) not take or permit to be taken any action that would constitute a
breach of any representation, warranty or covenant set forth in this
Agreement;
(l) not declare, set aside or pay any dividend or make any other
distribution in respect of Clearfield Common Stock, except as provided in
Section 6.9 of this Article VI;
(m) not authorize, purchase, issue or sell (or authorize, issue or
grant options, warrants or rights to purchase or sell) any shares of
Clearfield Common Stock or any other equity or debt securities of
Clearfield or any securities convertible into Clearfield Common Stock;
(n) except in the Ordinary Course of Business and consistent with past
practice, not increase the rate of compensation of, pay a bonus or
severance compensation to, or enter into any employment, severance,
deferred compensation or other agreement with any officer, director,
employee or consultant of Clearfield;
(o) not enter into any related party transaction of the kind
contemplated in Section 3.20 of Article III of this Agreement except
related party transactions relating to extensions of credit made in
accordance with all applicable laws, regulations and rules and in the
Ordinary Course of Business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable arms' length transactions with other persons that do not involve
more than the normal risk of collectibility or present other unfavorable
features and after disclosure of such to Penn Laurel;
(p) not change the presently outstanding number of shares or declare
or effect any capitalization, reclassification, stock dividend, stock split
or like change in capitalization;
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(q) not enter into or substantially modify (except as may be required
by applicable law) any pension, retirement, stock option, stock warrant,
stock purchase, stock appreciation right, savings, profit sharing, deferred
compensation, severance, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, or plan or arrangement, or
any trust agreement related thereto, in respect to any of its directors,
officers, or other employees;
(r) not merge with or into, or consolidate with, or be purchased or
acquired by, any other corporation, financial institution, entity, or
person (or agree to any merger, consolidation, affiliation, purchase or
acquisition) or permit (or agree to permit) any other corporation,
financial institution, entity or person to be merged with it or consolidate
or affiliate with any other corporation, financial institution, entity or
person; acquire control over any other firm, financial institution,
corporation or organization or create any subsidiary; acquire, liquidate,
sell or dispose (or agree to acquire, liquidate, sell or dispose) of any
assets, other than in the Ordinary Course of Business and consistent with
prior practice;
(s) not solicit or encourage inquiries or proposals with respect to,
furnish any information relating to, or participate in any negotiations or
discussions concerning any acquisition or purchase of all or a substantial
equity interest or portion of the assets in or of Clearfield or any
business combination with Clearfield, other than as contemplated by this
Agreement, or authorize or permit any officer, director, agent or affiliate
of it to do any of the above; or fail to notify Penn Laurel immediately if
any inquiries or proposals are received by, any information is requested
from, or any negotiations are sought to be initiated with Clearfield;
(t) not change any method, practice or principle of accounting except
as may be required by generally accepted accounting principles or any
applicable regulator;
(u) not make (including without limitation, lines of credit and
letters of credit) to any affiliate as defined in Regulation O or
compromise, expand, or modify any such commitment outstanding;
(v) not enter into any swap or similar commitment, agreement or
arrangement which is not consistent with past practice and which increases
the credit or interest rate risk over the levels existing at September 30,
1998;
(w) not enter into any derivative, cap or floor or similar commitment,
agreement or arrangement, except in the ordinary course of business and
consistent with past practices;
(x) take any action that would result in any of the representations
and warranties of Clearfield set forth in this Agreement becoming untrue as
of any date after the date hereof;
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(y) not sell, exchange or otherwise dispose of any investment
securities or loans that are held for sale, prior to scheduled maturity and
other than pursuant to policies agreed upon from time to time by the
parties;
(z) not purchase any security for its investment portfolio not rated
"A" or higher by either Standard & Poor's Corporation or Moody's Investor
Services, Inc.;
(aa) not waive, release, grant or transfer any rights of value or
modify or change, in any material respect, any existing agreement to which
Clearfield is a party, other than in the ordinary course of business
consistent with past practice;
(bb) not knowingly take any action that would, under any statute,
regulation or administrative practice of any regulatory agency, materially
or adversely affect the ability of any party to this Agreement to obtain
any required approvals for consummation of the transactions contemplated by
this Agreement; and
(cc) not agree to any of the foregoing items (a) through (bb).
Section 6.2. Best Efforts. Clearfield shall cooperate with Penn Laurel and
CSB and shall use its best efforts to do or cause to be done all things
necessary or appropriate on its part in order to fulfill the conditions
precedent set forth in Article VIII of this Agreement and to consummate this
Agreement. In particular, without limiting the generality of the foregoing
sentence, Clearfield shall:
(a) cooperate with Penn Laurel and CSB in the preparation of all
required applications for regulatory approval of the transactions
contemplated by this Agreement and in the preparation of the Registration
Statement (as defined in Section 7.1(b) of this Agreement);
(b) call a special or annual meeting of its shareholders and take, in
good faith, all actions that are necessary or appropriate on its part in
order to secure the approval and adoption of this Agreement and the Bank
Merger Agreement by its shareholders at the meeting, including recommending
the approval of this Agreement and the Bank Merger Agreement by the
shareholders of Clearfield;
(c) cooperate with Penn Laurel and CSB in making Clearfield's
employees reasonably available for training prior to the Effective Date, to
the extent that training is deemed reasonably necessary;
(d) make additions to loan loss reserves and make loan write-offs,
write-downs and other adjustments that reasonably should be made by
Clearfield in light of generally accepted accounting principles, directives
of governmental authorities, and all regulations, rules and directives of
the FDIC, Department of Banking, and Board of Governors of the Federal
Reserve System (the "FRB"), prior to the closing of Clearfield's books of
account for its fiscal year ending December 31, 1998, and for the period
from that date until the Effective Date;
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(e) suspend any dividend reinvestment and/or stock repurchase plan, as
soon as practicable;
(f) modify the Articles of Incorporation or Bylaws or any other
documents of Clearfield as reasonably necessary to effectuate the
transactions contemplated hereby; and
(g) use its best efforts to assure that the directors of Clearfield
shall have executed and delivered the Support Agreement in the form
attached hereto as Exhibit B.
Section 6.3. Access to Properties and Records. Clearfield shall give to
Penn Laurel, CSB and their authorized representatives (including, without
limitation, their counsel, accountants, economic and environmental consultants
and other designated representatives) reasonable access during normal business
hours to all properties, books, contracts, documents and records of Clearfield
as Penn Laurel or CSB may reasonably request, subject to the obligation of Penn
Laurel, CSB and their authorized representatives to maintain the confidentiality
of all non-public information concerning Clearfield obtained by reason of such
access.
Section 6.4. Subsequent Financial Statements. Between the date of execution
of this Agreement and the Effective Date, Clearfield shall promptly prepare and
deliver to Penn Laurel and CSB, as soon as practicable, all internal monthly and
quarterly financial statements, reports to shareholders and reports to
regulatory authorities prepared by or for Clearfield, including all audit
reports submitted to Clearfield by independent auditors in connection with each
annual, interim or special audit of the books of Clearfield made by the
accountants. In particular, without limiting the generality of the foregoing
sentence, Clearfield shall deliver to Penn Laurel and CSB, as soon as
practicable, a balance sheet as of December 31, 1998, and a related statement of
income for the twelve (12) months then ended (which financial statements are
hereinafter referred to as the "December 31, 1998 Clearfield Financial
Statements"). The representations and warranties set forth in Sections 3.7, 3.8
and 3.9 of this Agreement shall apply to the December 31, 1998, Clearfield
Financial Statements.
Section 6.5. Board and Committee Minutes. Clearfield shall provide to Penn
Laurel, within 10 days after any meeting of the Board of Directors, or any
committee thereof, or any senior or executive management committee, a copy of
the minutes of the meeting.
Section 6.6. Update Information. Clearfield shall promptly disclose to Penn
Laurel and CSB, in writing, any change, addition, deletion or other modification
to the information previously disclosed.
Section 6.7. Notice. Clearfield shall promptly notify Penn Laurel and CSB,
in writing, of any actions, claims, investigations, proceedings or other
developments that, if pending or in existence on the date of this Agreement,
would have been required to be disclosed to Penn Laurel and CSB in order to
ensure the accuracy of the representations and warranties set forth in this
Agreement or that otherwise could materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business operations or future
prospects of Clearfield.
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Section 6.8. Other Proposals. Clearfield shall not, nor shall it permit any
officer, director, employee, agent, consultant, counsel or other representative,
to directly or indirectly solicit, encourage, initiate or engage in discussions
or negotiations with, or respond to requests for information, inquiries or other
communications from, any person, other than Penn Laurel, concerning the fact of,
or the terms and conditions of, this Agreement, or concerning any transaction
with Clearfield, or any assets or business thereof (except that Clearfield's
officers may respond to inquiries from analysts, regulatory authorities and
holders of Clearfield Common Stock in the Ordinary Course of Business); and
Clearfield shall notify Penn Laurel immediately if any discussions or
negotiations are sought to be initiated with Clearfield by any person other than
Penn Laurel or if any requests for information, inquiries, proposals or
communications are received from any person other than Penn Laurel
Section 6.9. Dividends. Between the date of this Agreement and the
Effective Date, Clearfield shall only declare and pay cash dividends as provided
herein. Clearfield shall only pay regular quarterly cash dividends in amounts
and on dates consistent with past practices.
Section 6.10. Core Deposits. Clearfield shall use commercially reasonable
efforts to maintain deposits.
Section 6.11. Affiliate Letters. Clearfield shall deliver or cause to be
delivered to Penn Laurel and CSB, at or before the Effective Date (as defined in
Section 11.2 of this Agreement), a letter or agreement from each officer,
director and shareholder of Clearfield who may be deemed to be an "affiliate"
(as that term is defined for purposes of Commission Rules 145 and 405 under the
Securities Act) of Clearfield, in form and substance satisfactory to Penn Laurel
and CSB, under the terms of which each officer, director or shareholder, as the
case may be, acknowledges and agrees to abide by all limitations imposed by the
Securities Act and by all rules, regulations and releases promulgated thereunder
with respect to the sale or other disposition of the shares of Penn Laurel
Common Stock to be received by the person pursuant to the terms of this
Agreement.
Section 6.12. No Purchases or Sales of Penn Laurel Common Stock During
Price Determination Period. Neither Clearfield nor any executive officer or
director of Clearfield nor any shareholder of Clearfield who may be deemed to be
an "affiliate" (as that term is defined for purposes of Commission Rules 145 and
405 under the Securities Act) of Clearfield shall purchase or sell or submit a
bid to purchase or an offer to sell, directly or indirectly, any shares of Penn
Laurel Common Stock or any options, rights or other securities convertible into
shares of Penn Laurel Common Stock within 20 business days of the Effective
Date.
Section 6.13. Accounting Treatment. Clearfield acknowledges that the
parties intend to treat the business combination contemplated by this Agreement
as a "pooling of interests" for financial reporting purposes. Clearfield shall
not take (and shall use its best efforts not to permit any of its directors,
officers, employees, shareholders, agents, consultants or other representatives
to take) any action that would preclude treating the business combination as a
"pooling of interests" for financial reporting purposes.
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Section 6.14. Press Releases. Clearfield shall not issue any press release
related to this Agreement and the Bank Merger Agreement or the transactions
contemplated hereby or thereby as to which Penn Laurel has not given its prior
written consent, and shall consult with Penn Laurel as to the form and substance
of other public disclosures related thereto.
Section 6.15. Phase I Environmental Audit. Clearfield shall permit, if Penn
Laurel elects to do, at its own expense, a "phase I environmental audit" to be
performed at any physical location owned or occupied by Clearfield on the date
hereof.
ARTICLE VII
COVENANTS OF PENN LAUREL AND CSB
From the date of this Agreement until the Effective Date (as defined in
Section 11.2 of this Agreement), Penn Laurel and CSB covenant and agree to do
the following:
Section 7.1. Conduct of Business. Except as otherwise consented to by
Clearfield in writing, Penn Laurel and CSB shall:
(a) use all reasonable efforts to carry on their business in, and only
in, the Ordinary Course of Business, consistent with past practices and
written policies;
(b) to the extent consistent with prudent business judgment, use all
reasonable efforts to preserve their present business organizations, to
retain the services of their present officers and employees, to maintain
good relationships with their employees, and to maintain their
relationships with customers, suppliers and others having business dealings
with Penn Laurel or CSB, as the case may be;
(c) maintain all of Penn Laurel's and CSB's structures, equipment and
other real property and tangible personal property in good repair, order
and condition, except for ordinary wear and tear and damage by unavoidable
casualty;
(d) use all reasonable efforts to preserve or collect all material
claims and causes of action belonging to Penn Laurel or CSB, as the case
may be;
(e) keep in full force and effect all insurance policies now carried
by Penn Laurel and CSB;
(f) perform in all material respects each of Penn Laurel's and CSB's
obligations under all material agreements, contracts, instruments and other
commitments to which they are a party or by which they may be bound or that
relate to or affect their properties, assets and business;
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(g) maintain their books of account and other records in the Ordinary
Course of Business;
(h) comply in all material respects with all statutes, laws,
ordinances, rules and regulations, decrees, orders, consent agreements,
examination reports, memoranda of understanding and other federal, state,
county, local and municipal governmental directives applicable to Penn
Laurel or CSB, as the case may be, and to the conduct of their business;
(i) not amend their Articles of Incorporation or Bylaws;
(j) except in the Ordinary Course of Business, not enter into or
assume any material contract, incur any material liability or obligation,
make any material commitment, acquire or dispose of any property or asset
or engage in any transaction or subject any of Penn Laurel's or CSB's
properties or assets to any material lien, claim, charge, or encumbrance of
any kind whatsoever;
(k) not take or permit to be taken any action that would constitute a
breach of any representation, warranty or covenant set forth in this
Agreement;
(l) not declare, set aside or pay any dividend or make any other
distribution in respect of Penn Laurel Common Stock, except as provided in
Section 7.9 of this Article VII;
(m) not authorize, purchase, issue or sell (or authorize, issue or
grant options, warrants or rights to purchase or sell) any shares of Penn
Laurel Common Stock or any other equity or debt securities of Penn Laurel
or any securities convertible into Penn Laurel Common Stock, except
pursuant to stock options previously issued or awarded prior to the date
hereof;
(n) except in the Ordinary Course of Business and consistent with past
practice, not increase the rate of compensation of, pay a bonus or
severance compensation to, or enter into any employment, severance,
deferred compensation or other agreement with any officer, director,
employee or consultant of Penn Laurel or CSB;
(o) not enter into any related party transaction of the kind
contemplated in Section 4.20 of Article IV of this Agreement except related
party transactions relating to extensions of credit made in accordance with
all applicable laws, regulations and rules and in the Ordinary Course of
Business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable arms' length
transactions with other persons that do not involve more than the normal
risk of collectibility or present other unfavorable features and after
disclosure of such to Clearfield;
(p) not change the presently outstanding number of shares or declare
or effect any capitalization, reclassification, stock dividend, stock split
or like change in capitalization, except pursuant to stock options
previously issued or awarded prior to the date hereof;
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(q) not enter into or substantially modify (except as may be required
by applicable law) any pension, retirement, stock option, stock warrant,
stock purchase, stock appreciation right, savings, profit sharing, deferred
compensation, severance, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, or plan or arrangement, or
any trust agreement related thereto, in respect to any of their directors,
officers, or other employees;
(r) not merge with or into, or consolidate with, or be purchased or
acquired by, any other corporation, financial institution, entity, or
person (or agree to any merger, consolidation, affiliation, purchase or
acquisition) or permit (or agree to permit) any other corporation,
financial institution, entity or person to be merged with it or consolidate
or affiliate with any other corporation, financial institution, entity or
person; acquire control over any other firm, financial institution,
corporation or organization or create any subsidiary; acquire, liquidate,
sell or dispose (or agree to acquire, liquidate, sell or dispose) of any
assets, other than in the Ordinary Course of Business and consistent with
prior practice;
(s) not solicit or encourage inquiries or proposals with respect to,
furnish any information relating to, or participate in any negotiations or
discussions concerning any acquisition or purchase of all or a substantial
equity interest or portion of the assets in or of Penn Laurel or CSB or any
business combination with Penn Laurel or CSB, other than as contemplated by
this Agreement, or authorize or permit any officer, director, agent or
affiliate of it to do any of the above; or fail to notify Clearfield
immediately if any inquiries or proposals are received by, any information
is requested from, or any negotiations are sought to be initiated with Penn
Laurel;
(t) not change any method, practice or principle of accounting except
as may be required by generally accepted accounting principles or any
applicable regulator;
(u) not make (including without limitation, lines of credit and
letters of credit) to any affiliate as defined in Regulation O or
compromise, expand, or modify any such commitment outstanding;
(v) not enter into any swap or similar commitment, agreement or
arrangement which is not consistent with past practice and which increases
the credit or interest rate risk over the levels existing at September 30,
1998;
(w) not enter into any derivative, cap or floor or similar commitment,
agreement or arrangement, except in the ordinary course of business and
consistent with past practices;
(x) take any action that would result in any of the representations
and warranties of Penn Laurel or CSB set forth in this Agreement becoming
untrue as of any date after the date hereof;
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(y) not sell, exchange or otherwise dispose of any investment
securities or loans that are held for sale, prior to scheduled maturity and
other than pursuant to policies agreed upon from time to time by the
parties;
(z) not purchase any security for its investment portfolio not rated
"A" or higher by either Standard & Poor's Corporation or Moody's Investor
Services, Inc.;
(aa) not waive, release, grant or transfer any rights of value or
modify or change, in any material respect, any existing agreement to which
Penn Laurel or CSB is a party, other than in the ordinary course of
business consistent with past practice;
(bb) not knowingly take any action that would, under any statute,
regulation or administrative practice of any regulatory agency, materially
or adversely affect the ability of any party to this Agreement to obtain
any required approvals for consummation of the transactions contemplated by
this Agreement; and
(cc) not agree to any of the foregoing items (a) through (bb).
Section 7.2. Best Efforts. Penn Laurel and CSB shall cooperate with
Clearfield and shall use their best efforts to do or cause to be done all things
necessary or appropriate on their part in order to fulfill the conditions
precedent set forth in Article VIII of this Agreement and to consummate this
Agreement. In particular, without limiting the generality of the foregoing
sentence, Penn Laurel and CSB shall:
(a) Penn Laurel and CSB shall promptly prepare and file, with the
cooperation and assistance of Clearfield, all required applications for
regulatory approval of the transactions contemplated by this Agreement and
the Bank Merger Agreement;
(b) Penn Laurel shall promptly prepare, with the cooperation and
assistance of Clearfield, and file with the Commission a registration
statement under the Securities Act (the "Registration Statement") for the
purpose of registering the shares of Penn Laurel Common Stock to be issued
under the provisions of this Agreement. Penn Laurel may rely upon all
information provided to it by Clearfield in this connection, and Penn
Laurel shall not be liable for any untrue statement of a material fact or
any omission to state a material fact in the Registration Statement or in
the proxy statement and prospectus (the "Proxy Statement/Prospectus") that
is prepared as a part of the Registration Statement, if the statement is
made by Penn Laurel in reliance upon any information provided to Penn
Laurel by Clearfield or by its agents and representatives. Penn Laurel will
advise Clearfield, after it receives notice thereof, of the time when the
Registration Statement or any Pre- or Post-Effective Amendment thereto has
become effective or any supplement or amendment, thereto has been filed;
(c) Penn Laurel and CSB, with the cooperation of Clearfield, shall
promptly take all actions that may be necessary or appropriate in order to
comply with all applicable
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securities laws of any state having jurisdiction over the transactions
contemplated by this Agreement;
(d) Penn Laurel and CSB, with the cooperation of Clearfield, shall
make the Penn Laurel and CSB, as the case may be, employees reasonably
available for training prior to the Effective Date, to the extent that
training is deemed reasonably necessary;
(e) make additions to loan loss reserves and make loan write-offs,
write-downs and other adjustments that reasonably should be made by CSB in
light of generally accepted accounting principles, directives of
governmental authorities, and all regulations, rules and directives of the
FDIC, Department of Banking, and Board of Governors of the Federal Reserve
System (the "FRB"), prior to the closing of CSB's books of account for its
fiscal year ending December 31, 1998, and for the period from that date
until the Effective Date;
(f) modify the Articles of Incorporation or Bylaws or any other
documents of Penn Laurel and CSB reasonably necessary to effectuate the
transactions contemplated hereby; and
(g) call a special or annual meeting of Penn Laurel's shareholders and
take, in good faith, all actions that are necessary or appropriate on its
part in order to secure the approval and adoption of this Agreement and the
Bank Merger Agreement by its shareholders at the meeting, including
recommending the approval of this Agreement and the Bank Merger Agreement
by the shareholders of Penn Laurel;
(h) Support Agreement. Use its best efforts to assure that the
directors of Penn Laurel shall have executed and delivered the Support
Agreement in the form attached hereto as Exhibit C.
Section 7.3. Access to Properties and Records. Penn Laurel and CSB shall
give to Clearfield and to its authorized representatives (including without
limitation Clearfield's counsel, accountants, economic and environmental
consultants and other designated representatives) reasonable access during
normal business hours to all properties, books, contracts, documents and records
of Penn Laurel and CSB as Clearfield may reasonably request, subject to the
obligation of Clearfield and its authorized representatives to maintain the
confidentiality of all non-public information concerning Penn Laurel or CSB
obtained by reason of such access.
Section 7.4. Subsequent Financial Statements. Between the date of execution
of this Agreement and the Effective Date, Penn Laurel and CSB shall promptly
prepare and deliver to Clearfield, as soon as practicable, all internal monthly
and quarterly financial statements, reports to shareholders and reports to
regulatory authorities prepared by or for Penn Laurel or CSB, including all
audit reports submitted to Penn Laurel or CSB by independent auditors in
connection with each annual, interim or special audit of the books of Penn
Laurel or CSB made by the accountants. In particular, without limiting the
generality of the foregoing sentence, Penn Laurel or CSB, as the case may be,
shall deliver to Clearfield, as soon as practicable, a balance sheet as of
December 31, 1998, and a related statement of income for the twelve (12) months
then ended (which financial statements are hereinafter referred to as the
"December 31, 1998 Penn Laurel Financial Statements"). The
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representations and warranties set forth in Sections 4.7, 4.8 and 4.9 of
this Agreement shall apply to the December 31, 1998 Penn Laurel Financial
Statements.
Section 7.5. Board and Committee Minutes. Penn Laurel or CSB shall provide
to Clearfield, within 10 days after any meeting of the Board of Directors, or
any committee thereof, or any senior or executive management committee, a copy
of the minutes of the meeting.
Section 7.6. Update Information. Penn Laurel and CSB shall promptly
disclose to Clearfield, in writing, any change, addition, deletion or other
modification to the information previously disclosed.
Section 7.7. Notice. Penn Laurel and CSB shall promptly notify Clearfield,
in writing, of any actions, claims, investigations or other developments that,
if pending or in existence on the date of this Agreement, would have been
required to be disclosed to Clearfield in order to ensure the accuracy of the
representations and warranties set forth in this Agreement or that otherwise
could materially and adversely affect the condition (financial or otherwise),
assets, liabilities, business operations, or future prospects of Penn Laurel or
CSB.
Section 7.8. Other Proposals. Penn Laurel and CSB shall not, nor shall they
permit any officer, director, employee, agent, consultant, counsel or other
representative, to directly or indirectly solicit, encourage, initiate or engage
in discussions or negotiations with, or respond to requests for information,
inquiries or other communications from, any person, other than Clearfield,
concerning the fact of, or the terms and conditions of, this Agreement, or
concerning any transaction with Penn Laurel or CSB, or any assets or business
thereof (except that Penn Laurel's officers may respond to inquiries from
analysts, regulatory authorities and holders of Penn Laurel Common Stock in the
Ordinary Course of Business); and Penn Laurel or CSB, as the case may be, shall
notify Clearfield immediately if any discussions or negotiations are sought to
be initiated with Penn Laurel or CSB by any person other than Clearfield or if
any requests for information, inquiries, proposals or communications are
received from any person other than Clearfield.
Section 7.9. Dividends. Between the date of this Agreement and the
Effective Date, Penn Laurel and CSB shall only declare and pay cash dividends as
provided herein. Penn Laurel and CSB shall only pay regular quarterly cash
dividends in amounts and on dates consistent with past practices.
Section 7.10. Core Deposits. CSB shall use commercially reasonable efforts
to maintain deposits.
Section 7.11. No Purchase or Sales of Penn Laurel Common Stock During Price
Determination Period. Neither Penn Laurel nor any subsidiary of Penn Laurel, nor
any executive officer or director of Penn Laurel or any subsidiary of Penn
Laurel, nor any shareholder of Penn Laurel who may be deemed to be an
"affiliate" (as that term is defined for purposes of Commission Rules 145 and
405 under the Securities Act) of Penn Laurel, shall purchase or sell, directly
or indirectly, any shares of Penn Laurel Common Stock or any options, rights or
other securities convertible into shares of Penn Laurel Common Stock within 20
days of the Effective Date;
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provided, however, that Penn Laurel may purchase shares of Penn Laurel
Common Stock in the Ordinary Course of Business during this period pursuant to
Penn Laurel's employee benefit plans or Penn Laurel's stock option plan.
Section 7.12. Accounting Treatment. Penn Laurel and CSB acknowledge that
the parties intend to treat the business combination contemplated by this
Agreement as a "pooling of interests" for financial reporting purposes. Penn
Laurel and CSB shall not take (and shall use their best efforts not to permit
any of their directors, officers, employees, shareholders, agents, consultants
or other representatives to take) any action that would preclude treating the
business combination as a "pooling of interests" for financial reporting
purposes.
Section 7.13. Press Releases. Penn Laurel and CSB shall not issue any press
release related to this Agreement and the Bank Merger Agreement or the
transactions contemplated hereby or thereby as to which Clearfield has not given
its prior written consent, and shall consult with Clearfield as to the form and
substance of other public disclosures related thereto.
Section 7.14. Phase I Environmental Audit. Penn Laurel and CSB shall
permit, if Clearfield elects to do, at its own expense, a "phase I environmental
audit" to be performed at any physical location owned or occupied by Penn Laurel
or CSB on the date hereof.
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1. Common Conditions. The obligations of the parties to
consummate this Agreement shall be subject to the satisfaction of each of the
following common conditions prior to or as of the Effective Date, except to the
extent that any condition shall have been waived in accordance with the
provisions of Section 9.4 of this Agreement:
(a) Shareholder and Regulatory Approvals. The parties hereto are not
under any obligation to consummate the Agreement until receipt of approval
of the FRB (or waiver thereof), of the Banking Department, of the Federal
Deposit Insurance Corporation and of any other approvals that may be
necessary or required by the federal or state regulators, and all
conditions and waiting periods required by the approvals, if any, have been
satisfied or have expired, and until receipt of any other approvals
required under the Articles of Incorporation or Bylaws of Clearfield, Penn
Laurel or CSB, or from the shareholders of Clearfield or Penn Laurel or
CSB, as the case may be. Provided, however, that no approval shall have
imposed any condition or requirement that, in the opinion of the Board of
Directors of Penn Laurel or the Board of Directors of Clearfield, renders
consummation of the transactions contemplated herein inadvisable.
(b) Tax Matters. There shall have been received an opinion of counsel
from Shumaker Williams, P.C., reasonably satisfactory in form and substance
to Penn Laurel, CSB and Clearfield, to the effect that:
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(i) The transactions contemplated by this Agreement and by the
Bank Merger Agreement will constitute a reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) the Code;
(ii) No gain or loss will be recognized by Penn Laurel or CSB or
by Clearfield as a result of the reorganization;
(iii) No gain or loss will be recognized by the shareholders of
Clearfield upon receipt of Penn Laurel Common Stock in exchange for
Clearfield Common Stock pursuant to the provisions of this Agreement
(except in respect of cash that is received in lieu of the issuance of
fractional shares of Penn Laurel Common Stock and any shareholder of
Clearfield who receives payment in cash as a dissenting shareholder);
(iv) The tax basis of the Penn Laurel Common Stock to be received
by the shareholders of Clearfield pursuant to the provisions of this
Agreement will be the same as the tax basis of the Clearfield Common
Stock surrendered in exchange therefor;
(v) The holding periods of the Penn Laurel Common Stock to be
received by the shareholders of Clearfield pursuant to the provisions
of this Agreement will include the holding periods of the Clearfield
Common Stock surrendered in exchange therefor, provided that the
Clearfield Common Stock is held as a capital asset on the Effective
Date; and
(vi) Clearfield as the surviving bank to the Merger, will
carry-over and take into account all accounting items and tax
attributes of CSB, including, but not limited, to earnings and
profits, methods of accounting, and tax basis and holding periods of
the assets of CSB.
(c) Registration Statement. The Registration Statement shall have been
declared effective by the Commission; the information contained therein
shall be true, complete and correct in all material respects as of the date
of mailing of the Proxy Statement/Prospectus to the shareholders of
Clearfield; regulatory clearance for the offering contemplated by the
Registration Statement (the "Offering") shall have been received from each
federal and state regulatory authority having jurisdiction over the
Offering, and no stop order shall have been issued or proceedings
instituted or threatened by any federal or state regulatory authority to
suspend or terminate the effectiveness of the Registration Statement or the
Offering.
(d) Fairness Opinions. Each of Penn Laurel and Clearfield shall have
obtained from an independent financial advisor selected by the Board of
Directors of Penn Laurel or Clearfield, as the case may be, an opinion,
dated as of a date no later than that of the Proxy Statement/Prospectus for
the special or annual meetings of Clearfield's and Penn Laurel's
shareholders, contemplated by Sections 6.2(b) and 7.2(g) respectively, of
this Agreement, stating that the exchange ratio of the consideration to be
received by the holders of Clearfield
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Common Stock and given by Penn Laurel, is fair from a financial point of
view, to the shareholders of the respective entities.
(e) No Suits. No action, suit or proceeding shall be pending or
threatened before any federal, state or local court or governmental
authority or before any arbitration tribunal that seeks to modify, enjoin
or prohibit or otherwise adversely and materially affect the transactions
contemplated by this Agreement.
(f) Statutes; Orders. No statute, rule, regulation, order, injunction
or decree shall have been enacted, entered, promulgated or enforced by any
governmental authority that prohibits, restricts or makes illegal the
consummation of the transactions contemplated by this Agreement.
(g) Antitrust Laws. All applicable notifications, statutory and
regulatory Antitrust Law requirements have been met.
(h) Other Requirements. All other requirements prescribed by law, and
the Articles of Incorporation, Bylaws and contracts of the parties hereto
that are necessary to the consummation of the transactions contemplated by
this Agreement shall have been satisfied.
(i) Dissenting Shareholders. Holders of no more than nine percent (9%)
of the issued and outstanding shares of Clearfield or Penn Laurel shall
have exercised their statutory appraisal or Dissenters' Rights.
Section 8.2. Conditions Precedent to Obligations of Penn Laurel and CSB.
The obligations of Penn Laurel and CSB to consummate this Agreement shall be
subject to the satisfaction of each of the following conditions prior to or as
of the Effective Date, except to the extent that the condition shall have been
waived by Penn Laurel and CSB in accordance with the provisions of Section 9.4
of this Agreement:
(a) Accuracy of Representations and Warranties. All of the
representations and warranties of Clearfield, as set forth in this
Agreement and the information contained in all Clearfield Closing Documents
(as defined in Section 8.2(g) of this Agreement), shall be true and correct
in all material respects as of the Effective Date as if made on that date
(or on the date to which it relates in the case of any representation or
warranty that expressly relates to an earlier date).
(b) Covenants Performed. Clearfield shall have performed or complied
in all material respects with each of the covenants required by this
Agreement to be performed or complied with by it.
(c) Opinion of Counsel for Clearfield. Clearfield shall have delivered
to Penn Laurel and CSB an opinion of its special counsel in form and
substance reasonably satisfactory to Penn Laurel and CSB, to the effect
that, as of the Effective Date:
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(i) Clearfield is a Pennsylvania chartered bank and trust company,
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has full power and lawful authority to own
and hold its properties and to carry on its present business;
(ii) Clearfield is an insured bank under the provisions of the FDIA;
(iii) the authorized capital of Clearfield consists exclusively of
_____ shares of common stock, par value $____ per share, of which _____
shares are validly issued, _____ shares are outstanding, fully paid and
non-assessable and ___ shares are held as treasury shares; and, to the
knowledge of counsel after reasonable inquiry, there are no outstanding
obligations, options or rights of any kind entitling other persons to
purchase or sell the shares granted by Clearfield, and there are no
outstanding securities or other instruments of any kind convertible into
the shares that have been granted by Clearfield;
(iv) Clearfield has full corporate power and authority to execute and
deliver this Agreement and the Bank Merger Agreement and to carry out the
transactions contemplated herein and therein, and all corporate actions
required to be taken by Clearfield to authorize the execution and delivery
of this Agreement and the performance of the transactions contemplated
herein have been taken;
(v) this Agreement and the Bank Merger Agreement have been duly
executed and delivered by Clearfield and, assuming due authorization,
execution and delivery by Penn Laurel and CSB, constitute valid and binding
obligations of Clearfield and are enforceable against Clearfield in
accordance with their terms, subject to bankruptcy, insolvency, and other
laws of general applicability relating to or affecting creditors' rights
and general equity principles;
(vi) the performance of this Agreement and the Bank Merger Agreement
by Clearfield will not violate the Articles of Incorporation or the Bylaws
of Clearfield or, to the knowledge of counsel after reasonable inquiry, any
applicable statute, rule, regulation, order, decree, directive, consent
agreement, memorandum of understanding or to the knowledge of counsel, any
material contract, material indenture or other material instrument to which
Clearfield is a party or by which its properties are bound;
(vii) to the knowledge of counsel after reasonable inquiry, there is
no action, suit or proceeding, pending or threatened, of the kind
contemplated under Section 8.1(e) of this Agreement;
(viii) to the knowledge of counsel after reasonable inquiry, there is
no action, suit or proceeding pending or threatened against Clearfield
(except as previously disclosed or in counsel's opinion) that, if
determined adversely to
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Clearfield, would have a material and adverse effect upon the condition
(financial or otherwise), assets, liabilities, business or operations of
Clearfield;
(ix) no consent, approval, authorization or order of any federal,
state or local court or governmental authority is required to be obtained
by Clearfield in connection with the consummation of the transactions
contemplated in this Agreement, other than consents, approvals,
authorizations and orders as have been obtained prior to the Effective
Date; and
(x) other legal matters incident to the matters contemplated hereby as
may reasonably be requested by Penn Laurel and CSB.
For purposes of Clause (viii) above, any action, suit or proceeding seeking
to recover from Clearfield damages, fines, penalties or other relief having a
monetary value of $50,000 or more shall be deemed to be "material." In giving
the foregoing opinion, counsel may rely as to matters of fact without
independent investigation, to the extent counsel deems reliance necessary,
appropriate, and reasonable, provided, however, that reliance is expressly noted
in the opinion, and on certificates of federal, state or local governmental
officials and on certificates of officers and directors of Clearfield. Counsel
may expressly exclude any opinions as to choice of law matters and antitrust
matters and may add other qualifications and explanations of the basis of its
opinions as are reasonably acceptable to Penn Laurel and CSB.
The opinion of counsel shall be governed by the Legal Opinion Accord
("Accord") of the American Bar Association Section of Business Law (1991). The
term "Actual Knowledge" as used herein shall have the meaning set forth in the
Accord. In addition, the opinion may be limited to present statutes,
regulations, rulings and formal agency and judicial interpretations and to facts
as they presently exist; in rendering the opinion, counsel need assume no
obligation to revise or supplement it should the present laws be changed by the
legislative or regulatory action, judicial decision or otherwise after the
opinion is rendered. Counsel may assume that any agreement is the valid and
binding obligation of any parties to the agreement other than Clearfield. In
giving the opinion, counsel may rely as to all matters of facts or certificates
of officers or directors of Clearfield and certificates of public officials, so
long as such reliance and the facts thereunder are expressly stated. Counsel's
opinion shall be limited to matters governed by federal laws and by the laws of
the Commonwealth of Pennsylvania. With respect to matters involving the
application of law other than the law of the Commonwealth of Pennsylvania,
counsel may rely, to the extent it deems proper and as specified in its opinion,
upon the opinion of local counsel.
(d) Accounting Treatment. Penn Laurel, CSB and their accountants shall have
established to their satisfaction that, as of the Effective Date, the
transactions contemplated by this Agreement can be accounted for as a "pooling
of interests" for financial reporting purposes.
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(e) Federal and State Securities and Antitrust Laws. Penn Laurel, CSB
and their counsel shall have determined to their satisfaction that, as of
the Effective Date, all applicable securities and antitrust laws of the
federal government and of any state government having jurisdiction over the
transactions contemplated by this Agreement shall have been complied with.
(f) Environmental Matters. No environmental problem of the kind
contemplated in Section 3.25 of Article III of this Agreement, and not
previously disclosed shall have been discovered that would, or that
potentially could, materially and adversely affect the condition (financial
or otherwise), assets, liabilities, business, operations or future
prospects of Clearfield. The result of any "Phase I environmental audit"
conducted pursuant to Section 6.16 with respect to owned or occupied bank
premises shall be reasonably satisfactory to Penn Laurel
(g) Closing Documents. Clearfield shall have delivered to Penn Laurel
and CSB: (i) a certificate signed by Clearfield's Chairman of the Board or
President and by its Secretary, or other designated and authorized
officers, verifying that, to the best of their knowledge after reasonable
investigation, all of the representations and warranties of Clearfield set
forth in this Agreement are true and correct in all material respects as of
the Effective Date and that Clearfield has performed in all material
respects each of the covenants required to be performed by it under this
Agreement; (ii) all consents and authorizations of landlords and other
persons that are necessary to permit this Agreement to be consummated
without violation of any lease or other agreement to which Clearfield is a
party or by which Clearfield or any of its properties are bound; and (iii)
other certificates and documents as Penn Laurel, CSB and their counsel may
reasonably request (all of the foregoing certificates and other documents
being herein referred to as the "Clearfield Closing Documents").
(h) Support Agreement. A majority of the Directors of Clearfield shall
have executed and delivered to Penn Laurel a "Support Agreement" in the
form attached hereto as Exhibit "B".
(i) Shareholder Approval. Penn Laurel shareholders, if required, have
approved and/or adopted this Agreement and the transactions contemplated
thereby.
Section 8.3. Conditions Precedent to the Obligations of Clearfield. The
obligation of Clearfield to consummate this Agreement shall be subject to the
satisfaction of each of the following conditions prior to or as of the Effective
Date, except to the extent that any such condition shall have been waived by
Clearfield in accordance with the provisions of Section 9.4 of this Agreement:
(a) Accuracy of Representations and Warranties. All of the
representations and warranties of Penn Laurel and CSB, as set forth in this
Agreement and in the Penn Laurel Closing Documents (as defined in Section
8.3(j) of this Agreement), shall be true and correct in all material
respects as of the Effective Date as if made on that date (or on the date
to
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which it relates in the case of any representation or warranty that
expressly relates to an earlier date).
(b) Covenants Performed. Penn Laurel and CSB shall have performed or
complied in all material respects with each of the covenants required by
this Agreement to be performed or complied with by them.
(c) Opinion of Counsel for Penn Laurel and CSB. Penn Laurel and CSB
shall have delivered to Clearfield an opinion of its special counsel,
Shumaker Williams, P.C., in form and substance reasonably satisfactory to
Clearfield, to the effect that, as of the Effective Date:
(i) Penn Laurel is a business corporation that is duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania;
(ii) Penn Laurel is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, and has full corporate power and
authority to own and hold its properties and to carry on its present
business;
(iii) CSB is a Pennsylvania chartered banking institution that is duly
organized and validly existing under the laws of the Commonwealth of
Pennsylvania and of the United States and has full corporate power and
authority to own and hold its properties and to carry on its present
business;
(iv) Penn Laurel and CSB have full corporate power and authority to
execute and deliver this Agreement and the Bank Merger Agreement and to
carry out the transactions contemplated herein and therein, and all
corporate actions required to be taken by Penn Laurel and CSB to authorize
the execution and delivery of this Agreement and the performance of the
transactions contemplated herein and therein have been taken;
(v) this Agreement and the Bank Merger Agreement have been duly
authorized, executed and delivered by Penn Laurel and CSB and, assuming due
authorization, execution and delivery by Clearfield, constitute valid and
binding obligations of each of Penn Laurel and CSB and are enforceable
against Penn Laurel in accordance with their terms, subject to bankruptcy,
insolvency, and other laws of general applicability relating to or
affecting creditors' rights and general equity principles;
(vi) to the knowledge of counsel, there is no action, suit, or
proceeding pending or threatened against Penn Laurel or CSB (except as
described in a schedule to this Agreement or in counsel's opinion) that, if
determined adversely to Penn Laurel or CSB, would have a material and
adverse affect upon the condition (financial or otherwise), assets,
liabilities, business or operations of Penn Laurel or CSB;
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(vii) to the knowledge of counsel after reasonable investigation,
there is no action, suit or proceeding pending or threatened of the kind
contemplated under Section 8.1(e) of this Agreement;
(viii) the shares of Penn Laurel Common Stock to be issued under this
Agreement have been duly authorized and, when issued in accordance with the
Agreement, will be validly issued, fully paid and non-assessable;
(ix) no consent, approval, authorization or order of any federal,
state or local court or governmental authority is required to be obtained
by Penn Laurel or CSB in connection with the consummation of the
transactions contemplated in this Agreement, other than the consents,
approvals, authorizations and orders as have been obtained prior to the
Effective Date; and
(x) other legal matters incident to the matters contemplated hereby as
may reasonably be requested by Clearfield.
For purposes of Clause (vi) above, any action, suit or proceeding seeking
to recover from Penn Laurel damages, fines, penalties or other relief having a
monetary value of $50,000 or more shall be deemed to be "material." In giving
the foregoing opinion, counsel may rely as to matters of fact without reasonable
investigation, to the extent counsel deems reliance necessary, appropriate and
reasonable, provided, however, that such reliance is expressly noted in the
opinion, and on certificates of federal, state or local governmental officials
and on certificates of officers and directors of Penn Laurel and CSB. Counsel
may exclude any opinions as to choice of law matters and antitrust matters and
may add other qualifications and explanations of the basis of its opinions as
are reasonably acceptable to Clearfield.
The opinion of counsel shall be governed by the Legal Opinion Accord
("Accord") of the American Bar Association Section of Business Law (1991). The
term "Actual Knowledge" as used herein shall have the meaning set forth in the
Accord. In addition, the opinion may be limited to present statutes,
regulations, rulings and formal agency and judicial interpretations and to facts
as they presently exist; in rendering the opinion, counsel need assume no
obligation to revise or supplement it should the present laws be changed by the
legislative or regulatory action, judicial decision or otherwise after the
opinion is rendered. Counsel may assume that any agreement is the valid and
binding obligation of any parties to the agreement other than Penn Laurel or
CSB. In giving the opinion, counsel may rely as to all matters of facts or
certificates of officers or directors of Penn Laurel or CSB and certificates of
public officials, so long as such reliance and the facts thereunder are
expressly stated. Counsel's opinion shall be limited to matters governed by
federal laws and by the laws of the Commonwealth of Pennsylvania. With respect
to matters involving the application of Pennsylvania law, counsel may rely, to
the extent it deems proper and as specified in its opinion, upon the opinion of
local counsel.
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(d) Accounting Treatment. Clearfield and its accountants shall have
established to its satisfaction that, as of the Effective Date, the
transactions contemplated by this Agreement can be accounted for as a
"pooling of interests" for financial reporting purposes.
(e) Federal and State Securities and Antitrust Laws. Clearfield and
its counsel shall have determined to their satisfaction that, as of the
Effective Date, all applicable securities and antitrust laws of the federal
government and of any state government having jurisdiction over the
transactions contemplated by this Agreement shall have been complied with.
(f) Environmental Matters. No environmental problem of the kind
contemplated in Section 4.25 of Article IV of this Agreement, and not
previously disclosed shall have been discovered that would, or that
potentially could, materially and adversely affect the condition (financial
or otherwise), assets, liabilities, business, operations or future
prospects of Penn Laurel or CSB, as the case may be. The result of any
"Phase I environmental audit" conducted pursuant to Section 7.16 with
respect to owned or occupied premises shall be reasonably satisfactory to
Clearfield.
(g) Closing Documents. Penn Laurel and CSB shall have delivered to
Clearfield: (i) a certificate from each of Penn Laurel and CSB signed by
its President and by its Secretary, or other designated and authorized
officers, verifying that, to the best of their knowledge after reasonable
investigation, all of the representations and warranties of Penn Laurel or
CSB, as the case may be, set forth in this Agreement are true and correct
in all material respects as of the Effective Date and that Penn Laurel or
CSB, as the case may be, has performed in all material respects each of the
covenants required to be performed by it under this Agreement; (ii) all
consents and authorizations of landlords and other persons that are
necessary to permit this Agreement to be consummated without violation of
any lease or other agreement to which Penn Laurel or CSB, as the case may
be, is a party or by which Penn Laurel or CSB or any of its properties are
bound; and (iii) other certificates and documents as Clearfield and its
counsel may reasonably request (all of the foregoing certificates and other
documents being herein referred to as the "Penn Laurel Closing Documents").
(h) Support Agreement. A majority of the Directors of Penn Laurel
shall have executed and delivered to Clearfield a "Support Agreement" in
the form attached hereto as Exhibit "C".
(i) Shareholder Approval. Clearfield's shareholders shall have
approved and/or adopted this Agreement and the transactions contemplated
hereunder.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
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Section 9.1. Termination. This Agreement may be terminated at any time
before the Effective Date (whether before or after authorization, approval and
adoption by the shareholders) as follows:
(a) Mutual Consent. This Agreement may be terminated by mutual consent
of the parties upon the affirmative vote of a majority of each of the
Boards of Directors of Clearfield and Penn Laurel, followed by written
notices given to each of the other parties.
(b) Unilateral Action by Penn Laurel and CSB. This Agreement may be
terminated unilaterally by the affirmative vote of a majority of the Board
of Directors of Penn Laurel, followed by written notice given to
Clearfield, if: (i) there has been a material breach by Clearfield of any
representation, warranty or covenant set forth in this Agreement and the
breach has not been cured within thirty (30) days after written notice of
the breach has been given by Penn Laurel to Clearfield; or (ii) any
condition precedent to Penn Laurel's and CSB's obligations, as set forth in
Article VIII of this Agreement, remains unsatisfied, through no fault of
Penn Laurel or CSB, on October 31, 1999.
(c) Unilateral Action By Clearfield. This Agreement may be terminated
unilaterally by the affirmative vote of a majority of the Board of
Directors of Clearfield, followed by written notice given to Penn Laurel
and CSB, if: (i) there has been a material breach by Penn Laurel or CSB of
any representation, warranty or covenant set forth in this Agreement and
the breach has not been cured within thirty (30) days after written notice
of the breach has been given to Penn Laurel and CSB; or (ii) any condition
precedent to Clearfield's obligations as set forth in Article VIII of this
Agreement remains unsatisfied, through no fault of Clearfield, on October
31, 1999.
(d) Automatic Termination. If, for any reason, this transaction shall
not have been consummated by October 31, 1999, this Agreement shall
terminate automatically as of that date unless extended, in writing, prior
thereto.
Section 9.2. Effect of Termination.
(a) Effect. In the event of termination, this Agreement shall become
null and void and the transactions contemplated herein shall thereupon be
abandoned, except that the provisions relating to limited liability and
confidentiality set forth in Sections 9.2(b) and 9.2(c) of this Agreement
shall survive the termination.
(b) Limited Liability. The termination of this Agreement in accordance
with the terms of Section 9.1 shall create no liability on the part of any
party, or on the part of any party's directors, officers, shareholders,
agents or representatives, except that, if this Agreement is terminated by
Penn Laurel and CSB by reason of a material breach by Clearfield, or, if
this Agreement is terminated by Clearfield by reason of a material breach
by Penn Laurel or CSB, and the breach involves an intentional, willful or
grossly negligent misrepresentation or breach of covenant, the breaching
party shall be liable to the non-breaching party or parties for all costs
and expenses reasonably incurred by the non-
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breaching party or parties in connection with the preparation, execution
and consummation of this Agreement, including the fees of its or their
counsel, accountants, consultants and other representatives.
(c) Confidentiality. In the event of the termination of this
Agreement, the parties shall not use or disclose to any other person any
confidential information obtained by them during the course of their
investigation of the other party or parties.
Section 9.3. Amendment. To the extent permitted by law, this Agreement may
be amended at any time before the Effective Date (whether before or after
authorization, approval and adoption by the shareholders of Penn Laurel or
Clearfield) by a written instrument duly authorized, executed and delivered by
Penn Laurel and CSB and by Clearfield; provided, however, that any amendment to
the provisions of Article II of this Agreement relating to the consideration to
be received by the shareholders of Clearfield in exchange for their shares of
Clearfield Common Stock shall not take effect until the amendment has been
approved, adopted or ratified by the shareholders of Clearfield and Penn Laurel
in accordance with applicable federal and state law.
Section 9.4. Waiver. Any term or condition of this Agreement may be waived,
to the extent permitted by law, by the party or parties entitled to the benefit
thereof at any time before the Effective Date (whether before or after
authorization, approval and adoption by the shareholders of Clearfield) by a
written instrument duly authorized, executed and delivered by the party or
parties.
ARTICLE X
RIGHTS OF DISSENTING SHAREHOLDERS
Section 10.1. Rights of Dissenting Shareholders. The shareholders of
Clearfield and Penn Laurel shall be entitled to and may exercise dissenters'
rights if and to the extent they are entitled to do so under the provisions of
applicable law.
ARTICLE XI
CLOSING AND EFFECTIVE DATE
Section 11.1. Closing. Provided that all conditions precedent set forth in
Article VIII of this Agreement shall have been satisfied or shall have been
waived in accordance with Section 9.4 of this Agreement, the parties shall hold
a closing (the "Closing") at the offices of Penn Laurel at 434 State Street,
Curwensville, Pennsylvania, or another mutually agreed upon location, within
thirty (30) days after the last to occur of the: (1) receipt of all required
regulatory approvals and after the expiration of all applicable waiting periods;
(2) approval by the Clearfield and Penn Laurel shareholders, respectively at
which time the parties shall deliver the Clearfield Closing Documents, the Penn
Laurel/CSB Closing Documents, and other documents and instruments as may be
necessary or appropriate to effectuate the purposes of this Agreement.
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Section 11.2. Effective Date. The Merger shall become effective and this
Agreement and the Bank Merger Agreement shall be consummated on the date upon
which Articles of Merger shall be filed with the Pennsylvania Department of
State, or such later date as shall be specified as the Effective Date in the
Articles of Merger pursuant to the mutual agreement of Penn Laurel, CSB and
Clearfield and in accordance with the Pennsylvania Banking Code (the "Effective
Date"). At the Effective Date, CSB shall cease to exist as a separate banking
institution, and Clearfield shall become the surviving institution in the Merger
with the name Penn Laurel Bank & Trust.
ARTICLE XII
NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 12.1. No Survival. The representations and warranties of Clearfield
and of Penn Laurel and CSB set forth in this Agreement shall expire and be
terminated on the Effective Date upon consummation of the transactions
contemplated by this Agreement, and no such representation or warranty shall
thereafter survive.
ARTICLE XIII
POST-MERGER AGREEMENTS
Section 13.1. Employees.
(a) Immediately after the Effective Date, Penn Laurel Bank & Trust
shall employ all of the Clearfield employees and all of the CSB employees
who are in good standing, actively at work, and employed by Clearfield and
CSB, respectively, as of the Effective Date on such terms as the resulting
Board of Directors shall approve. It is understood and agreed by the
parties to this Agreement that this Section 13.1(a) shall not create any
implied or express rights of employment to any employee.
(b) After the Effective Date, all benefit, health, welfare and
insurance plans of the resulting bank will be agreed upon and/or revised,
modified, amended or supplemented only with the approval of the resulting
Board of Directors or as otherwise required by law.
Section 13.2. Officers. Immediately after the Effective Date, William L.
Bertram shall be appointed and employed as the Chairman of the Board of
Directors of Penn Laurel and of Penn Laurel Bank & Trust for a term of two
years; Larry W. Brubaker shall be appointed and employed as the President and
Chief Executive Officer of Penn Laurel and of Penn Laurel Bank & Trust for a
term of three years, and Wesley M. Weymers and Sherwood C. Moody shall each be
appointed and employed as an Executive Vice President of Penn Laurel and of Penn
Laurel Bank & Trust, for a term of three years. Each of the above named
executives (the "Executives") shall be employed pursuant to an employment
agreement that is mutually agreeable to the parties hereof and
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the Executives, respectively. Such agreements shall be subject to the
appoval of, and executed by the parties and each of the Executives,
respectively, within 90 days of the date hereof, but no later than prior to the
Effective Date.
Section 13.3. Board Appointments.
a. Immediately after the Effective Date, the Board of Directors of Penn
Laurel and Penn Laurel Bank & Trust, shall consist of all persons who were
members of the Board of Directors of Penn Laurel and Clearfield on the date
hereof, with the addition of Mr. Wesley M. Weymers, to each respective Board of
Directors. After the Effective Date, each Director of Penn Laurel and Clearfield
shall serve on the Board of Directors of Penn Laurel , as Penn Laurel Bank &
Trust, in the Class of Director that they currently serve of their respective
companies' Board of Directors.
b. Prior to the Effective Date, Penn Laurel, CSB and Clearfield shall each
amend, if necessary, their respective bylaws so that the retirement age for
director service shall be 72, or the end of a Directors' term if during said
term, he or she shall have attained the age of 72. Any director who is currently
grandfathered from any director service age restriction of either Penn Laurel,
CSB or Clearfield shall continue to be grandfathered. The number of directors
serving as directors of Penn Laurel and Penn Laurel Bank & Trust shall only be
reduced as a result of attrition, i.e., death, resignation, non-grandfathered
age restrictions or regulatory action.
ARTICLE XIV
GENERAL PROVISIONS
Section 14.1. Expenses. Except as provided in Section 9.2(b) of this
Agreement, each party shall pay its own expenses incurred in connection with
this Agreement and the consummation of the transactions contemplated herein
except for such expenses as have been mutually agreed upon, i.e., preparation of
all documentation. For purposes of this Section 14.1, the cost of printing the
Proxy Statement/Prospectus shall be deemed to be an expense of Penn Laurel and
Clearfield.
Section 14.2 Access; Confidentiality. The parties hereby agree to conduct
the investigations and discussions contemplated by Section 6.3 and Section 7.2
of this Agreement in a manner that will not interfere unreasonably with normal
operations and customer and employee relationships. If the transactions
contemplated by this Agreement are not consummated, the parties hereby agree to
destroy or return all documents and records obtained from the other or their
respective representatives, during the course of any investigation and will
cause all information with respect to the other party obtained pursuant to this
Agreement or preliminarily thereto to be kept confidential, except to the extent
the information becomes public through no fault of the party that has obtained
the information or any of its respective representatives or agents and except to
the extent disclosure of such information is legally required. Each party hereby
agrees to give the other party prompt notice of any contemplated disclosure
where disclosure is so legally required.
Section 14.3. Notices. All notices, claims, requests, demands and other
communications that are required or permitted to be given under this Agreement
shall be
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in writing and shall be deemed to have been duly delivered if delivered in
person, transmitted by facsimile machine (but only if receipt is acknowledged in
writing), mailed by registered or certified mail, return receipt requested or
sent by recognized overnight delivery service guaranteeing next day delivery
addressed as follows:
(a) If to Penn Laurel Financial Corp. and/or CSB to:
Penn Laurel Financial Corp.
427 State Street
Curwensville, Pennsylvania 16833
Attention:
With a copy to:
Shumaker Williams, P.C.
3425 Simpson Ferry Road
Camp Hill, Pennsylvania 17011
Attention: Nicholas Bybel, Jr.
(b) If to Clearfield Bank & Trust Company to:
Clearfield Bank & Trust Company
11 North Second Street
Clearfield, Pennsylvania 16830
Attention:
With a copy to:
Tucker Arensberg, P.C.
1500 One PPG Place
Pittsburgh, Pennsylvania 15222
Attention: William T. Harvey
Section 14.4. Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
Section 14.5. Counterparts. This Agreement may be executed simultaneously
in several counterparts, each of which shall be deemed an original, but all the
counterparts together shall be deemed to be one and the same instrument.
Section 14.6. Severability. If any provision of this Agreement or the
application thereof to any party or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of the provisions to other parties or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
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Section 14.7. Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that the rights and obligations of any party under
this Agreement may not be assigned or delegated by that party without the prior
written consent of each other party.
Section 14.8. Entire Agreement. This Agreement, including the documents and
other writings referred to herein or delivered pursuant hereto, sets forth the
entire understanding and agreement of the parties hereto and supersedes any and
all prior agreements, arrangements and understandings, oral or written, relating
to the subject matter hereof.
Section 14.9. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic internal laws of the Commonwealth of
Pennsylvania, without regard to the conflict laws principles thereof.
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IN WITNESS WHEREOF, intending to be legally bound hereby, this Agreement is
executed as of the day and year first above written.
ATTEST: PENN LAUREL FINANCIAL CORP.
By: /s/ Janice E. Kephart By: /s/ Larry W. Brubaker
------------------------------- -----------------------------
[CORPORATE SEAL]
ATTEST: CSB BANK
By: /s/ Janice E. Kephart By: /s/ Larry W. Brubaker
------------------------------- -----------------------------
[BANK SEAL]
ATTEST: CLEARFIELD BANK & TRUST COMPANY
By: /s/ William A. Shiner By: /s/ Sherwood C. Moody
------------------------------- -----------------------------
[BANK SEAL]
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AGREEMENT AND PLAN OF MERGER
of
CLEARFIELD BANK & TRUST COMPANY
and
CSB BANK
THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is dated as
of December 31, 1998, by and between CSB BANK ("CSB"), a Pennsylvania chartered
bank, having its principal office at 434 State Street, Curwensville,
Pennsylvania 16833, and CLEARFIELD BANK & TRUST COMPANY ("Clearfield"), a
Pennsylvania chartered bank and trust company, having its principal office at 11
North Second Street, Clearfield, Pennsylvania 16830 (the two parties being
sometimes collectively referred to as the "Constituent Banks") each acting
pursuant to resolutions approved and adopted by the vote of a majority of its
directors.
BACKGROUND:
WHEREAS, Clearfield and CSB are parties to an Agreement and Plan of
Reorganization of even date herewith (the "Reorganization Agreement") that
provides, among other things, for the execution of the Merger Agreement and the
merger of Clearfield and CSB (the "Merger") in accordance with the terms and
conditions set forth therein and herein; and
WHEREAS, the respective Boards of Directors of Clearfield and CSB deem the
Merger of Clearfield and CSB in accordance with the Reorganization Agreement and
pursuant to the terms and conditions herein set forth or referred to, desirable
and in the best interests of the Constituent Banks and their respective
shareholders; and
WHEREAS, the respective Boards of Directors of Clearfield and CSB have
adopted resolutions approving and adopting this Merger Agreement, and the
respective Boards of Directors of CSB, Penn Laurel Financial Corp., a
Pennsylvania corporation and parent of CSB ("Penn Laurel") and Clearfield have
adopted resolutions approving and adopting the Reorganization Agreement, and the
Boards of Directors of Clearfield and CSB have directed that this Merger
Agreement be submitted to their respective shareholders;
WHEREAS, the approval of this Merger Agreement and the Reorganization
Agreement requires the approval of the shareholders of the Constituent Banks, as
required by applicable laws and by each party's Articles of Incorporation and
Bylaws;
WHEREAS, one hundred percent (100%) of the outstanding shares of capital
stock of CSB (the "CSB Common Stock") are held by its sole shareholder, Penn
Laurel;
NOW, THEREFORE, in consideration of their mutual covenants and agreements
contained herein and in the Reorganization Agreement, and for the purpose of
stating the method, terms and
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conditions of the Merger, and such other details and provisions as are deemed
desirable, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. The Merger. Subject to the terms and conditions of this Merger Agreement
and the Reorganization Agreement, and in accordance with the laws of the
Commonwealth of Pennsylvania, on the Effective Date (as defined in Section 11.2
of the Reorganization Agreement, and referred to herein as the "Effective
Date"), CSB shall be merged with and into Clearfield pursuant to the
Pennsylvania Banking Code of 1965, as amended (the "Banking Code"), and
Clearfield shall be the surviving institution. On the Effective Date, the
separate existence of CSB shall cease, and Clearfield shall be the surviving
institution (the "Surviving Institution"), the principal and branch offices of
CSB shall become authorized offices of Clearfield; and all the property (real,
personal and mixed), rights, powers, duties, and obligations of Clearfield and
CSB shall be taken and deemed to be transferred to and vested in the Surviving
Institution, without further act or deed, as provided by applicable laws and
regulations.
2. Name. The name of the Surviving Institution shall be "Penn Laurel Bank &
Trust Company," and the location of its principal office shall be 11 North
Second Street, Clearfield, Pennsylvania 16830.
3. Articles of Incorporation. The Articles of Incorporation of Clearfield
as in effect immediately prior to the Effective Date, as may be amended in
furtherance of the Reorganization Agreement and the Merger Agreement at the
Effective Date, shall be the Articles of Incorporation of the Surviving
Institution, until amended in accordance with applicable law.
4. Bylaws. The Bylaws of CSB as in effect immediately prior to the
Effective Date, as may be amended in furtherance of the Reorganization Agreement
and the Merger Agreement, at the Effective Date, shall be the Bylaws of the
Surviving Institution, until amended in accordance with applicable law.
5. Conversion of Shares. The manner and basis of converting shares of
common stock of the Constituent Banks shall be as follows:
5.1 Conversion of Clearfield Common Stock. On the Effective Date, the
shares of Clearfield Common Stock then outstanding and eligible for
conversion under Article II of the Reorganization Agreement shall be
converted into the right to receive shares of common stock of Penn Laurel,
par value $5.00 per share (the "Penn Laurel Common Stock") in accordance
with the terms of and as provided in Section 2.1(a) of the Reorganization
Agreement.
5.2 Stock of CSB. The shares of CSB Common Stock issued and
outstanding immediately prior to the Effective Date shall continue to be
issued and outstanding shares of common stock of the Surviving Institution.
From and after the Effective Date, each
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certificate that, prior to the Effective Date, represented shares of
CSB Common Stock, shall evidence ownership of shares of such common stock
of the Surviving Institution.
6. Surrender and Exchange of Clearfield Certificates. On the Effective
Date, the outstanding shares of Clearfield Common Stock shall be exchanged for
and shall become the right to receive shares of Penn Laurel Common Stock in
accordance with and as provided for in Section 2.2 of the Reorganization
Agreement.
7. Effect of Merger. On the Effective Date, the Surviving Institution shall
succeed, without further act or deed, to all of the property, rights, powers,
duties and obligations of the Constituent Banks in accordance with the Banking
Code. Any claim existing or action pending by or against either of the
Constituent Banks may be prosecuted to judgment as if the Merger had not taken
place, and the Surviving Institution may be substituted in its place.
8. Continuation of Business. The Surviving Institution shall continue in
business with the assets and liabilities of each of the Constituent Banks. The
Surviving Institution shall be a bank and trust company organized and having
perpetual existence under the laws of the Commonwealth of Pennsylvania. The
branch offices of the Surviving Institution shall consist of CSB's and
Clearfield's present branch offices and any other branch office or offices that
CSB and Clearfield may be authorized to have as of the Effective Date. The
headquarters of the Surviving Institution shall be at 11 North Second Street,
Clearfield, Pennsylvania 16830.
9. Board of Directors and Officers. The Directors of CSB and of Clearfield
as in effect immediately prior to the Effective Date shall be the Directors of
the Surviving Institution, until such time as their successors have been
elected, qualified, or appointed. Each director shall serve in the Class of
Director that he or she currently serves, provided, however, that all classes of
Directors shall be as equal as possible. The Officers of the Surviving
Institution shall be as follows:
William L. Bertram Chairman of the Board
Larry W. Brubaker President
Sherwood C. Moody Executive Vice President
Wesley M. Wymers Executive Vice President
The officers of the Surviving Institution shall serve until their successors are
appointed.
10. Dissenters' Rights of Clearfield's Shareholders. The rights and
remedies of a dissenting shareholder under the Banking Code and Subchapter D of
Chapter 15 of the Pennsylvania Business Corporation Law of 1988, as amended (15
Pa. C.S. ss.1571, et seq.), shall be afforded to any holder of Clearfield Common
Stock who objects to this Merger and who takes the necessary steps to perfect
the rights of a dissenting shareholder, to the extent required under such laws.
11. Effective Date of the Merger. The Effective Date of the Merger shall be
as defined and provided for in Section 11.2 of the Reorganization Agreement.
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12. Further Assurances. If at any time the Surviving Institution shall
consider or be advised that any further assignments, conveyances or assurances
are necessary or desirable to vest, perfect or confirm in the Surviving
Institution title to any property or rights of Clearfield or CSB, or otherwise
carry out the provisions hereof, the proper officers and directors of Clearfield
or CSB, as of the Effective Date, on behalf of Clearfield or CSB, respectively,
shall execute and deliver any and all proper assignments, conveyances and
assurances, and do all things necessary or desirable to vest, perfect or confirm
title to such property or rights in the Surviving Institution and otherwise
carry out the provisions hereof.
13. Shareholder Approval. This Merger Agreement shall be approved and
adopted by the affirmative vote of the shareholders of each Constituent Bank as
required by applicable law and by the Constituent Banks' Articles of
Incorporation and Bylaws.
14. Termination and Amendment. Notwithstanding prior approval by the
respective shareholders of Clearfield and CSB, this Merger Agreement shall be
terminated and the Merger shall be abandoned in the event that, prior to the
Effective Date, the Reorganization Agreement is terminated, as provided therein.
If there is such termination after the delivery of Articles of Merger to the
Pennsylvania Department of State, the parties shall execute and file with the
Pennsylvania Department of State, prior to the Effective Date, a statement of
termination, pursuant to Section 1902 of the Pennsylvania Business Corporation
Law of 1988, as amended. Notwithstanding prior approval by the shareholders of
Clearfield and CSB, this Agreement may be amended in any respect in the manner
and subject only to the limitations set forth in Section 9.3 of the
Reorganization Agreement.
15. Counterparts; Headings. This Merger Agreement may be executed in
several counterparts, and by the parties hereto on separate counterparts, each
of which will constitute an original. The headings and captions contained herein
are for reference purposes only and do not constitute a part hereof.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, by their officers thereunto duly authorized, have executed this Merger
Agreement as of the day and year first above written.
ATTEST: CLEARFIELD BANK & TRUST COMPANY
By: /s/ William A. Shiner By: /s/ Sherwood C. Moody
-------------------------- --------------------------
President & CEO
[BANK SEAL]
ATTEST: CSB BANK
By: /s/ Janice E. Kephart By: /s/ Larry W. Brubaker
--------------------------- ---------------------------
[BANK SEAL]
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INVESTMENT AGREEMENT
THIS AGREEMENT dated as of December 31, 1998, between Clearfield Bank &
Trust Company ("Clearfield") and Penn Laurel Financial Corp. ("Penn Laurel")
BACKGROUND
WHEREAS, Clearfield and Penn Laurel have, simultaneously with executing
this Agreement, entered into an Agreement and Plan of Reorganization dated as of
the date hereof (the "Reorganization Agreement"); and
WHEREAS, as a condition to Clearfield's entry into the Reorganization
Agreement and in consideration of such entry, Penn Laurel has agreed to issue to
Clearfield, on the terms and conditions set forth herein, warrants entitling
Clearfield to purchase up to an aggregate of 20,815 shares (the "Shares") of the
capital stock of Penn Laurel, par value $5.00 per share (the "Penn Laurel Common
Stock");
NOW, THEREFORE, in consideration of the execution of the Reorganization
Agreement and the agreements herein contained, Clearfield and Penn Laurel,
intending to be legally bound hereby, agree as follows:
1. Concurrently with the execution of the Reorganization Agreement and this
Agreement, Penn Laurel shall issue to Clearfield a warrant or warrants in the
form of Attachment A hereto (the "Warrant", which term as used herein shall
include any warrants issued upon transfer or exchange of the original Warrant or
pursuant to Paragraph 4 of this Agreement) to purchase up to 20,815 shares of
Penn Laurel Common Stock. Each Warrant shall be exercisable at a price of $44.00
per share, subject to adjustment as therein provided (the "Exercise Price"). So
long as the Warrant is outstanding and unexercised, Penn Laurel shall at all
times maintain and reserve, free from preemptive rights, such number of
authorized but unissued or treasury shares of Penn Laurel Common Stock as may be
necessary so that the Warrant may be exercised without additional authorization
of Penn Laurel Common Stock after giving effect to all other options, warrants,
convertible securities and other rights to acquire shares of Penn Laurel Common
Stock outstanding at the time. Penn Laurel represents and warrants that it has
duly authorized the issuance of the Shares upon exercise of the Warrant and
covenants that the Shares issued upon exercise of the Warrant shall be duly
authorized, validly issued and fully paid and nonassessable and subject to no
preemptive rights. The Warrant and the Shares are hereinafter collectively
referred to, from time to time, as the "Securities."
So long as the Warrant is owned by Clearfield, in no event shall Clearfield
exercise the Warrant for a number of shares of Penn Laurel Common Stock which,
when added to the number of shares of Penn Laurel Common Stock owned or
controlled by Clearfield (otherwise than in a fiduciary capacity) would result
in Clearfield owning or controlling (otherwise than in a fiduciary capacity)
more than 6% of the shares of Penn Laurel Common Stock issued and outstanding
immediately after giving effect to the exercise.
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2. Subject to the terms and conditions hereof, Clearfield may exercise or
sell the Warrant, in whole or in part, upon: (i) a willful breach of the
Reorganization Agreement by Penn Laurel that would permit termination of the
Reorganization Agreement by Clearfield; (ii) the failure of Penn Laurel's
shareholders to approve the Reorganization Agreement at a meeting called for
such purpose after the announcement by any person (other than Clearfield) of an
offer or proposal to acquire 15% or more of Penn Laurel Common Stock, or to
acquire, merge or consolidate with Penn Laurel or to purchase or acquire all or
substantially all of Penn Laurel's assets; (iii) the acquisition by any person
(other than Clearfield) of beneficial ownership of 15% or more of Penn Laurel
Common Stock exclusive of shares of Penn Laurel Common Stock sold directly or
indirectly to such person by Clearfield; (iv) any person (other than Clearfield)
shall have commenced a tender or exchange offer, or shall have filed an
application with an appropriate bank regulatory authority with respect to a
publicly announced offer, to purchase or acquire securities of Penn Laurel so
that, upon consummation of the offer, the person would own, control or have the
right to acquire 15% or more of Penn Laurel Common Stock (before giving effect
to any exercise of the Warrant); or (v) Penn Laurel shall have entered into an
agreement or other understanding with a person (other than Clearfield) for that
person to acquire, merge or consolidate with Penn Laurel or to purchase or
acquire all or substantially all of Penn Laurel's assets. Clearfield's right to
exercise the Warrant shall terminate and be of no further effect, except as to
notices of exercise given prior thereto, upon termination of the Warrant as
provided in Paragraph 10 thereof. As used in this Paragraph 2, "person" and
"beneficial ownership" shall have the same meanings as set forth in the Warrant.
Notwithstanding the foregoing, Penn Laurel shall not be obligated to issue
Shares upon exercise of the Warrant (i) in the absence of any required
governmental or regulatory approval or consent necessary for Penn Laurel to
issue the Shares or for Clearfield to exercise the Warrant or prior to the
expiration or termination of any waiting period required by law or (ii) so long
as any injunction or other order, decree or ruling issued by any federal or
state court of competent jurisdiction is in effect that prohibits the sale or
delivery of the Shares. Any sale of the Warrant, in whole or in part, or any
sale of the Shares by Clearfield, other than a sale to a majority-owned
subsidiary of Clearfield, shall be subject to the right of first refusal of Penn
Laurel (or any assignee or assignees of Penn Laurel the identity of whom has
been given to Clearfield prior to the date thereof) at a price equal to the
written offer price that Clearfield receives from a third party (other than a
majority-owned subsidiary of Clearfield) and intends to accept. The right of
first refusal shall terminate 15 days after notice of Clearfield's intention to
sell has been delivered to Penn Laurel. If an offer is made for a consideration
that, in whole or in part, consists of other than cash, the value of the
non-cash portion of the consideration shall be determined by a recognized
investment banking firm selected jointly by Clearfield and Penn Laurel, and the
determination shall in no event be made later than the fifth day after notice of
Clearfield's intention to sell has been delivered to Penn Laurel. In the event
of the failure or refusal of Penn Laurel to purchase the Warrant or all the
Shares covered by Clearfield's notice to sell, Clearfield may, within 30 days
from the date of the notice, unless additional time is needed to give
notification to or to obtain approval from any governmental or regulatory
authority and, if so required, within five days after the date on which the
required notification period has expired or been terminated or such approval has
been obtained and any requisite waiting period with respect thereto has passed,
sell all, but not less than all, of the portion of the Warrant or the Shares
covered by the notice to the proposed transferee at no less than the price
specified and on terms no more favorable to the buyer than those set forth in
the notice.
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<PAGE>
3. Subject to applicable regulatory restrictions, from and after the date
on which any event described in the second paragraph of this Paragraph 3 occurs,
the Holder, as defined in the Warrant (which shall include a former Holder) who
has exercised the Warrant, in whole or in part, shall have the right to require
Penn Laurel to redeem some or all of the Shares at a redemption price per share
(the "Redemption Price") equal to the highest of (i) 110% of the Exercise
Price, (ii) the highest price paid or agreed to be paid for any share of Penn
Laurel Common Stock by an Acquiring Person (as defined in the Warrant) during
the twelve months immediately preceding the date notice of the election to
require redemption is given by the Holder under the third paragraph of this
Paragraph 3 (as appropriately adjusted to reflect any of the events described in
Paragraph 7(A) of the Warrant) and (iii) in the event of a sale of all or
substantially all of Penn Laurel's assets, (x) the sum of the price paid in the
sale for the assets and the current market value of the remaining assets of Penn
Laurel as determined by a recognized investment banking firm selected by the
Holder, divided by (y) the number of shares of Penn Laurel Common Stock then
outstanding. If the price paid consists in whole or in part of securities or
assets other than cash, the value of the securities or assets shall be their
then current market value, as determined by a recognized investment banking firm
selected by the Holder. The Holder's right to require Penn Laurel to redeem some
or all of the Shares under this Paragraph 3 shall expire on the close of
business on the 180th day following the occurrence of any event described in the
second paragraph of this Paragraph 3.
The redemption rights provided in this Paragraph 3 shall become exercisable
upon the occurrence of any of the following events: (i) the acquisition by any
person (other than Clearfield or any subsidiary of Clearfield) of beneficial
ownership of 50% or more of the Penn Laurel Common Stock (before giving effect
to any exercise of the Warrant) exclusive of shares of Penn Laurel Common Stock
sold directly or indirectly to the person by Clearfield or (ii) a transaction of
the type specified in Paragraph 2(v) shall have been consummated. As used in
this Paragraph 3 "person" and "beneficial ownership" shall have the same
meanings as in the Warrant.
The Holder may exercise its right to require Penn Laurel to redeem some or
all of the Shares pursuant to this Paragraph 3 by surrendering for that purpose
to Penn Laurel, at its principal office, within the time period specified in the
preceding paragraph, a certificate or certificates representing the number of
Shares to be redeemed accompanied by a written notice stating that the Holder
elects to require Penn Laurel to redeem all or a specified number of the Shares
in accordance with the provisions of this Paragraph 3. As promptly as
practicable, and in any event within 10 business days after the surrender of the
certificates and the receipt of the notice relating thereto, Penn Laurel shall
deliver or cause to be delivered to the Holder the applicable Redemption Price
for the Shares which it is not then prohibited under applicable law or
regulation from redeeming, and, if the Holder has given Penn Laurel notice that
less than the full number of Shares evidenced by the surrendered certificate or
certificates are to be redeemed, a new certificate or certificates, of like
tenor, for the number of Shares evidenced by the surrendered certificate or
certificates, less the number of Shares redeemed. To the extent that Penn Laurel
is prohibited under applicable law or regulation, or by judicial or
administrative action, from redeeming all of the Shares as to which the Holder
has given notice to redeem hereunder, Penn Laurel shall immediately notify the
Holder and thereafter deliver or cause to be delivered to the Holder the
applicable Redemption Price for the number of the Shares as it is not prohibited
from redeeming within 10 business days after the date on which Penn Laurel is no
longer so prohibited; provided, however, that, at the option of Clearfield, at
any time after
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<PAGE>
receipt of the notice from Penn Laurel, Penn Laurel shall deliver to the Holder
a certificate for the number of the Shares that it is then prohibited from
redeeming, or, at the Holder's option, all the Shares, and Penn Laurel shall
have no further obligation to redeem the Shares.
4. In the event that Penn Laurel issues any additional Shares of Penn
Laurel Common Stock pursuant to outstanding stock options after the date of this
Agreement, Penn Laurel shall issue additional warrants to Clearfield, so that,
after the issuance, the number of Shares of Penn Laurel Common Stock subject to
all warrants hereunder, together with any shares of Penn Laurel Common Stock
previously issued pursuant hereto, equals 6% of the shares of Penn Laurel Common
Stock then issued and outstanding. The additional warrants shall be identical to
the Warrant.
5. Penn Laurel will not enter into any transaction described in (a), (b) or
(c) of Paragraph 6(A) of the Warrant unless the Acquiring Entity (as defined in
the Warrant) assumes in writing, in form and substance satisfactory to the
Holder, all the obligations of Penn Laurel hereunder.
6. If Clearfield acquires Shares and, during the period ending on the later
of (i) one year after the date of the acquisition or (ii) December 31, 1999, the
merger contemplated by the Reorganization Agreement has not been completed,
then, during the thirty-day period commencing at the expiration of the period,
Penn Laurel shall have the right to repurchase all (but not less than all) of
the Shares of Penn Laurel Common Stock so acquired by Clearfield and held by
Clearfield at the time of the repurchase at a price equal to the sum of (a)(i)
the greater of the current market price or the Exercise Price paid for the
Shares, multiplied by (ii) the number of the Shares so acquired, plus (b)
Clearfield's after-tax carrying cost. For the purposes of this calculation, the
"current market price" shall mean the average of the closing bid and asked
prices for Penn Laurel Common Stock for the most recent 5 trading days
immediately preceding the repurchase on which one or more trades of Penn Laurel
Common Stock occurred, as quoted by one or more market makers then making a
market in Penn Laurel Common Stock, and Clearfield's pre-tax carrying cost shall
be equal to interest on the Exercise Price paid for the Shares so purchased from
the date of purchase at the prime rate of interest established by Mellon Bank,
received on the Shares so purchased.
7. To the extent that Clearfield acquires Shares, and until Penn Laurel's
rights (if any) to redeem the Shares pursuant to Paragraph 6 of this Agreement
have expired, Clearfield agrees to vote the Shares in accordance with the
recommendation of the Board of Directors of Penn Laurel, so long as at least a
majority of the Board of Directors is the same as on the date hereof, except as
to voting in connection with mergers, acquisitions, liquidations or sales or
other dispositions of assets involving Penn Laurel, in which instance none of
the restrictions shall apply, provided, however, that the covenant contained in
this Paragraph 7 shall not apply to any holder other than Clearfield or one of
its subsidiaries.
8. Without limiting the foregoing or any remedies available to Clearfield,
it is specifically acknowledged that Clearfield would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any person subject to this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in counterparts by their duly authorized officers and their corporate
seals to be hereunto affixed, all as of the day and year first above written.
[BANK SEAL]
ATTEST: PENN LAUREL FINANCIAL CORP.
By: /s/ Janice E. Kephart By: /s/ Larry W. Brubaker
--------------------------- ---------------------------
[CORPORATE SEAL]
ATTEST: CLEARFIELD BANK & TRUST COMPANY
By: /s/ William A. Shiner By: /s/ Sherwood C. Moody
-------------------------- --------------------------
President & CEO
5
<PAGE>
ATTACHMENT A
WARRANT
to Purchase up to 20,815 Shares of
Common Stock
of
Penn Laurel Financial Corp.
This is to certify that, for value received, Clearfield Financial Corp.
("Clearfield") or any permitted transferee (Clearfield or the transferee
hereinafter the "Holder") is entitled to purchase, subject to the provisions of
this Warrant and of the Agreement (as hereinafter defined), from Penn Laurel
Financial Corp. ("Penn Laurel"), at any time on or after the date hereof, an
aggregate of up to 20,815 fully paid and nonassessable shares of capital stock,
par value $5.00 per share of Penn Laurel (the "Penn Laurel Common Stock") at a
price per share equal to $44.00, subject to adjustment as herein provided (the
"Exercise Price").
1. Exercise of Warrant. Subject to the provisions hereof and the
limitations set forth in Paragraph 2 of the Investment Agreement dated as of
December 31, 1998, by and between Clearfield and Penn Laurel (the "Agreement")
executed and delivered in connection with the Agreement and Plan of
Reorganization dated as of December 31, 1998, to which Clearfield and Penn
Laurel are parties (the "Reorganization Agreement"), this Warrant may be
exercised at any time or from time to time on or after the date hereof. This
Warrant shall be exercised by presentation and surrender hereof to Penn Laurel
at its principal office, accompanied by (i) a written notice of exercise, (ii)
payment to Penn Laurel, for the account of Penn Laurel, of the Exercise Price
for the number of shares of Penn Laurel Common Stock specified in the notice and
(iii) a certificate of the Holder specifying the event or events that have
occurred that entitle the Holder to exercise the Warrant. The Exercise Price for
the number of shares of Penn Laurel Common Stock specified in the notice shall
be payable in immediately available funds. This Warrant may not be exercised in
part for less than 10,000 shares, except (i) for an initial exercise resulting
in ownership of approximately 5% of the outstanding shares of Penn Laurel
Common Stock after giving effect to the exercise, (ii) as limited by applicable
law, regulation or regulatory order or (iii) when this Warrant becomes
exercisable for less than 10,000 shares, the remaining shares for which it is
then exercisable.
Upon the presentation and surrender, Penn Laurel shall issue promptly (and
within 5 business days if requested by the Holder) to the Holder or its
assignee, transferee or designee the shares of Penn Laurel Common Stock to which
the Holder is entitled hereunder.
If this Warrant should be exercised in part only, Penn Laurel shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the
shares of Penn Laurel Common Stock purchasable hereunder. Upon receipt by Penn
Laurel of this Warrant, in proper form for exercise, the Holder shall be deemed
to be the holder of record of the shares of Penn Laurel Common Stock issuable
upon the exercise,
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notwithstanding that the stock transfer books of Penn Laurel may then be closed
or that certificates representing the shares of Penn Laurel Common Stock shall
not then be actually delivered to the Holder. Penn Laurel shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges, that may be payable in connection with the preparation, issue and
delivery of stock certificates pursuant to this Paragraph 1 in the name of the
Holder or its assignee, transferee or designee.
2. Reservation of Shares; Preservation of Rights of Holder. Penn Laurel
shall at all times while this Warrant is outstanding and unexercised maintain
and reserve, free from preemptive rights, the number of authorized but unissued
or treasury shares of Penn Laurel Common Stock as may be necessary so that this
Warrant may be exercised without additional authorization of Penn Laurel Common
Stock after giving effect to all other options, warrants, convertible securities
and other rights to acquire shares of Penn Laurel Common Stock at the time
outstanding. Penn Laurel further agrees (i) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder or under the Agreement by Penn Laurel, (ii) that
it will use its best efforts to take all action (including (A) complying with
all notification, reporting and waiting period requirements specified in the
Pennsylvania Banking Code of 1965, as amended, and the regulations promulgated
thereunder and (B) in the event that under the Bank Holding Company Act of 1956
or the Change in Bank Control Act or any other law, prior approval of the Board
of Governors of the Federal Reserve System (the "Board"), the Federal Deposit
Insurance Corporation ("FDIC"),the Pennsylvania Department of Banking or any
other regulatory agency is necessary before this Warrant may be exercised,
cooperating fully with the Holder in preparing any and all the applications and
providing the information to the Board as the agency may require) in order to
permit the Holder to exercise this Warrant and Penn Laurel duly and effectively
to issue shares of Penn Laurel Common Stock hereunder, and (iii) that it will
promptly take all action necessary to protect the rights of the Holder against
dilution as provided herein.
3. Fractional Shares. Penn Laurel shall not be required to issue fractional
shares of Penn Laurel Common Stock upon exercise of this Warrant but shall pay
for the fraction of a share in cash or by certified or official bank check at
the Exercise Price.
4. Exchange, Transfer or Loss of Warrant. This Warrant is exchangeable
or, subject to Paragraph 2 of the Investment Agreement, transferable, without
expense, at the option of the Holder, upon presentation and surrender hereof at
the principal office of Penn Laurel for other Warrants of different
denominations entitling the Holder to purchase, in the aggregate, the same
number of shares of Penn Laurel Common Stock purchasable hereunder. The term
"Warrant" as used herein includes any Warrants for which this Warrant may be
exchanged. Upon receipt by Penn Laurel of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, Penn Laurel will
execute and deliver a new Warrant of like tenor and date.
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<PAGE>
This Warrant may not be exercised or sold except in accordance with the
terms of the Agreement.
5. Redemption.
(A) Subject to applicable regulatory restrictions, from and after the
date on which any event described in the second paragraph of Paragraph 3 of
the Agreement occurs, the Holder shall have the right to require Penn
Laurel to redeem this Warrant at a redemption price (the "Redemption
Amount") equal to the highest of (i) the number of shares of Penn Laurel
Common Stock for which this Warrant is then exercisable (the "Conversion
Number") multiplied by the Exercise Price multiplied by 110%, (ii) (x) the
highest price paid or agreed to be paid for any share of Penn Laurel Common
Stock by the Acquiring Person (as hereinafter defined) during the twelve
months immediately preceding the date notice of the election to require
redemption is given by the Holder under Paragraph 5(B)(the price to be
appropriately adjusted to reflect the effect of any of the events described
in Paragraph 7(A) hereof), less the Exercise Price, multiplied by (y) the
Conversion Number, and (iii) in the event of the sale of all or
substantially all of the assets of Penn Laurel, the Conversion Number
multiplied by (x)(I) the sum of (a) the price paid for the assets, (b) the
current market value of the remaining assets of Penn Laurel, as determined
by a recognized investment banking firm selected by the Holder, and (c) the
Exercise Price multiplied by the Conversion Number, divided by (II) the sum
of the number of shares of Penn Laurel Common Stock then outstanding and
the Conversion Number, less (y) the Exercise Price. If, for the purpose of
this calculation or calculating the Assigned Value (as hereinafter
described), the price paid consists in whole or in part of securities or
assets other than cash, the value of the securities or assets shall be
their then current market value as determined by a recognized investment
banking firm selected by the Holder. The Holder's right to require Penn
Laurel to redeem this Warrant under this Paragraph 5 shall expire at the
close of business on the 180th day following the occurrence of any event
described in the second paragraph of Paragraph 3 of the Agreement.
(B) The Holder of this Warrant may exercise its right to require Penn
Laurel to redeem this Warrant pursuant to this Paragraph 5 by surrendering
for the purpose to Penn Laurel, at its principal office, within the period
specified above, this Warrant accompanied by a written notice stating that
the Holder elects to require Penn Laurel to redeem this Warrant in
accordance with the provisions of this Paragraph 5. As promptly as
practicable, and in any event within 10 business days after the surrender
of this Warrant and the receipt of the notice relating thereto, Penn Laurel
shall deliver or cause to be delivered to the Holder the Redemption Amount
therefor or the portion thereof that it is not then prohibited under
applicable law and regulation from delivering to the Holder.
To the extent that Penn Laurel is prohibited under applicable law or
regulation, or as a result of administrative or judicial action, from
redeeming this Warrant in full, Penn Laurel shall immediately notify the
Holder and thereafter deliver or cause to be delivered to the Holder the
portion of the Redemption Amount that it is no longer prohibited from
delivering to the Holder within 10 business days after the date on which
Penn Laurel is no longer so
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<PAGE>
prohibited; provided, however, that, at the option of the Holder, at any
time after receipt of the notice, Penn Laurel shall deliver to the Holder a
new Warrant evidencing the right of the Holder to purchase that number of
shares of Penn Laurel Common Stock obtained by multiplying the Conversion
Number in effect at the time by a fraction, the numerator of which is the
Redemption Amount less the portion thereof (if any) theretofore delivered
to the Holder and the denominator of which is the Redemption Amount, and
Penn Laurel shall have no further obligation to redeem the new Warrant.
(C) As used in this Warrant, the following terms have the meanings
indicated:
(a) "Acquiring Person" shall mean any "Person" (hereinafter
defined) who is the "Beneficial Owner" (as hereinafter defined) of 15%
or more of Penn Laurel Common Stock;
(b) A "Person" shall mean any individual, firm, corporation or
other entity and include any syndicate or group deemed to be a
"person" by Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended;
(c) A Person shall be a "Beneficial Owner" of all securities:
(i) that the Person or any of its "Affiliates" (as
hereinafter defined) or "Associates" (as hereinafter defined)
beneficially owns, directly or indirectly; and
(ii) that the Person or any of its Affiliates or Associates
has (1) the right to acquire (whether the right is exercisable
immediately or only after the passage of time or otherwise)
pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (2) the right to vote pursuant to any
agreement, arrangement or understanding; and
(d) "Affiliate" and "Associate" shall have the respective
meanings ascribed to the terms in Rule 12b-2 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as
amended, as in effect on the date of the Agreement.
6. Certain Transactions.
(A) In case Penn Laurel (a) shall consolidate with or merge into any
Person, other than the Holder or one of its Affiliates, and shall not be
the continuing or surviving corporation of the consolidation or merger, (b)
shall permit any Person, other than the Holder or one of its Affiliates, to
merge into Penn Laurel and Penn Laurel shall be the continuing or surviving
corporation, but, in connection with the merger, the then outstanding
shares of Penn Laurel Common Stock shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other property
or shall represent less than 50% of the
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<PAGE>
shares of Penn Laurel Common Stock immediately after giving effect to the
merger, or (c) shall sell or otherwise transfer all or substantially all of
its assets to any Person, other than the Holder or one of its Affiliates,
then, and in each case, the agreement governing the transaction shall make
proper provision so that this Warrant shall (at the option of the Holder,
in whole or in part), upon the consummation of any such transaction and
upon the terms and conditions set forth herein, be converted into, or
exchanged for, a warrant, at the option of the Holder, of either (I) the
Acquiring Entity (as hereinafter defined), (II) any company that controls
the Acquiring Entity, or (III) in the case of a merger described in clause
(A)(b), Penn Laurel, in which case the warrant shall be a newly issued
warrant (in any case, the "Substitute Warrant").
(B) The following terms have the meanings indicated:
(a) "Acquiring Entity" shall mean (I) the continuing or surviving
corporation of a consolidation or merger with Penn Laurel (if other
than the Penn Laurel), (II) the corporation merging into Penn Laurel
in a merger in which the Penn Laurel is the continuing or surviving
person and in connection with which the then outstanding shares of
Penn Laurel Common Stock are changed into or exchanged for stock of
other securities of any other Person or cash or any other property or
shall represent less than 50% of the shares of Penn Laurel Common
Stock immediately after giving effect to the merger, and (III) the
transferee of all or substantially all of Penn Laurel's assets, Penn
Laurel or all or substantially all of the Penn Laurel's assets;
(b) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Warrant;
(c) "Assigned Value" shall mean the Redemption Price per share of
Penn Laurel Common Stock (as defined in Paragraph 3 of the Agreement)
multiplied by the Conversion Number;
(d) "Average Price" shall mean the average closing price (or if
unavailable, the average of the daily averages of the closing bid and
asked prices) of a share of Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in question,
but in no event higher than the closing price (or average of the
closing bid and asked prices) of a share of Substitute Common Stock on
the day preceding the consolidation, merger or sale; provided that if
Penn Laurel is the issuer of the Substitute Warrant, the Average Price
shall be computed with respect to a share of the common stock issued
by the Person merging into Penn Laurel or by any company that controls
the Person, as the Holder may elect. If the Average Price cannot be
computed as aforesaid because neither closing prices nor closing bid
and asked prices are available for the one-year period, then the
Average Price shall be the average fair market value of a share of
Substitute Common Stock for the period (but in no event higher than
the fair market value on
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the day preceding the consolidation, merger or sale) as determined by
a recognized investment banking firm selected by Clearfield.
(C) The Substitute Warrant shall have the same terms as this Warrant
provided that if the terms of the Substitute Warrant cannot, for legal
reasons, be the same as this Warrant, the terms shall be as similar as
possible and in no event less advantageous to the Holder. The issuer of the
Substitute Warrant shall also enter into an agreement with the then Holder
of the Substitute Warrant in substantially the same form as the Agreement,
which shall be applicable to the Substitute Warrant. For purposes of the
Substitute Warrant and the agreement, any event referred to in Paragraph 2
or Paragraph 3 of the Agreement shall be deemed to have occurred when it
occurred with respect to Penn Laurel.
(D) The Substitute Warrant shall be immediately exercisable for the
number of shares of Substitute Common Stock as is equal to the Assigned
Value divided by the Average Price. The exercise price of the Substitute
Warrant per share of Substitute Common Stock shall be equal to the Exercise
Price multiplied by a fraction in which the numerator is the Conversion
Number and the denominator is the number of shares of Substitute Common
Stock for which the Substitute Warrant is exercisable.
(E) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Warrant be exercisable for more than 6% of the aggregate of
the outstanding shares of Substitute Common Stock and the shares of
Substitute Common Stock issuable upon exercise of the Substitute Warrant.
7. Adjustment. The number of shares of Penn Laurel Common Stock
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time as provided in this Paragraph 7:
(A)(1) In case Penn Laurel shall pay or make a dividend or other
distribution on any class of capital stock of Penn Laurel in Penn
Laurel Common Stock, the number of shares of Penn Laurel Common Stock
purchasable upon exercise of this Warrant shall be increased by
multiplying the number of shares by a fraction of which the
denominator shall be the number of shares of Penn Laurel Common Stock
outstanding at the close of business on the day immediately preceding
the date of the distribution and the numerator shall be the sum of the
number of shares and the total number of shares constituting the
dividend or other distribution, the increase to become effective
immediately after the opening of business on the day following the
distribution, provided, however, that in no event shall the Warrant be
exercised for more than 6% of the shares of Penn Laurel Common Stock
issued and outstanding.
(2) In case outstanding shares of Penn Laurel Common Stock shall
be subdivided into a greater number of shares of Penn Laurel Common
Stock, the number of shares of Penn Laurel Common Stock purchasable
upon exercise of this Warrant at the opening of business on the day
following the day upon which the subdivision becomes effective shall
be proportionately increased, and, conversely,
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<PAGE>
in case outstanding shares of Penn Laurel Common Stock shall each be
combined into a smaller number of shares of Penn Laurel Common Stock,
the number of shares of Penn Laurel Common Stock purchasable upon
exercise of this Warrant at the opening of business on the day
following the day upon which the combination becomes effective shall
be proportionately decreased, the increase or decrease, as the case
may be, to become effective immediately after the opening of business
on the day following the day upon which the subdivision or combination
becomes effective, provided, however, that in no event shall the
Warrant be exercised for more than 6% of the shares of Penn Laurel
Common Stock issued and outstanding.
(3) The reclassification (excluding any transaction in which a
Substitute Warrant would be issued) of Penn Laurel Common Stock into
securities (other than Penn Laurel Common Stock) and/or cash and/or
other consideration shall be deemed to involve a subdivision or
combination, as the case may be, of the number of shares of Penn
Laurel Common Stock outstanding immediately prior to the
reclassification into the number or amount of securities and/or cash
and/or other consideration outstanding immediately thereafter and the
effective date of the reclassification shall be deemed to be "the day
upon which the subdivision becomes effective," or "the day upon which
the combination becomes effective," as the case may be, within the
meaning of clause (2) above.
(4) Penn Laurel may make such increases in the number of shares
of Penn Laurel Common Stock purchasable upon exercise of this Warrant,
in addition to those required by this subparagraph (A), as shall be
determined by its Board of Directors to be advisable in order to avoid
taxation so far as practicable of any dividend of stock or stock
rights or any event treated as such for federal income tax purposes to
the recipients.
(B) Whenever the number of shares of Penn Laurel Common Stock
purchasable upon exercise of this Warrant is adjusted as herein provided,
the Exercise Price shall be adjusted by a fraction in which the numerator
is equal to the number of shares of Penn Laurel Common Stock purchasable
prior to the adjustment and the denominator is equal to the number of
shares of Penn Laurel Common Stock purchasable after the adjustment.
(C) For the purpose of this Paragraph 7, the term "Penn Laurel Common
Stock" shall include any shares of Penn Laurel of any class or series that
has no preference or priority in the payment of dividends or in the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of Penn Laurel and that is not subject to
redemption by Penn Laurel.
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8. Notice.
(A) Whenever the number of shares for which this Warrant is
exercisable is adjusted as provided in Paragraph 7, Penn Laurel shall
promptly compute the adjustment and mail to the Holder a certificate,
signed by a principal financial officer of Penn Laurel, setting forth the
number of shares of Penn Laurel Common Stock for which this Warrant is
exercisable as a result of the adjustment, a brief statement of the facts
requiring the adjustment and the computation thereof and when the
adjustment will become effective.
(B) Upon the occurrence of any event that results in this Warrant
becoming redeemable, as provided in Paragraph 5, Penn Laurel shall promptly
notify the Holder of the event; and promptly compute the Redemption Amount
and furnish to the Holder a certificate, signed by a principal financial
officer of Penn Laurel, setting forth the Redemption Amount and the basis
and computation thereof.
(C) Upon the occurrence of an event that results in this Warrant
becoming convertible into, or exchangeable for, the Substitute Warrant, as
provided in Paragraph 6, the Acquiring Entity and Penn Laurel shall
promptly notify the Holder of the event; and, upon receipt from the Holder
of its choice as to the issuer of the Substitute Warrant, the Acquiring
Entity and Penn Laurel shall promptly compute the number of shares of
Substitute Common Stock for which the Substitute Warrant is exercisable and
furnish to the Holder a certificate, signed by a principal financial
officer of each of the Acquiring Entity and Penn Laurel, setting forth the
number of shares of Substitute Common Stock for which the Substitute
Warrant is exercisable, a computation thereof and when the adjustment will
become effective.
9. Rights of Holder.
(A) Without limiting the foregoing or any remedies available to the
Holder, it is specifically acknowledged that the Holder would not have an
adequate remedy at law for any breach of the provision of this Warrant and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the
obligations of any Person subject to, this Warrant.
(B) Except as provided in the third paragraph of Paragraph 1 hereof,
the Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in Penn Laurel.
10. Termination. This Warrant and the rights conferred hereby shall
terminate (i) upon willful breach of the Agreement by Clearfield, (ii) at the
Effective Time of the Merger pursuant to the Reorganization Agreement, (iii)
upon a valid termination of the Reorganization Agreement prior to the occurrence
of an event described in Paragraph 2 of the Agreement or (iv) upon the failure
of the shareholders of Penn Laurel to approve the Merger by the required vote at
a meeting duly called and held in accordance with the requirements of Section
6.2(b) of the Reorganization Agreement prior to the occurrence of an event
described in Paragraph 2 of the Agreement and (v) to the extent this Warrant has
not previously been exercised, on the later of (A) December 31, 1999 and (B) 12
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months after the occurrence of an event described in Paragraph 2 of the
Agreement, provided that the termination pursuant to this clause (v) shall not
affect any redemption under Paragraph 5 as to which exercise under Paragraph
5(B) has previously occurred.
11. Governing Law. This Warrant shall be governed by, and interpreted in
accordance with, the substantive laws of the Commonwealth of Pennsylvania.
Dated: December 31, 1998
[BANK SEAL]
ATTEST: PENN LAUREL FINANCIAL CORP.
By: /s/ Janice E. Kephart By: /s/ Larry W. Brubaker
--------------------------- ---------------------------
9
<PAGE>
INVESTMENT AGREEMENT
THIS AGREEMENT dated as of December 31, 1998, between Penn Laurel Financial
Corp. ("Penn Laurel") and Clearfield Bank & Trust Company ("Clearfield"),
BACKGROUND
WHEREAS, Penn Laurel and Clearfield have, simultaneously with executing
this Agreement, entered into an Agreement and Plan of Reorganization dated as of
the date hereof (the "Reorganization Agreement"); and
WHEREAS, as a condition to Penn Laurel's entry into the Reorganization
Agreement and in consideration of such entry, Clearfield has agreed to issue to
Penn Laurel, on the terms and conditions set forth herein, warrants entitling
Penn Laurel to purchase up to an aggregate of 40,791 shares (the "Shares") of
the capital stock of Clearfield, par value $1.5625 per share (the "Clearfield
Common Stock");
NOW, THEREFORE, in consideration of the execution of the Reorganization
Agreement and the agreements herein contained, Penn Laurel and Clearfield,
intending to be legally bound hereby, agree as follows:
1. Concurrently with the execution of the Reorganization Agreement and this
Agreement, Clearfield shall issue to Penn Laurel a warrant or warrants in the
form of Attachment A hereto (the "Warrant", which term as used herein shall
include any warrants issued upon transfer or exchange of the original Warrant or
pursuant to Paragraph 4 of this Agreement) to purchase up to 40,791 shares of
Clearfield Common Stock. Each Warrant shall be exercisable at a price of $52.00
per share, subject to adjustment as therein provided (the "Exercise Price"). So
long as the Warrant is outstanding and unexercised, Clearfield shall at all
times maintain and reserve, free from preemptive rights, such number of
authorized but unissued or treasury shares of Clearfield Common Stock as may be
necessary so that the Warrant may be exercised without additional authorization
of Clearfield Common Stock after giving effect to all other options, warrants,
convertible securities and other rights to acquire shares of Clearfield Common
Stock outstanding at the time. Clearfield represents and warrants that it has
duly authorized the issuance of the Shares upon exercise of the Warrant and
covenants that the Shares issued upon exercise of the Warrant shall be duly
authorized, validly issued and fully paid and nonassessable and subject to no
preemptive rights. The Warrant and the Shares are hereinafter collectively
referred to, from time to time, as the "Securities."
So long as the Warrant is owned by Penn Laurel, in no event shall Penn
Laurel exercise the Warrant for a number of shares of Clearfield Common Stock
which, when added to the number of shares of Clearfield Common Stock owned or
controlled by Penn Laurel (otherwise than in a fiduciary capacity) would result
in Penn Laurel owning or controlling (otherwise than in a fiduciary capacity)
more than 6% of the shares of Clearfield Common Stock issued and outstanding
immediately after giving effect to the exercise.
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<PAGE>
2. Subject to the terms and conditions hereof, Penn Laurel may exercise or
sell the Warrant, in whole or in part, upon: (i) a willful breach of the
Reorganization Agreement by Clearfield that would permit termination of
the Reorganization Agreement by Penn Laurel; (ii) the failure of Clearfield's
shareholders to approve the Reorganization Agreement at a meeting called for
such purpose after the announcement by any person (other than Penn Laurel) of an
offer or proposal to acquire 15% or more of Clearfield Common Stock, or to
acquire, merge or consolidate with Clearfield or to purchase or acquire all or
substantially all of Clearfield's assets; (iii) the acquisition by any person
(other than Penn Laurel) of beneficial ownership of 15% or more of Clearfield
Common Stock exclusive of shares of Clearfield Common Stock sold directly or
indirectly to such person by Penn Laurel; (iv) any person (other than Penn
Laurel) shall have commenced a tender or exchange offer, or shall have filed an
application with an appropriate bank regulatory authority with respect to a
publicly announced offer, to purchase or acquire securities of Clearfield so
that, upon consummation of the offer, the person would own, control or have the
right to acquire 15% or more of Clearfield Common Stock (before giving effect
to any exercise of the Warrant); or (v) Clearfield shall have entered into an
agreement or other understanding with a person (other than Penn Laurel) for that
person to acquire, merge or consolidate with Clearfield or to purchase or
acquire all or substantially all of Clearfield's assets. Penn Laurel's right to
exercise the Warrant shall terminate and be of no further effect, except as to
notices of exercise given prior thereto, upon termination of the Warrant as
provided in Paragraph 10 thereof. As used in this Paragraph 2, "person" and
"beneficial ownership" shall have the same meanings as set forth in the Warrant.
Notwithstanding the foregoing, Clearfield shall not be obligated to issue Shares
upon exercise of the Warrant (i) in the absence of any required governmental or
regulatory approval or consent necessary for Clearfield to issue the Shares or
for Penn Laurel to exercise the Warrant or prior to the expiration or
termination of any waiting period required by law or (ii) so long as any
injunction or other order, decree or ruling issued by any federal or state court
of competent jurisdiction is in effect that prohibits the sale or delivery of
the Shares. Any sale of the Warrant, in whole or in part, or any sale of the
Shares by Penn Laurel, other than a sale to a majority-owned subsidiary of Penn
Laurel, shall be subject to the right of first refusal of Clearfield (or any
assignee or assignees of Clearfield the identity of whom has been given to Penn
Laurel prior to the date thereof) at a price equal to the written offer price
that Penn Laurel receives from a third party (other than a majority-owned
subsidiary of Penn Laurel) and intends to accept. The right of first refusal
shall terminate 15 days after notice of Penn Laurel's intention to sell has been
delivered to Clearfield. If an offer is made for a consideration that, in whole
or in part, consists of other than cash, the value of the non-cash portion of
the consideration shall be determined by a recognized investment banking firm
selected jointly by Penn Laurel and Clearfield, and the determination shall in
no event be made later than the fifth day after notice of Penn Laurel's
intention to sell has been delivered to Clearfield. In the event of the failure
or refusal of Clearfield to purchase the Warrant or all the Shares covered by
Penn Laurel's notice to sell, Penn Laurel may, within 30 days from the date of
the notice, unless additional time is needed to give notification to or to
obtain approval from any governmental or regulatory authority and, if so
required, within five days after the date on which the required notification
period has expired or been terminated or such approval has been obtained and any
requisite waiting period with respect thereto has passed, sell all, but not less
than all, of the portion of the Warrant or the Shares covered by the notice to
the proposed transferee at no less than the price specified and on terms no more
favorable to the buyer than those set forth in the notice.
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<PAGE>
3. Subject to applicable regulatory restrictions, from and after the date
on which any event described in the second paragraph of this Paragraph 3 occurs,
the Holder, as defined in the Warrant (which shall include a former Holder) who
has exercised the Warrant, in whole or in part, shall have the right to require
Clearfield to redeem some or all of the Shares at a redemption price per share
(the "Redemption Price") equal to the highest of (i) 110% of the Exercise
Price, (ii) the highest price paid or agreed to be paid for any share of
Clearfield Common Stock by an Acquiring Person (as defined in the Warrant)
during the twelve months immediately preceding the date notice of the election
to require redemption is given by the Holder under the third paragraph of this
Paragraph 3 (as appropriately adjusted to reflect any of the events described in
Paragraph 7(A) of the Warrant) and (iii) in the event of a sale of all or
substantially all of Clearfield's assets, (x) the sum of the price paid in the
sale for the assets and the current market value of the remaining assets of
Clearfield as determined by a recognized investment banking firm selected by the
Holder, divided by (y) the number of shares of Clearfield Common Stock then
outstanding. If the price paid consists in whole or in part of securities or
assets other than cash, the value of the securities or assets shall be their
then current market value, as determined by a recognized investment banking firm
selected by the Holder. The Holder's right to require Clearfield to redeem some
or all of the Shares under this Paragraph 3 shall expire on the close of
business on the 180th day following the occurrence of any event described in the
second paragraph of this Paragraph 3.
The redemption rights provided in this Paragraph 3 shall become exercisable
upon the occurrence of any of the following events: (i) the acquisition by any
person (other than Penn Laurel or any subsidiary of Penn Laurel) of beneficial
ownership of 50% or more of the Clearfield Common Stock (before giving effect
to any exercise of the Warrant) exclusive of shares of Clearfield Common Stock
sold directly or indirectly to the person by Penn Laurel or (ii) a transaction
of the type specified in Paragraph 2(v) shall have been consummated. As used in
this Paragraph 3 "person" and "beneficial ownership" shall have the same
meanings as in the Warrant.
The Holder may exercise its right to require Clearfield to redeem some or
all of the Shares pursuant to this Paragraph 3 by surrendering for that purpose
to Clearfield, at its principal office, within the time period specified in the
preceding paragraph, a certificate or certificates representing the number of
Shares to be redeemed accompanied by a written notice stating that the Holder
elects to require Clearfield to redeem all or a specified number of the Shares
in accordance with the provisions of this Paragraph 3. As promptly as
practicable, and in any event within 10 business days after the surrender of the
certificates and the receipt of the notice relating thereto, Clearfield shall
deliver or cause to be delivered to the Holder the applicable Redemption Price
for the Shares which it is not then prohibited under applicable law or
regulation from redeeming, and, if the Holder has given Clearfield notice that
less than the full number of Shares evidenced by the surrendered certificate or
certificates are to be redeemed, a new certificate or certificates, of like
tenor, for the number of Shares evidenced by the surrendered certificate or
certificates, less the number of Shares redeemed. To the extent that Clearfield
is prohibited under applicable law or regulation, or by judicial or
administrative action, from redeeming all of the Shares as to which the Holder
has given notice to redeem hereunder, Clearfield shall immediately notify the
Holder and thereafter deliver or cause to be delivered to the Holder the
applicable Redemption Price for the number of the Shares as it is not prohibited
from redeeming within 10 business days after the date on which Clearfield is no
longer so prohibited; provided, however, that, at the option of Penn Laurel, at
any time after
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<PAGE>
receipt of the notice from Clearfield, Clearfield shall deliver to the Holder a
certificate for the number of the Shares that it is then prohibited from
redeeming, or, at the Holder's option, all the Shares, and Clearfield shall have
no further obligation to redeem the Shares.
4. In the event that Clearfield issues any additional Shares of Clearfield
Common Stock pursuant to outstanding stock options after the date of this
Agreement, Clearfield shall issue additional warrants to Penn Laurel, so that,
after the issuance, the number of Shares of Clearfield Common Stock subject to
all warrants hereunder, together with any shares of Clearfield Common Stock
previously issued pursuant hereto, equals 6% of the shares of Clearfield Common
Stock then issued and outstanding. The additional warrants shall be identical to
the Warrant.
5. Clearfield will not enter into any transaction described in (a), (b) or
(c) of Paragraph 6(A) of the Warrant unless the Acquiring Entity (as defined in
the Warrant) assumes in writing, in form and substance satisfactory to the
Holder, all the obligations of Clearfield hereunder.
6. If Penn Laurel acquires Shares and, during the period ending on the
later of (i) one year after the date of the acquisition or (ii) December 31,
1999, the merger contemplated by the Reorganization Agreement has not been
completed, then, during the thirty-day period commencing at the expiration of
the period, Clearfield shall have the right to repurchase all (but not less than
all) of the Shares of Clearfield Common Stock so acquired by Penn Laurel and
held by Penn Laurel at the time of the repurchase at a price equal to the sum of
(a)(i) the greater of the current market price or the Exercise Price paid for
the Shares, multiplied by (ii) the number of the Shares so acquired, plus (b)
Penn Laurel's after-tax carrying cost. For the purposes of this calculation, the
"current market price" shall mean the average of the closing bid and asked
prices for Clearfield Common Stock for the most recent 5 trading days
immediately preceding the repurchase on which one or more trades of Clearfield
Common Stock occurred, as quoted by one or more market makers then making a
market in Clearfield Common Stock, and Penn Laurel's pre-tax carrying cost shall
be equal to interest on the Exercise Price paid for the Shares so purchased from
the date of purchase at the prime rate of interest established by Mellon Bank,
received on the Shares so purchased.
7. To the extent that Penn Laurel acquires Shares, and until Clearfield's
rights (if any) to redeem the Shares pursuant to Paragraph 6 of this Agreement
have expired, Penn Laurel agrees to vote the Shares in accordance with the
recommendation of the Board of Directors of Clearfield, so long as at least a
majority of the Board of Directors is the same as on the date hereof, except as
to voting in connection with mergers, acquisitions, liquidations or sales or
other dispositions of assets involving Clearfield, in which instance none of the
restrictions shall apply, provided, however, that the covenant contained in this
Paragraph 7 shall not apply to any holder other than Penn Laurel or one of its
subsidiaries.
8. Without limiting the foregoing or any remedies available to Penn Laurel,
it is specifically acknowledged that Penn Laurel would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any person subject to this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in counterparts by their duly authorized officers and their corporate
seals to be hereunto affixed, all as of the day and year first above written.
[BANK SEAL]
ATTEST: CLEARFIELD BANK & TRUST COMPANY
By: /s/ William A. Shiner By: /s/ Sherwood C. Moody
----------------------------- ---------------------------
President & CEO
[CORPORATE SEAL]
ATTEST: PENN LAUREL FINANCIAL CORP.
By: /s/ Janice E. Kephart By: /s/ Larry W. Brubaker
----------------------------- ---------------------------
5
<PAGE>
ATTACHMENT A
WARRANT
to Purchase up to 40,791 Shares of
Common Stock
of
Clearfield Bank & Trust Company
This is to certify that, for value received, Penn Laurel Financial
Corp. ("Penn Laurel") or any permitted transferee (Penn Laurel or the transferee
hereinafter the "Holder") is entitled to purchase, subject to the provisions of
this Warrant and of the Agreement (as hereinafter defined), from Clearfield Bank
and Trust Company ("Clearfield"), at any time on or after the date hereof, an
aggregate of up to 40,791 fully paid and nonassessable shares of capital stock,
par value $1.5625 per share of Clearfield (the "Clearfield Common Stock") at a
price per share equal to $52.00, subject to adjustment as herein provided (the
"Exercise Price").
1. Exercise of Warrant. Subject to the provisions hereof and the
limitations set forth in Paragraph 2 of the Investment Agreement dated as of
December 31, 1998, by and between Penn Laurel and Clearfield (the "Agreement")
executed and delivered in connection with the Agreement and Plan of
Reorganization dated as of December 31, 1998, to which Penn Laurel and
Clearfield are parties (the "Reorganization Agreement"), this Warrant may be
exercised at any time or from time to time on or after the date hereof. This
Warrant shall be exercised by presentation and surrender hereof to Clearfield at
its principal office, accompanied by (i) a written notice of exercise, (ii)
payment to Clearfield, for the account of Clearfield, of the Exercise Price for
the number of shares of Clearfield Common Stock specified in the notice and
(iii) a certificate of the Holder specifying the event or events that have
occurred that entitle the Holder to exercise the Warrant. The Exercise Price for
the number of shares of Clearfield Common Stock specified in the notice shall be
payable in immediately available funds. This Warrant may not be exercised in
part for less than 10,000 shares, except (i) for an initial exercise resulting
in ownership of approximately 5% of the outstanding shares of Clearfield Common
Stock after giving effect to the exercise, (ii) as limited by applicable law,
regulation or regulatory order or (iii) when this Warrant becomes exercisable
for less than 10,000 shares, the remaining shares for which it is then
exercisable.
Upon the presentation and surrender, Clearfield shall issue promptly (and
within 5 business days if requested by the Holder) to the Holder or its
assignee, transferee or designee the shares of Clearfield Common Stock to which
the Holder is entitled hereunder.
If this Warrant should be exercised in part only, Clearfield shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the
shares of Clearfield Common Stock purchasable hereunder. Upon receipt by
Clearfield of this Warrant, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Clearfield Common Stock
issuable upon the exercise,
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<PAGE>
notwithstanding that the stock transfer books of Clearfield may then be closed
or that certificates representing the shares of Clearfield Common Stock shall
not then be actually delivered to the Holder. Clearfield shall pay all expenses,
and any and all United States federal, state and local taxes and other charges,
that may be payable in connection with the preparation, issue and delivery of
stock certificates pursuant to this Paragraph 1 in the name of the Holder or its
assignee, transferee or designee.
2. Reservation of Shares; Preservation of Rights of Holder. Clearfield
shall at all times while this Warrant is outstanding and unexercised maintain
and reserve, free from preemptive rights, the number of authorized but unissued
or treasury shares of Clearfield Common Stock as may be necessary so that this
Warrant may be exercised without additional authorization of Clearfield Common
Stock after giving effect to all other options, warrants, convertible securities
and other rights to acquire shares of Clearfield Common Stock at the time
outstanding. Clearfield further agrees (i) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder or under the Agreement by Clearfield, (ii) that
it will use its best efforts to take all action (including (A) complying with
all notification, reporting and waiting period requirements specified in the
Pennsylvania Banking Code of 1965, as amended, and the regulations promulgated
thereunder and (B) in the event that under the Bank Holding Company Act of 1956
or the Change in Bank Control Act or any other law, prior approval of the Board
of Governors of the Federal Reserve System (the "Board"), the Federal Deposit
Insurance Corporation ("FDIC"),the Pennsylvania Department of Banking or any
other regulatory agency is necessary before this Warrant may be exercised,
cooperating fully with the Holder in preparing any and all the applications and
providing the information to the Board as the agency may require) in order to
permit the Holder to exercise this Warrant and Clearfield duly and effectively
to issue shares of Clearfield Common Stock hereunder, and (iii) that it will
promptly take all action necessary to protect the rights of the Holder against
dilution as provided herein.
3. Fractional Shares. Clearfield shall not be required to issue fractional
shares of Clearfield Common Stock upon exercise of this Warrant but shall pay
for the fraction of a share in cash or by certified or official bank check at
the Exercise Price.
4. Exchange, Transfer or Loss of Warrant. This Warrant is exchangeable or,
subject to Paragraph 2 of the Investment Agreement, transferable, without
expense, at the option of the Holder, upon presentation and surrender hereof at
the principal office of Clearfield for other Warrants of different denominations
entitling the Holder to purchase, in the aggregate, the same number of shares of
Clearfield Common Stock purchasable hereunder. The term "Warrant" as used herein
includes any Warrants for which this Warrant may be exchanged. Upon receipt by
Clearfield of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, Clearfield will execute and deliver
a new Warrant of like tenor and date.
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<PAGE>
This Warrant may not be exercised or sold except in accordance with the
terms of the Agreement.
5. Redemption.
(A) Subject to applicable regulatory restrictions, from and after the
date on which any event described in the second paragraph of Paragraph 3 of
the Agreement occurs, the Holder shall have the right to require Clearfield
to redeem this Warrant at a redemption price (the "Redemption Amount")
equal to the highest of (i) the number of shares of Clearfield Common Stock
for which this Warrant is then exercisable (the "Conversion Number")
multiplied by the Exercise Price multiplied by 110%, (ii) (x) the highest
price paid or agreed to be paid for any share of Clearfield Common Stock by
the Acquiring Person (as hereinafter defined) during the twelve months
immediately preceding the date notice of the election to require redemption
is given by the Holder under Paragraph 5(B)(the price to be appropriately
adjusted to reflect the effect of any of the events described in Paragraph
7(A) hereof), less the Exercise Price, multiplied by (y) the Conversion
Number, and (iii) in the event of the sale of all or substantially all of
the assets of Clearfield, the Conversion Number multiplied by (x)(I) the
sum of (a) the price paid for the assets, (b) the current market value of
the remaining assets of Clearfield, as determined by a recognized
investment banking firm selected by the Holder, and (c) the Exercise Price
multiplied by the Conversion Number, divided by (II) the sum of the number
of shares of Clearfield Common Stock then outstanding and the Conversion
Number, less (y) the Exercise Price. If, for the purpose of this
calculation or calculating the Assigned Value (as hereinafter described),
the price paid consists in whole or in part of securities or assets other
than cash, the value of the securities or assets shall be their then
current market value as determined by a recognized investment banking firm
selected by the Holder. The Holder's right to require Clearfield to redeem
this Warrant under this Paragraph 5 shall expire at the close of business
on the 180th day following the occurrence of any event described in the
second paragraph of Paragraph 3 of the Agreement.
(B) The Holder of this Warrant may exercise its right to require
Clearfield to redeem this Warrant pursuant to this Paragraph 5 by
surrendering for the purpose to Clearfield, at its principal office, within
the period specified above, this Warrant accompanied by a written notice
stating that the Holder elects to require Clearfield to redeem this Warrant
in accordance with the provisions of this Paragraph 5. As promptly as
practicable, and in any event within 10 business days after the surrender
of this Warrant and the receipt of the notice relating thereto, Clearfield
shall deliver or cause to be delivered to the Holder the Redemption Amount
therefor or the portion thereof that it is not then prohibited under
applicable law and regulation from delivering to the Holder.
To the extent that Clearfield is prohibited under applicable law or
regulation, or as a result of administrative or judicial action, from
redeeming this Warrant in full, Clearfield shall immediately notify the
Holder and thereafter deliver or cause to be delivered to the Holder the
portion of the Redemption Amount that it is no longer prohibited from
delivering to the Holder within 10 business days after the date on which
Clearfield is no longer so
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<PAGE>
prohibited; provided, however, that, at the option of the Holder, at any
time after receipt of the notice, Clearfield shall deliver to the Holder a
new Warrant evidencing the right of the Holder to purchase that number of
shares of Clearfield Common Stock obtained by multiplying the Conversion
Number in effect at the time by a fraction, the numerator of which is the
Redemption Amount less the portion thereof (if any) theretofore delivered
to the Holder and the denominator of which is the Redemption Amount, and
Clearfield shall have no further obligation to redeem the new Warrant.
(C) As used in this Warrant, the following terms have the meanings
indicated:
(a) "Acquiring Person" shall mean any "Person" (hereinafter
defined) who is the "Beneficial Owner" (as hereinafter defined) of 15%
or more of Clearfield Common Stock;
(b) A "Person" shall mean any individual, firm, corporation or
other entity and include any syndicate or group deemed to be a
"person" by Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended;
(c) A Person shall be a "Beneficial Owner" of all securities:
(i) that the Person or any of its "Affiliates" (as
hereinafter defined) or "Associates" (as hereinafter defined)
beneficially owns, directly or indirectly; and
(ii) that the Person or any of its Affiliates or Associates
has (1) the right to acquire (whether the right is exercisable
immediately or only after the passage of time or otherwise)
pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (2) the right to vote pursuant to any
agreement, arrangement or understanding; and
(d) "Affiliate" and "Associate" shall have the respective
meanings ascribed to the terms in Rule 12b-2 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as
amended, as in effect on the date of the Agreement.
6. Certain Transactions.
(A) In case Clearfield (a) shall consolidate with or merge into any
Person, other than the Holder or one of its Affiliates, and shall not be
the continuing or surviving corporation of the consolidation or merger, (b)
shall permit any Person, other than the Holder or one of its Affiliates, to
merge into Clearfield and Clearfield shall be the continuing or surviving
corporation, but, in connection with the merger, the then outstanding
shares of Clearfield Common Stock shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other property
or shall represent less than 50% of the
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<PAGE>
shares of Clearfield Common Stock immediately after giving effect to the
merger, or (c) shall sell or otherwise transfer all or substantially all of
its assets to any Person, other than the Holder or one of its Affiliates,
then, and in each case, the agreement governing the transaction shall make
proper provision so that this Warrant shall (at the option of the Holder,
in whole or in part), upon the consummation of any such transaction and
upon the terms and conditions set forth herein, be converted into, or
exchanged for, a warrant, at the option of the Holder, of either (I) the
Acquiring Entity (as hereinafter defined), (II) any company that controls
the Acquiring Entity, or (III) in the case of a merger described in clause
(A)(b), Clearfield, in which case the warrant shall be a newly issued
warrant (in any case, the "Substitute Warrant").
(B) The following terms have the meanings indicated:
(a) "Acquiring Entity" shall mean (I) the continuing or surviving
corporation of a consolidation or merger with Clearfield (if other
than the Clearfield), (II) the corporation merging into Clearfield in
a merger in which the Clearfield is the continuing or surviving person
and in connection with which the then outstanding shares of Clearfield
Common Stock are changed into or exchanged for stock of other
securities of any other Person or cash or any other property or shall
represent less than 50% of the shares of Clearfield Common Stock
immediately after giving effect to the merger, and (III) the
transferee of all or substantially all of Clearfield' assets,
Clearfield or all or substantially all of the Clearfield' assets;
(b) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Warrant;
(c) "Assigned Value" shall mean the Redemption Price per share of
Clearfield Common Stock (as defined in Paragraph 3 of the Agreement)
multiplied by the Conversion Number;
(d) "Average Price" shall mean the average closing price (or if
unavailable, the average of the daily averages of the closing bid and
asked prices) of a share of Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in question,
but in no event higher than the closing price (or average of the
closing bid and asked prices) of a share of Substitute Common Stock on
the day preceding the consolidation, merger or sale; provided that if
Clearfield is the issuer of the Substitute Warrant, the Average Price
shall be computed with respect to a share of the common stock issued
by the Person merging into Clearfield or by any company that controls
the Person, as the Holder may elect. If the Average Price cannot be
computed as aforesaid because neither closing prices nor closing bid
and asked prices are available for the one-year period, then the
Average Price shall be the average fair market value of a share of
Substitute Common Stock for the period (but in no event higher than
the fair market value on the day preceding the consolidation, merger
or sale) as determined by a recognized investment banking firm
selected by Penn Laurel.
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(C) The Substitute Warrant shall have the same terms as this Warrant
provided that if the terms of the Substitute Warrant cannot, for legal
reasons, be the same as this Warrant, the terms shall be as similar as
possible and in no event less advantageous to the Holder. The issuer of the
Substitute Warrant shall also enter into an agreement with the then Holder
of the Substitute Warrant in substantially the same form as the Agreement,
which shall be applicable to the Substitute Warrant. For purposes of the
Substitute Warrant and the agreement, any event referred to in Paragraph 2
or Paragraph 3 of the Agreement shall be deemed to have occurred when it
occurred with respect to Clearfield.
(D) The Substitute Warrant shall be immediately exercisable for the
number of shares of Substitute Common Stock as is equal to the Assigned
Value divided by the Average Price. The exercise price of the Substitute
Warrant per share of Substitute Common Stock shall be equal to the Exercise
Price multiplied by a fraction in which the numerator is the Conversion
Number and the denominator is the number of shares of Substitute Common
Stock for which the Substitute Warrant is exercisable.
(E) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Warrant be exercisable for more than 6% of the aggregate of
the outstanding shares of Substitute Common Stock and the shares of
Substitute Common Stock issuable upon exercise of the Substitute Warrant.
7. Adjustment. The number of shares of Clearfield Common Stock purchasable
upon the exercise of this Warrant and the Exercise Price shall be subject to
adjustment from time to time as provided in this Paragraph 7:
(A)(1) In case Clearfield shall pay or make a dividend or other
distribution on any class of capital stock of Clearfield in Clearfield
Common Stock, the number of shares of Clearfield Common Stock purchasable
upon exercise of this Warrant shall be increased by multiplying the number
of shares by a fraction of which the denominator shall be the number of
shares of Clearfield Common Stock outstanding at the close of business on
the day immediately preceding the date of the distribution and the
numerator shall be the sum of the number of shares and the total number of
shares constituting the dividend or other distribution, the increase to
become effective immediately after the opening of business on the day
following the distribution, provided, however, that in no event shall the
Warrant be exercised for more than 6% of the shares of Clearfield Common
Stock issued and outstanding.
(2) In case outstanding shares of Clearfield Common Stock shall be
subdivided into a greater number of shares of Clearfield Common Stock, the
number of shares of Clearfield Common Stock purchasable upon exercise of
this Warrant at the opening of business on the day following the day upon
which the subdivision becomes effective shall be proportionately increased,
and, conversely, in case outstanding shares of Clearfield Common Stock
shall each be combined into a smaller number of shares of Clearfield Common
Stock, the number of shares of Clearfield Common Stock purchasable upon
exercise of this Warrant at the opening
6
<PAGE>
of business on the day following the day upon which the combination becomes
effective shall be proportionately decreased, the increase or decrease, as
the case may be, to become effective immediately after the opening of
business on the day following the day upon which the subdivision or
combination becomes effective, provided, however, that in no event shall
the Warrant be exercised for more than 6% of the shares of Clearfield
Common Stock issued and outstanding.
(3) The reclassification (excluding any transaction in which a
Substitute Warrant would be issued) of Clearfield Common Stock into
securities (other than Clearfield Common Stock) and/or cash and/or other
consideration shall be deemed to involve a subdivision or combination, as
the case may be, of the number of shares of Clearfield Common Stock
outstanding immediately prior to the reclassification into the number or
amount of securities and/or cash and/or other consideration outstanding
immediately thereafter and the effective date of the reclassification shall
be deemed to be "the day upon which the subdivision becomes effective," or
"the day upon which the combination becomes effective," as the case may be,
within the meaning of clause (2) above.
(4) Clearfield may make such increases in the number of shares of
Clearfield Common Stock purchasable upon exercise of this Warrant, in
addition to those required by this subparagraph (A), as shall be determined
by its Board of Directors to be advisable in order to avoid taxation so far
as practicable of any dividend of stock or stock rights or any event
treated as such for federal income tax purposes to the recipients.
(B) Whenever the number of shares of Clearfield Common Stock
purchasable upon exercise of this Warrant is adjusted as herein provided,
the Exercise Price shall be adjusted by a fraction in which the numerator
is equal to the number of shares of Clearfield Common Stock purchasable
prior to the adjustment and the denominator is equal to the number of
shares of Clearfield Common Stock purchasable after the adjustment.
(C) For the purpose of this Paragraph 7, the term "Clearfield Common
Stock" shall include any shares of Clearfield of any class or series that
has no preference or priority in the payment of dividends or in the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of Clearfield and that is not subject to
redemption by Clearfield.
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8. Notice.
(A) Whenever the number of shares for which this Warrant is
exercisable is adjusted as provided in Paragraph 7, Clearfield shall
promptly compute the adjustment and mail to the Holder a certificate,
signed by a principal financial officer of Clearfield, setting forth the
number of shares of Clearfield Common Stock for which this Warrant is
exercisable as a result of the adjustment, a brief statement of the facts
requiring the adjustment and the computation thereof and when the
adjustment will become effective.
(B) Upon the occurrence of any event that results in this Warrant
becoming redeemable, as provided in Paragraph 5, Clearfield shall promptly
notify the Holder of the event; and promptly compute the Redemption Amount
and furnish to the Holder a certificate, signed by a principal financial
officer of Clearfield, setting forth the Redemption Amount and the basis
and computation thereof.
(C) Upon the occurrence of an event that results in this Warrant
becoming convertible into, or exchangeable for, the Substitute Warrant, as
provided in Paragraph 6, the Acquiring Entity and Clearfield shall promptly
notify the Holder of the event; and, upon receipt from the Holder of its
choice as to the issuer of the Substitute Warrant, the Acquiring Entity and
Clearfield shall promptly compute the number of shares of Substitute Common
Stock for which the Substitute Warrant is exercisable and furnish to the
Holder a certificate, signed by a principal financial officer of each of
the Acquiring Entity and Clearfield, setting forth the number of shares of
Substitute Common Stock for which the Substitute Warrant is exercisable, a
computation thereof and when the adjustment will become effective.
9. Rights of Holder.
(A) Without limiting the foregoing or any remedies available to the
Holder, it is specifically acknowledged that the Holder would not have an
adequate remedy at law for any breach of the provision of this Warrant and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the
obligations of any Person subject to, this Warrant.
(B) Except as provided in the third paragraph of Paragraph 1 hereof,
the Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in Clearfield.
10. Termination. This Warrant and the rights conferred hereby shall
terminate (i) upon willful breach of the Agreement by Penn Laurel, (ii) at the
Effective Time of the Merger pursuant to the Reorganization Agreement, (iii)
upon a valid termination of the Reorganization Agreement prior to the occurrence
of an event described in Paragraph 2 of the Agreement or (iv) upon the failure
of the shareholders of Clearfield to approve the Merger by the required vote at
a meeting duly called and held in accordance with the requirements of Section
6.2(b) of the Reorganization Agreement prior to the occurrence of an event
described in Paragraph 2 of the Agreement and (v) to the extent this Warrant has
not previously been exercised, on the later of (A) December 31, 1999 and (B) 12
months after the occurrence of an event described in Paragraph 2 of the
Agreement, provided that
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the termination pursuant to this clause (v) shall not affect any redemption
under Paragraph 5 as to which exercise under Paragraph 5(B) has previously
occurred.
11. Governing Law. This Warrant shall be governed by, and interpreted in
accordance with, the substantive laws of the Commonwealth of Pennsylvania.
Dated: December 31, 1998
[BANK SEAL]
ATTEST: CLEARFIELD BANK & TRUST COMPANY
By: /s/ William A. Shiner By: /s/ Sherwood C. Moody
----------------------------- ---------------------------
President & CEO
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Annex B
Ryan, Beck & Co., Inc.
Fairness Opinion
<PAGE>
TO BE FILED BY AMENDMENT
<PAGE>
Annex C
Garland McPherson & Associates, Inc.
Fairness Opinion
<PAGE>
TO BE FILED BY AMENDMENT
<PAGE>
ANNEX D
PENNSYLVANIA BANKING CODE OF 1965, AS AMENDED
EXCERPT FROM CHAPTER 12
ss. 1222. Rights of dissenting shareholders
If a shareholder of an institution shall object to a proposed plan of
action of the institution authorized under a section of this act and such
section provides that the shareholder shall be entitled to the rights and
remedies of a dissenting shareholder, the rights and remedies of such
shareholder shall be governed by the provisions of the Business Corporation
Law(1) applicable to dissenting shareholders and shall be subject to the
limitations on such rights and remedies under those provisions. Shares acquired
by an institution as a result of the exercise of such rights by a dissenting
shareholder may be held and disposed of as treasury shares, or, in the case of a
merger or consolidation, as otherwise provided in the plan of merger or
consolidation.
EXCERPT FROM CHAPTER 16
ss. 1607. Rights of dissenting shareholders
(a) A shareholder of an institution which is a party to a plan in which the
proposed merger or consolidation will result in an institution subject to this
act who objects to the plan shall be entitled to the rights and remedies of a
dissenting shareholder provided under, and subject to compliance with, the
provisions of section 1222 of this act.
(b) If a shareholder of a national bank which is a party to a plan in which
the proposed merger or consolidation will result in an institution subject to
this act shall object to the plan and shall comply with the requirements of
applicable laws of the United States, the resulting institution shall be liable
for the value of his shares as determined in accordance with such laws of the
United States. If the laws of the United States do not provide rights of
dissenting shareholders or requirements for the exercise of such rights and the
valuation of shares, such shareholder shall be entitled to the rights and
remedies of a dissenting shareholder under, and subject to compliance with, the
provisions of section 1222 of this act.
- ----------
(1) 15 Pa.C.S.A. ss. 1001 et seq.
<PAGE>
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, AS AMENDED
EXCERPTS FROM SUBCHAPTER 19C
ss.1930. Dissenters rights
(a) General rule. If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a plan
of merger or consolidation objects to the plan of merger or
consolidation and complies with the provisions of Subchapter D of
Chapter 15 (relating to dissenters rights), the shareholder shall be
entitled to the rights and remedies of dissenting shareholders therein
provided, if any. See also section 1906(c) (relating to dissenters
rights upon special treatment).
SUBCHAPTER 15D
Dissenters Rights
Section:
1571. Application and effect of subchapter.
1572. Definitions.
1573. Record and beneficial holders and owners.
1574. Notice of intention to dissent.
1575. Notice to demand payment.
1576. Failure to comply with notice to demand payment, etc.
1577. Release of restrictions or payment for shares.
1578. Estimate by dissenter of fair value of shares.
1579. Valuation proceedings generally.
1580. Costs and expenses of valuation proceedings.
ss.1571. Application and effect of Subchapter.
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent
from, and to obtain payment of the fair value of his shares in the
event of, any corporate action, or to otherwise obtain fair value for
his shares, where this part expressly provides that a shareholder
shall have the rights and remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
<PAGE>
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date
fixed to determine the shareholders entitled to notice of and to
vote at the meeting at which a plan specified in any of section
1930, 1931(d), 1932(c) or 1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of
any such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that
paragraph in the case of:
(i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other
corporation or solely into such shares and money in lieu of
fractional shares.
(ii) Shares of any preferred or special class unless the
articles, the plan or the terms of the transaction entitle
all shareholders of the class to vote thereon and require
for the adoption of the plan or the effectuation of the
transaction the affirmative vote of a majority of the votes
cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of
the shares, property or assets of
<PAGE>
another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other
corporation and with or without the intervention of another
corporation or other person, shall not be entitled to the rights
and remedies of dissenting shareholders provided in this
subchapter regardless of the fact, if it be the case, that the
acquisition was accomplished by the issuance of voting shares of
the corporation to be outstanding immediately after the
acquisition sufficient to elect a majority or more of the
directors of the corporation.
(c) Grant of optional dissenters rights. The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders
shall have dissenters rights in connection with any corporate action
or other transaction that would otherwise not entitle such
shareholders to dissenters rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute, if
a proposed corporate action that would give rise to dissenters rights
under this subpart is submitted to a vote at a meeting of
shareholders, there shall be included in or enclosed with the notice
of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the
fair value of their shares by complying with the terms of this
subchapter; and
(2) a copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this
part that makes reference to this subchapter for the purpose of
granting dissenters rights.
(f) Certain provisions of articles ineffective. This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine
abolished) and 2512 (relating to dissenters rights procedure).
ss.1572. Definitions.
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation
for the purposes of this subchapter. The successor corporation in a
division shall
<PAGE>
have sole responsibility for payments to dissenters and other liabilities
under this subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account
all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all of the
circumstances, taking into account all relevant factors, including the
average rate currently paid by the corporation on its principal bank loans.
ss.1573. Record and beneficial holders and owners.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the
shares registered in his name only if he dissents with respect to all
the shares of the same class or series beneficially owned by any one
person and discloses the name and address of the person or persons on
whose behalf he dissents. In that event, his rights shall be
determined as if the shares as to which he has dissented and his other
shares were registered in the names of different shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert
dissenters rights with respect to shares held on his behalf and shall
be treated as a dissenting shareholder under the terms of this
subchapter if he submits to the corporation not later than the time of
the assertion of dissenters rights a written consent of the record
holder. A beneficial owner may not dissent with respect to some but
less than all shares of the same class or series owned by the owner,
whether or not the shares so owned by him are registered in his name.
ss.1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent
and obtain payment of the fair value of his shares must file with the
corporation, prior to the vote, a written notice of intention to demand
that he be paid the fair value for his shares if the proposed action is
effectuated, must effect no change in the beneficial ownership of his
shares from the date of such filing continuously through the effective date
of the proposed action and must refrain from voting his shares in approval
of such action. A dissenter who fails in any respect shall not acquire any
right to payment of the fair value of his shares under this subchapter.
Neither a proxy nor a vote against the proposed corporate action shall
constitute the written notice required by this section.
<PAGE>
ss.1575. Notice to demand payment.
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation,
the corporation shall mail a further notice to all dissenters who gave
due notice of intention to demand payment of the fair value of their
shares and who refrained from voting in favor of the proposed action.
If the proposed corporate action is to be taken without a vote of
shareholders, the corporation shall send to all shareholders who are
entitled to dissent and demand payment of the fair value of their
shares a notice of the adoption of the plan or other corporate action.
In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order
to obtain payment.
(2) Inform holders of uncertificated shares to what extent transfer
of shares will be restricted from the time that demand for
payment is received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person
on whose behalf the shareholder dissents, acquired beneficial
ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt of
the demand and deposit of certificated shares shall be not less than
30 days from the mailing of the notice.
ss.1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares)
to timely deposit certificates, as required by a notice pursuant to
section 1575 (relating to notice to demand payment) shall not have any
right under this subchapter to receive payment of the fair value of
his shares.
(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict
their transfer from the time of receipt of demand for payment until
effectuation of the proposed corporate action or the release of
restrictions under the terms of section 1577(a) (relating to failure
to effectuate corporate action).
<PAGE>
(c) Rights retained by shareholder. The dissenter shall retain all other
rights of a shareholder until those rights are modified by
effectuation of the proposed corporate action.
ss.1577. Release of restrictions or payment for shares.
(a) Failure to effectuate corporate action. Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it
shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason
of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated shares have
been released from transfer restrictions and deposited certificates
have been returned, the corporation may at any later time send a new
notice conforming to the requirements of section 1575 (relating to
notice to demand payment), with like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for
payment if the corporate action has already been effectuated, the
corporation shall either remit to dissenters who have made demand and
(if their shares are certificated) have deposited their certificates
the amount that the corporation estimates to be the fair value of the
shares, or give written notice that no remittance under this section
will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer
of the shares held or owned by the dissenter for a fiscal year
ending not more than 16 months before the date of remittance or
notice together with the latest available interim financial
statements.
(2) A statement of the corporation's estimate of the fair value of
the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy
of this subchapter.
(d) Failure to make payment. If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by
subsection (c), it shall return any certificates that have been
deposited and release uncertificated shares from any transfer
restrictions imposed by reason of the demand for payment. The
corporation may make a notation on any such certificate or on the
records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which
notation has been so made shall be transferred, each new certificate
issued therefor or the records relating to any transferred
uncertificated shares shall bear a similar notation, together with the
name of the original dissenting holder or owner of such shares. A
transferee of such shares shall not acquire by such
<PAGE>
transfer any rights in the corporation other than those that the
original dissenter had after making demand for payment of their fair
value.
ss.1578. Estimate by dissenter of fair value of shares.
(a) General rule. If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's
shares as permitted by section 1577(c) (relating to payment of fair
value of shares) and the dissenter believes that the amount stated or
remitted is less than the fair value of his shares, he may send to the
corporation his own estimate of the fair value of the shares, which
shall be deemed a demand for payment of the amount or the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing
by the corporation of its remittance or notice, the dissenter shall be
entitled to no more than the amount stated in the notice or remitted
to him by the corporation.
ss.1579. Valuation proceedings generally.
(a) General rule. Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under Section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation
may file in court an application for relief requesting that the fair
value of the shares be determined by the court.
(b) Mandatory joinder of dissenters. All, dissenters, wherever residing,
whose demands have not been settled shall be made parties to the
proceeding as in an action against their shares. A copy of the
application shall be served on each such dissenter. If a dissenter is
a nonresident, the copy may be served on him in the manner provided or
prescribed by or pursuant to 42 Pa.C.S. Ch. 53 (relating to bases of
jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive
evidence and recommend a decision on the issue of fair value. The
appraiser shall have such power and authority as may be specified in
the order of appointment or in any amendment thereof.
<PAGE>
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares
is found to exceed the amount, if any, previously remitted, plus
interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection
(a), any dissenter who made a demand and who has not already settled
his claim against the corporation may do so in the name of the
corporation at any time within 30 days after the expiration of the
60-day period. If a dissenter does not file an application within the
30-day period, each dissenter entitled to file an application shall be
paid the corporation's estimate of the fair value of the shares and no
more, and may bring an action to recover any amount not previously
remitted.
ss.1580. Costs and expenses of valuation proceedings.
(a) General rule. The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the
court, shall be determined by the court and assessed against the
business corporation except that any part of the costs and expenses
may be apportioned and assessed as the court deems appropriate against
all or some of the dissenters who are parties and whose action in
demanding supplemental payment under section 1578 (relating to
estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the
respective parties may be assessed as the court deems appropriate
against the corporation and in favor of any or all dissenters if the
corporation failed to comply substantially with the requirements of
this subchapter and may be assessed against either the corporation or
a dissenter, in favor of any other party, if the court finds that the
party against whom the fees and expenses are assessed acted in bad
faith or in a dilatory, obdurate, arbitrary or vexatious manner in
respect to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds
that the services of counsel for any dissenter were of substantial
benefit to other dissenters similarly situated and should not be
assessed against the corporation, it may award to those counsel
reasonable fees to be paid out of the amounts awarded to the
dissenters who were benefitted.
<PAGE>
ANNEX E
PENN LAUREL FINANCIAL CORP.
RESTATED
ARTICLES OF INCORPORATION
Article 1
The name of the Corporation is PENN LAUREL FINANCIAL CORP.
Article 2
The address of its registered office in the Commonwealth of Pennsylvania
is: 427 State Street, Curwensville, Clearfield County, Pennsylvania 16833.
Article 3
The purpose or purposes for which the corporation is incorporated are: 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.
Article 4
The term for which the corporation is to exist is perpetual.
Article 5
The aggregate number of shares that the corporation shall have authority to
issue is 2,500,000 shares of common stock, par value $5.00 per share (the
"common stock").
Article 6
Intentionally omitted.
Article 7
No merger, consolidation, liquidation or dissolution of this corporation
nor any action that would result in the sale or other disposition of all or
substantially all of the assets of this corporation shall be valid unless first
approved by the affirmative vote of the holders of at least seventy-five (75%)
of the outstanding shares of Common Stock of this corporation. This Article 7
may not be amended unless first approved by the affirmative vote of the holders
of at least seventy-five (75%) of the outstanding shares of Common Stock of this
corporation.
<PAGE>
Article 8
Cumulative voting rights shall not exist with respect to the election of
directors.
Article 9
(a) 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 the securities of a corporation or otherwise. When considering whether to
oppose an offer, the Board of Directors may, but is not legally obligated to,
consider any relevant, germane or pertinent issue; by way of illustration, but
not to be considered any limitation on the power of the Board of Directors to
oppose a tender or other offer for this corporation's securities, the Board of
Directors may, but shall not be legally obligated to, consider any or all of the
following:
(i) Whether the offer price is acceptable based on the historical and
present operating results operating results or financial condition of this
corporation;
(ii) Whether a more favorable price could be obtained for this
corporation's securities in the future;
(iii) The social and economic effects of the offer or transaction on
this corporation and any of its subsidiaries, employees, depositors, loan
and other customers, creditors, shareholders and other elements of the
communities in which this corporation and any of its subsidiaries operate
or are located;
(iv) The reputation and business practice of the offeror and its
management and affiliates as they would affect the shareholders, employees,
depositors and customers of the corporation and its subsidiaries and the
future value of the corporation's stock;
(v) 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 or other entity whose securities are being
offered;
(vi) The business and financial conditions and earnings prospects of
the offeror, including, but not limited to, debt service and other existing
or likely financial obligations of the offeror, and the possible affect of
such conditions upon this corporation and any of its subsidiaries and the
other elements of the communities in which this corporation and any of its
subsidiaries operate or are located; and
(vii) Any antitrust or other legal and regulatory issues that are
raised by the offer.
(b) 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 or all of the following: advising shareholders not to accept the
offer; litigation against the offeror, filing
<PAGE>
complaints with all governmental and regulatory authorities; acquiring the
offeror corporation's securities; selling or otherwise issuing 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.
<PAGE>
ANNEX F
RESTATED
BY-LAWS
OF
PENN LAUREL FINANCIAL CORP.
Article 1
CORPORATION OFFICE
Section 1.1 The Corporation shall have and continuously maintain in
Pennsylvania a registered office which may, but need not, be the same as its
place of business and at an address to be designated from time to time by the
Board of Directors.
Section 1.2 The Corporation may also have offices at such other places as
the Board of Directors may from time to time designate or the business of the
Corporation may require.
Article 2
SHAREHOLDERS MEETINGS
Section 2.1 All meetings of the shareholders shall be held at such time and
place within the Commonwealth of Pennsylvania as may be fixed from time to time
by the Board of Directors.
Section 2.2 The annual meeting of the shareholders shall be held no later
than the thirty-first day of May in each year, when the shareholders shall elect
members to the Board of Directors and transact such other business as may
properly be brought before the meeting.
Section 2.3 Special meetings of the shareholders may be called at any time
by the Chairman of the Board, the President, a majority of the Board of
Directors or by shareholders entitled to cast at least fifty-one percent (51%)
of the votes which all shareholders are entitled to cast at the particular
meeting. If such request is addressed to the Secretary, it shall be signed by
the persons making the same and shall state the purpose or purposes of the
proposed meting. Upon receipt of any such request, the person or persons making
the request may issue the call.
Section 2.4 Written notice of all meetings other than adjourned meetings of
shareholders, stating the place, date and hour, and, in case of special meetings
of shareholders, the purpose thereof, shall be served upon, or mailed, postage
prepaid, or telegraphed, charges prepaid, at least ten days before such meeting,
unless a greater period of notice is required by statute or by these By-laws, to
each shareholder entitled to vote threat at such address as appears on the
transfer books of the Corporation.
<PAGE>
Article 3
QUORUM OF SHAREHOLDERS
Section 3.1 The presence, in person or by proxy, of shareholders entitled
to cast at least a majority of the votes which all shareholders are entitled to
cast on the particular matter shall constitute a quorum for purposes of
considering such matter, and unless otherwise provided by statute the acts of
such shareholders at a duly organized meeting shall be the acts of the
shareholders. If, however, any meeting of shareholders cannot be organized
because of lack of a quorum, those present, in person or by proxy, shall have
the power, except as otherwise provided by statute, to adjourn the meeting to
such time and place as they may determine, without notice other than an
announcement at the meeting, until the requisite number of shareholders for a
quorum shall be present, in person or by proxy, except that in the case of any
meeting called for the election of directors such meeting may be adjourned only
for periods not exceeding 15 days as the holders of a majority of the shares
present, in person or by proxy, shall direct, and those who attend the second of
such adjourned meetings, although less than a quorum, shall nevertheless
constitute a quorum for the purpose of electing directors. At any adjourned
meeting at which a quorum shall be present or so represented, any business may
be transacted which might have been transacted at the original meeting if a
quorum had been present. The shareholders present, in person or by proxy at a
duly organized meeting can continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Article 4
VOTING RIGHTS
Section 4.1 Except as may be otherwise provided by statute or by the
Articles of Incorporation, at every shareholders meeting, every shareholder
entitled to vote thereat shall have the right to one vote for every share having
voting power standing in his name on the books of the Corporation on the record
date fixed for the meeting. No share shall be voted at any meeting if an
installment is due and unpaid thereon.
Section 4.2 When a quorum is present at any meeting the voice vote of the
holders of a majority of the stock having voting power, present, in person or by
proxy, shall decide any question brought before such meeting except as provided
differently by statute or by the Articles of Incorporation.
Section 4.3 Upon demand made by a shareholder entitled to vote at any
election for directors before the voting begins, the election shall be by
ballot.
<PAGE>
Article 5
PROXIES
Section 5.1 Every shareholder entitled to vote at a meeting of shareholders
or to express consent or dissent to corporate action in writing without a
meeting may authorize another person or persons to act for him by proxy. Every
proxy shall be executed in writing by the shareholder or his duly authorized
attorney in fact and filed with the Secretary of the Corporation. A proxy,
unless coupled with an interest, shall be revocable at will, notwithstanding any
other agreement or any provision in the proxy to the contrary, but the
revocation of a proxy shall not be effective until notice thereof has been given
to the Secretary of the Corporation. No unrevoked proxy shall be valid after 11
months from the date of its execution, unless a long as time is expressly
provided therein, but in no event shall a proxy, unless coupled with an
interest, be voted after three years from the date of its exemption. A proxy
shall not be revoked by the death or incapacity of the maker, unless before the
vote is counted or the authority is exercised, written notice of such death or
incapacity is given to the Secretary of the Corporation.
Article 6
RECORD DATE
Section 6.1 The Board of Directors may fix a time, not more than 90 days
prior to the date of any meeting of shareholders, or the date fixed 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 go into effect, as a record date for the determination of the
shareholders entitled to notice of, and to vote at, any such meeting, 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. In such case, only such shareholders
as shall be shareholders of record on the date so fixed shall be entitled to
notice of, or to vote at, such meeting or to receive payment of such dividend or
to receive such allotment of rights or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares of the books of the Corporation
after any record date fixed as aforesaid. The Board of Directors may close the
books of the corporation against transfers of shares during the whole or any
part of such period, and in such case written or printed notice thereof shall be
mailed at least ten days before closing thereof to each shareholder of record at
the address appearing on the records of the Corporation or supplied by him to
the Corporation for the purpose of notice. While the stock transfer books of the
Corporation are closed, no transfer of shares shall be made thereon. If no
record date is fixed by the Board of Directors for the determination of
shareholders entitled to receive notice of, and vote at, a shareholders meeting,
transferees of shares which are transferred on the books of the Corporation
within ten days next preceding the date of such meeting shall not be entitled to
notice of or to vote at such meeting.
<PAGE>
Article 7
VOTING LISTS
Section 7.1 The officer or agent having charge of the transfer books for
shares of the Corporation shall make, at least fourteen days before each meeting
of shareholders, a complete alphabetical list of the shareholders entitled to
vote at the meeting, with their addresses and the number of shares held by each,
which list shall be kept on file at the registered office or principal place of
business of the Corporation and shall be subject to inspection by any
shareholder during the entire meeting. The original transfer books for shares of
the Corporation, or a duplicate thereof kept in this Commonwealth, shall be
prima facie evidence as to who are the shareholders entitled to exercise the
rights of a shareholder.
Article 8
JUDGES OF ELECTION
Section 8.1 In advance of any meeting of shareholders, the Board of
Directors may appoint judges of election, who need not be shareholders, to act
at such meeting or any adjournment thereof. If judges of election are not so
appointed, the Chairman of any such meeting may, and on the request of any
shareholder or his proxy shall, make such appointment at the meeting. The number
of judges shall be one or three. If appointed at a meeting on the request of one
or more shareholders or proxies, the majority of shares present and entitled to
vote shall determine whether one or three judges are to be appointed. No person
who is a candidate for office shall act as a judge. The judges of election shall
do all such acts as may be proper to conduct the election or vote, and such
other duties as may be prescribed by statute, with fairness to all shareholders,
and if requested by the Chairman of the meeting or any shareholder or his proxy,
shall make a written report of any matter determined by them and execute a
certificate of any fact found by them. if there are three judges of election,
the decision, act or certificate of a majority shall be the decision, act or
certificate of all.
Article 9
CONSENT OF SHAREHOLDERS IN LIEU OF MEETING
Section 9.1 Any action required to be taken at a meeting of the
shareholders, or of a class of shareholders, may be taken without a meeting, if
a consent or consents in writing setting forth the action so taken shall be
signed by all of the shareholders who would be entitled to vote at a meeting for
such purpose and shall be filed with the Secretary of the Corporation.
<PAGE>
Article 10
DIRECTORS
Section 10-1 Any shareholder who intends to nominate or to cause to have
nominated any candidate for election to the Board of Directors (other than any
candidate proposed by the Corporation's then existing Board of Directors) shall
so notify the Secretary of the Corporation in writing not less than sixty (60)
days prior to the date of any meeting of shareholders called for the election of
directors. Such notification shall contain the following information to the
extent known by the notifying shareholder.
(a) the name and address of each proposed nominee;
(b) the age of each proposed nominee;
(c) the principal occupation of each proposed nominee;
(d) the number of shares of the Corporation owned by each proposed nominee;
(e) the total number of shares that to the knowledge of the notifying
shareholder will be voted for each proposed nominee;
(f) the name and residence address of the notifying shareholder; and
(g) the number of shares of the Corporation owned by the notifying
shareholder.
Any nomination for director not made in accordance with this Section shall
be disregarded by the chairman of the meeting, and votes cast for each such
nominee shall be disregarded by the judges of election. In the event. that the
same person is nominated by more than one shareholder, if at least one
nomination for such person complies with this section, the nomination shall be
honored and all votes cast for such nominee shall be counted.
Section 10.2 The number of directors that shall constitute the whole Board
of Directors shall be not less than ten nor more than twenty-five. Each director
shall be a resident of the Commonwealth of Pennsylvania and hold in his or her
name shares of common stock of this corporation totaling at a minimum one
thousand dollars ($1,000) in par value. No person who is seventy-two years of
age or older shall qualify to be a director, except Messrs. A. W. Straw, Raymond
L. Curry, Frank J. Hoffman, Jr, , Richard L. Lininger and Joseph A. Shaw. The
Board of Directors shall be classified into three classes, each class to be
elected for a term of three years. The terms of the respective classes shall
expire in successive years as, provided in Section 10.3 hereof. Within the
foregoing limits, the Board of Directors may from time to time fix the number of
directors and their respective classifications.
Section 10.3 At the 1987 annual meeting of shareholders of the corporation,
the shareholders shall elect ten directors as follows: three Class A directors
to serve until the 1988
<PAGE>
annual meeting of shareholders, three Class B directors to serve until the 1989
annual meeting of shareholders, and four Class C directors to serve until the
1990 annual meeting of shareholders. Each class shall be elected in a separate
election. At each annual meeting of shareholders thereafter, successors to the
class of directors whose term shall then expire shall be elected to hold office
for a term of three years, so that the term of office of one class of directors
shall expire in each year.
Section 10.4 The Board of Directors may declare vacant the office of a
director if he is declared of unsound mind by an order of court or convicted of
felony or for any other proper cause or if, within thirty days after notice of
election, he does not accept such office either in writing or by attending a
meeting of the Board of Directors.
Article 11
VACANCIES ON BOARD OF DIRECTORS
Section 11.1 Vacancies on the Board of Directors, including vacancies
resulting from an increase in the number of directors as authorized by the Board
of Directors as, provided in Section 10.2 hereof, shall be filled by a majority
of the remaining members of the Board of Directors, though less than a quorum,
and each person so appointed shall be a director until the expiration of the
term of office of the class of directors to which he was appointed.
Article 12
POWERS OF BOARD OF DIRECTORS
Section 12.1 The business and affairs of the Corporation shall be managed
by its Board of Directors, which my exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute or by the Articles
of Incorporation or by these By-laws directed or required to be exercised and
done by the shareholders.
Section 12.2 The Board of Directors shall have the power and authority to
appoint an Executive Committee and such other committees as may be deemed
necessary by the Board of Directors for the efficient operation of the
corporation. The Executive Committee shall consist of the Chairman of the Board,
if any, the President and not less than two nor more than three other directors
(which other directors shall not be employees of the Corporation or any of its
subsidiaries). The Executive Committee shall meet at such time as may be fixed
by the Board of Directors, or upon call of the Chairman of the Board or the
President. A majority of members of the Executive Committee shall constitute a
quorum. The Executive Committee shall have and exercise the authority of the
Board of Directors in the intervals between the meetings of the Board of
Directors as far as may be permitted by law.
<PAGE>
Article 13
MEETINGS OF THE BOARD OF DIRECTORS
Section 13.1 An organization meeting may be held immediately following
the annual shareholders meeting without the necessity of notice to the directors
to constitute a legally convened meeting, or the directors way meet at such time
and place as may be fixed by either a notice or waiver of notice or consent
signed by all of such directors.
Section 13.2 Regular meetings of the Board of Directors shall be held not
less often than semi-annually at a time and place determined the Board of
Directors at the preceding meeting. One or more directors may participate in any
meeting of the Board of Directors, or of any committee thereof, by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear one another.
Section 13.3 Special meetings of the Board of Directors shall be called by
the Chairman of the Board or the President on one day's notice to each director,
either personally or by mail, telegram or telephone; special meetings shall be
called by the Chairman of the Board or the President in like manner and on like
notice upon the written request of three directors.
Section 13.4 At all meetings of the Board of Directors, a majority of the
directors shall constitute a quorum for the transaction of business, and the
acts of a majority of the directors present at a meeting in person or by
conference telephone or similar communications equipment at which a quorum is
present in person or by such communications equipment shall be the acts of the
Board of Directors, except as may be otherwise specifically provided by statute
or by the Articles of Incorporation or by these By-laws. If a quorum shall not
be present in person or by communications equipment at any meeting of the
directors, the directors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or as permitted herein.
Article 14
INFORMAL ACTION BY THE BOARD OF DIRECTORS
Section 14.1 If all the directors shall severally or collectively consent
in writing, including but not limited to telegrams and radiograms, to any action
to be taken by the Corporation, such action shall be as valid a corporation
action as though it had been authorized at a meeting of the Board of Directors.
Article 15
COMPENSATION OF DIRECTORS
Section 15.1 Directors, as such, may receive a stated salary for their
services or a fixed sum and expenses for attendance at regular and special
meetings, or any combination of the foregoing as
<PAGE>
may be determined from time to time by resolution of the Board of Directors, and
nothing contained herein shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
Article 16
OFFICERS
Section 16.1 The officers of the Corporation shall be Elected by the
Board of Directors at its organization meeting and shall be a President, a
Secretary and a Treasurer. At its option, the Board of Directors may elect a
Chairman of the Board. The Board of Directors may also elect one or more Vice
Presidents and such other officers and appoint such agents as it shall deem
necessary, who shall hold their offices for such terms, have such authority and
perform such duties as may from time to time be prescribed by the Board of
Directors. Any two or more offices may be held by the same person.
Section 16.2 The compensation of all officers of the Corporation shall be
fixed by the Board of Directors.
Section 16.3 The Board of Directors may remove any officer or agent elected
or appointed, at any time and within the period, if any, for which such person
was elected or employed whenever in the Board of Directors judgment it is in the
best interests of the Corporation, and all persons shall be elected and employed
subject to the provisions thereof. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors.
Article 17
THE CHAIRMAN OF THE BOARD
Section 17.1 The Chairman of the Board shall preside at all meetings of
the Board of Directors. He shall also have and may exercise such further powers
and duties as from time to time may be conferred upon or assigned to him by the
Board of Directors.
Article 18
THE PRESIDENT
Section 18.1 The President shall be the chief executive officer of the
Corporation; shall be an ex-officio member of all committees, except the Audit
Committee; shall have general and active management of the business of the
Corporation; shall see that all orders and resolutions of the Board of Directors
a put into effect, subject, however, to the right of the Board of Directors to
delegate any specific powers, except such as may be by the statute
exclusively-conferred on the President, to any other officer or officers of the
Corporation shall execute bonds, mortgages and other contracts requiring a seal
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly
<PAGE>
delegated by the Board of Directors to some other officer or agent of the
Corporation. In the absence or incapacity of the Chairman of the Board, the
President shall preside at meetings of the shareholders and the directors. If
there is no Chairman of the Board, the President shall have and exercise all
powers conferred by these By-laws or otherwise on the Chairman of the Board.
Article 19
THE VICE PRESIDENT
Section 19.1 The Vice President or, if more than one, the Vice Presidents
in the order established by the Board of Directors shall, in the absence or
incapacity of the President, exercise all powers and perform the duties of the
President. The Vice Presidents, respectively, shall also have such other
authority and perform such other duties as may be provided in these By-laws or
as shall be determined by the Board of Directors or the President. Any Vice
President may, in the discretion of the Board of Directors, be designated as
"executive", "senior", or by departmental or functional classification.
Article 20
THE SECRETARY
Section 20.1 The Secretary shall attend all meetings of the Board of
Directors and of the shareholders and keep accurate records thereof in one or
more minute books kept for that purpose and shall perform the duties customarily
performed by the secretary of a corporation and such other duties as may be
assigned to him by the Board of Directors or the President.
Article 21
THE TREASURER
Section 21.1 The Treasurer shall have the custody of the corporate funds
and securities; shall keep full and accurate accounts of receipt and
disbursements in books belonging to the Corporation and shall perform such other
duties as way be assigned to him by the Board of Directors or the President. He
shall give bond in such sum and with such surety as the Board of Directors may
from time to time direct.
Article 22
ASSISTANT OFFICERS
Section 22.1 Each assistant officer shall assist in the performance of the
duties of the officer to whom he is assistant and shall perform such duties in
the absence of the officer. He shall perform such additional duties as the Board
of Directors, the President or the officer to when he is assistant may from time
to time assign him. Such officers may be given such functional titles as the
Board of Directors shall from time to time determine.
<PAGE>
Article 23
INDEMNIFICATION OF OFFICERS AND EMPLOYEES
Section 23.1 The Corporation shall indemnify any officer and/or
employee, or any former officer and/or employee, who was or is a party to, or is
threatened to be made a party to, or who is called to be a witness in connection
with, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that such person is or was
an officer and/or employee 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), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. the termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
Section 23.2 The Corporation shall indemnify any director, officer and/or
employee, who was or is a party to, or is threatened to be made a party to, or
who is called as a witness in connection with, any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer and/or employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against amounts paid in settlement and
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of, or serving as a witness in, such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the Corporation and except
that no indemnification shall be made in respect of any such claim, issue or
matter as to which such person shall have been adjudged to be liable for
misconduct in the performance of his duty to the Corporation.
Section 23.3 Except as may be otherwise ordered by a court, there shall be
a presumption that any director, officer and/or employee is entitled to
indemnification as provided in Sections 23.1 and 23.2 of this Article unless
either a majority of the directors who are not involved in such proceedings
("disinterested directors") or, if there are less than three disinterested
directors, then the holders of one-third of the outstanding shares of the
Corporation determine that the person is not entitled to such presumption by
certifying such determination in writing to the Secretary of the Corporation. In
such event the disinterested director(s) or, in the event of certification by
shareholders, the Secretary of the Corporation shall request of independent
counsel, who may be the outside general counsel of the Corporation, a written
opinion as to whether or not the parties involved are entitled to
indemnification under Sections 23.1 and 23.2 of this Article.
<PAGE>
Section 23.4 Expenses incurred by an officer and/or employee in defending a
civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized in the manner provided under Section 23.3 of this Article upon
receipt of an undertaking by or on behalf of the officer and/or employee to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation.
Section 23.5 The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which a person seeking indemnification
may be entitled under any agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity while
serving as an officer and/or employee and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
officer and/or employee and shall inure to the benefit of the heirs, executors
and administrators of such a person.
Section 23.6 The Corporation may create a fund of any nature, which may, be
need not be, under the control of a trustee, or otherwise secure or insure in
any manner its indemnification obligations arising under this Article.
Section 23.7 The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was an officer and/or employee of
the Corporation, or is or was serving at the request of the Corporation as an
officer and/or employee of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article.
Section 23.8 Indemnification under this Article shall not 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.
Article 24
INDEMNIFICATION OF DIRECTORS
Section 24.1 A director of this Corporation shall stand in a fiduciary
relations to the Corporation and shall perform his duties as a director,
including his duties as a member of any committee of the board upon which he may
serve, in good faith, in a manner he reasonably believes to be in the best
interests of the Corporation, and with such care, including reasonable inquiry,
skill and diligence, as a person of ordinary prudence would use under similar
circumstances. In performing his duties, a director shall be entitled to rely in
good faith on information, opinions, reports or statements, including financial
statements and other financial data, in each case prepared or presented by any
of the following:
(a) One or more officers or employees of the Corporation whom the
director reasonably believes to be reliable and competent in the matters
presented.
<PAGE>
(b) Counsel, public accountants or other persons as to matters which
the director reasonably believes to be within the professional or expert
competence of such person.
(c) A committee of the board upon which he does not serve, duly
designated in accordance with law, as to matters within its designated
authority, which committee the director reasonably believes to merit
confidence.
A director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause his reliance to be
unwarranted.
Section 24.2 In discharging the duties of their respective positions, the
board of directors, committees of the board, and individual directors may, in
considering the best interests of the Corporation, consider the effects of any
action upon employees, upon suppliers and customers of the Corporation and upon
communities in which offices or other establishments of the Corporation are
located, and all other pertinent factors. The consideration of those factors
shall not constitute a violation of Section 24.1.
Section 24.3 Absent a breach of fiduciary duty, lack of good faith or
self-dealing, actions taken as a director or any failure to take any action
shall be presumed to be in the best interests of the Corporation.
Section 24.4 A director of this Corporation shall not be personally liable
for monetary damages as such for any action taken or for any failure to take any
action, unless:
(a) the director has breached or failed to perform the duties of his office
under the provisions of Sections 24.1 and 24.2, and
(b) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
Section 24.5 The provisions of Section 24.4 shall not apply to:
(a) the responsibility or liability of a director pursuant to a criminal
statute, or
(b) the liability of a director for the payment of taxes pursuant to local,
state or federal law.
Section 24.6 The Corporation shall indemnify any director, or any former
director who was or is a party to, or is threatened to be made a party to, or
who is called to be a witness in connection with, any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director 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), judgments, fines
and
<PAGE>
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in, or not apposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
Section 24.7 The Corporation shall indemnify any director who was or is a
party to, or is threatened to be made a party to, or who is called as a witness
in connection with, any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director, officer and/or employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against amounts paid in settlement and expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of, or serving as a witness in, such action or suit if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the Corporation and except that no indemnification shall
be made in respect of any such claim, issue or matter as to which such person
shall have been adjudged to be liable for misconduct in the performance of his
duty to the Corporation.
Section 24.8 Except as may be otherwise ordered by a court, there shall be
a presumption that any director is entitled to indemnification as provided in
Sections 24.6 and 24.7 of this Article unless either a majority of the directors
who are not involved in such proceedings ("disinterested directors") or, if
there are less than three disinterested directors, then the holders of one-third
of the outstanding shares of the Corporation determine that the person is not
entitled to such presumption by certifying such determination in writing to the
Secretary of the Corporation. In such event the disinterested director(s) or, in
the event of certification by shareholders, the Secretary of the Corporation
shall request of independent counsel, who may be the outside general counsel of
the Corporation, a written opinion as to whether or not the parties involved are
entitled to indemnification under Sections 24.6 and 24.7 of this Article.
Section 24.9 Expenses incurred by a director in defending a civil or
criminal action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding as authorized in the
manner provided under Section 24.8 of this Article upon receipt of an
undertaking by or on behalf of the director, officer and/or employee to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article.
Section 24.10 The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which a person seeking indemnification
may be entitled under any agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity while
serving as a director and as to action in another capacity while holding such
office, and shall
<PAGE>
continue as to a person who has ceased to be a director and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 24.11 The Corporation may create a fund of any nature, which may,
but need not be, under the control of an trustee, or otherwise secure or insure
in any manner its indemnification obligations arising under this Article.
Section 24.12 The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director 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 any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of this Article.
Section 24.13 Indemnification under this Article shall not 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.
Article 25
SHARE CERTIFICATES
Section 25.1 The share certificates of the Corporation shall be numbered
and registered in a share register as they are issued; shall bear the name of
the registered holder, the number and class of shares represented thereby, the
par value of each share or a statement that such shares are without par value,
as the case may be; shall be signed by the President or a Vice President and the
Secretary or the Treasurer or any other person properly authorized by the Board
of Directors, and shall bear the corporate seal, which seal may be a facsimile
engraved or printed. Where the certificate is signed by a transfer agent or a
registrar, the signature of any corporate officer on such certificate may be a
facsimile engraved or printed. In case any officer who has signed, or whose
facsimile signature has been placed upon, any share certificate shall have
ceased to be such officer because of death, resignation or otherwise before the
certificate is issued, it may be issued by the Corporation with the same effect
as if the officer had not ceased to be such at the date of its issue.
Article 26
TRANSFER OF SHARES
Section 26.1 Upon surrender to the Corporation of a share certificate duly
endorsed by the person named in the certificate or by attorney duly appointed in
writing and accompanied where necessary by proper evidence of succession,
assignment or authority to transfer, a new certificate shall be issued to the
person entitled thereto and the old certificate canceled and the transfer
recorded upon the share register of the Corporation. No transfer shall be made
if it would be inconsistent with the provisions of Article 8 of the Pennsylvania
Uniform Commercial Code.
<PAGE>
Article 27
LOST CERTIFICATES
Section 27.1 Where a shareholder of the Corporation alleges the loss, theft
or destruction of one or more certificates for shares of the Corporation and
requests the issuance of a substitute certificate therefor, the Board of
Directors may direct a new certificate of the same tenor and for the same number
of shares to be issued to such person upon such person's making of an affidavit
in form satisfactory to the Board of Directors setting forth the facts in
connection therewith, provided that prior to the receipt of such request the
Corporation shall not have either registered a transfer of such certificate or
received notice that such certificate has been acquired by a bona fide
purchaser. When authorizing such issue of a new certificate the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate, or his
heirs or legal representatives, as the case may be, to advertise the same in
such manner as it shall require and/or give the Corporation a bond in such form
and with surety or sureties, with fixed or open penalty, as shall be
satisfactory to the Board of Directors, as indemnity for any liability or
expense which it may incur by reason of the original certificate remaining
outstanding.
Article 28
DIVIDENDS
Section 28.1 The Board of Directors may, from time to time, at any duly
convened regular or special meeting or by unanimous consent in writing, declare
and pay dividends upon the outstanding shares of capital stock of the
Corporation in cash, property or shares of the Corporation, as long as any
dividend shall not be in violation of law of the Articles of Incorporation.
Section 28.2 Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in their absolute discretion, think proper
as a reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the Board of Directors shall believe to be for the best interests of
the Corporation, and the Board of Directors may reduce or abolish any such
reserve in the manner in which it was created.
Article 29
FINANCIAL REPORT TO SHAREHOLDERS
Section 29.1 The President and the Board of Directors shall present at each
annual meeting of the shareholders a full and complete statement of the business
and affairs of the corporation for the preceding year.
<PAGE>
Article 30
INSTRUMENTS
Section 30.1 All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other persons as the
President or the Board of Directors may from time to time designate.
Section 30.2 All agreements, indentures, mortgages, deeds, conveyances,
transfers, certificates, declarations, receipts, discharges, releases,
satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds,
undertakings, proxies and other instruments and documents may be signed,
executed, acknowledged, verified, delivered or accepted, including those in
connection with the fiduciary powers of the Corporation, on behalf of the
Corporation by the President or other persons as may be designated by him.
Article 31
FISCAL YEAR
Section 31.1 The fiscal year of the Corporation shall be the calendar year.
Article 32
SEAL
Section 32.1 The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Pennsylvania". Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed in any manner reproduced.
Article 33
NOTICES AND WAIVERS THEREOF
Section 33.1 Whenever, under the provisions of applicable law or of the
Articles of Incorporation or of these By-laws, written notice is required to be
given to any person, it may be given to such person either personally or by
sending a copy thereof through the mail or by telegram, charges prepaid, to his
address appearing of the books of the Corporation or supplied by him to the
Corporation for the purpose of notice. If the notice is sent by mail or
telegraph, it shall be deemed to have been given to the person entitled thereto
when deposited in the United States mail or with a telegraph office for
transmission to such person. Such notice shall specify the place, lay and hour
of the meeting and, in the case of a special meeting of shareholders, the
general nature of the business to be transacted.
Section 33.2 Any written notice required to be given to any person may be
waived in writing signed by the person entitled to such notice whether before or
after the time stated therein.
<PAGE>
Attendance of any person entitled to notice whether in person or by proxy, at
any meeting shall constitute a waiver of notice of such meeting, except where
any person attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting was not lawfully called or
convened. Where written notice is required of any meeting, the waiver thereof
must specify the purpose only if it is for a special meeting of shareholders.
Article 34
AMENDMENTS
Section 34.1 These By-laws may be altered, amended or repealed by the
affirmative vote of the holders of seventy-five percent (75%) of the outstanding
shares of Common Stock at any regular or special meeting duly convened after
notice to the shareholders of that purpose, or by a majority vote of the members
of the Board of Directors at any regular or special meeting thereof duly
convened after notice to the directors of that purpose, subject always to the
power of the shareholders to change such action of the Board of Directors by the
affirmative vote of the holders of seventy-five percent (75%) of the outstanding
shares of Common Stock.
Restated: February 24, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law of
1988, as amended (15 Pa. C.S. ss.1101-4162) provides that a business
corporation shall have the power under certain circumstances to indemnify its
directors, officers, employees and agents against certain expenses incurred by
them in connection with any threatened, pending or completed action, suit or
proceeding.
Article 10 of the Amended Bylaws of Penn Laurel Financial Corp. provides
for the indemnification of its directors, officers, employees and agents in
accordance with, and to the maximum extent permitted by, the provisions of
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law of 1988,
as amended.
Item 21. Exhibits and Financial Statement Schedules
<TABLE>
<S> <C>
(a) Exhibits:
---------
2.1 Agreement and Plan of Reorganization (the "Agreement")
dated December 31, 1998, among Penn Laurel Financial
Corp., CSB Bank and Penn Laurel Financial Corp. (Included
in Annex A to the Proxy Statement contained herein)
2.2 Agreement and Plan of Merger of Penn Laurel Financial
Corp. and CSB Bank (Included as Exhibit A to the
Agreement, which Agreement is included in Annex A to the
Proxy Statement/Prospectus contained herein)
2.3 Investment Agreement dated as of December 31, 1998,
between Clearfield Bank and Trust Company and Penn
Laurel Financial Corp. (Included in Annex A to the Proxy
Statement/Prospectus.)
2.4 Investment Agreement, dated December 31, 1998, between
Penn Laurel Financial Corp. and Clearfield Bank & Trust
Company. (Included in Annex A to the Proxy
Statement/Prospectus.)
3(i) Penn Laurel Financial Corp. Restated Articles of
Incorporation. (Included in Annex E to the Proxy
Statement/Prospectus.)
3(ii) Penn Laurel Financial Corp. Amended and Restated Bylaws.
(Included at Annex F to the Proxy Statement/Prospectus.)
<PAGE>
4.1 Penn Laurel Financial Corp. Restated Articles of
Incorporation. (Included at Annex E to the Proxy
Statement/Prospectus.)
4.2 Penn Laurel Financial Corp. Amended and Restated Bylaws.
(Included at Annex F to the Proxy Statement/Prospectus.)
5 Opinion of Shumaker Williams, P.C. re: Legality.
8 Form of Opinion of Shumaker Williams, P.C. re: Tax
Matters. (Included in the proxy statement/prospectus at
"APPROVAL OF THE MERGER -- Federal Income Tax
Consequences.")
10.1 Penn Laurel Financial Corp. KSOP.
10.2 Penn Laurel Financial Corp. Employee Incentive Stock
Option Plan.
10.3 Employment Agreement, dated January 1, 1999, between
Larry W. Brubaker and Penn Laurel Financial Corp.
10.4 Penn Laurel Financial Corp. Employee Incentive Stock
Option Plan.
10.5 Employment Agreement, dated February __, 1999, between
Penn Laurel Financial Corp., Penn Laurel Bank & Laurel
Company and Larry W. Brubaker.
10.6 Employment Agreement, dated February __, 1999, between
Penn Laurel Financial Corp., Penn Laurel Bank & Laurel
Company and Sherwood C. Moody.
10.7 Employment Agreement, dated February __, 1999, between
Penn Laurel Financial Corp., Penn Laurel Bank & Laurel
Company and Wesley M. Weymers.
10.8 Engagement Agreement, dated March 23, 1999, among
Penn Laurel Financial Corp., Penn Laurel Bank & Trust
Company and William L. Bertram.
11 Statement re: Computation of Earnings Per Share. (Included
at page __ of the proxy statement/prospectus contained
herein.)
12 Computation of Ratios (Included at page __ of the proxy
statement/prospectus contained herein.)
21 Subsidiaries of Registrant.
<PAGE>
23.1 Consent of Shumaker Williams, P.C. (Included as part of
Exhibit 5.)
23.2 Consent of Young, Oakes, Brown & Company, P.C.
23.3 Consent of Walter Hopkins & Company, Certified Public
Accountants.
23.4 Consent of Ryan, Beck & Co., Inc.
23.5 Consent of Garland McPherson & Associates, Inc.
24 Power of Attorney.
99.1 Form of Penn Laurel Proxy.
99.2 Letter to Shareholders of Penn Laurel.
99.3 Notice of Meeting - Penn Laurel.
99.4 Form of Clearfield Proxy.
99.5 Letter to Shareholders of Clearfield.
99.6 Notice of Meeting - Clearfield.
99.7 Statutes Relating to Dissenters' Rights
(Included as Annex C to the Proxy
Statement contained herein.)
</TABLE>
(b) Financial Statement Schedules:
None required.
(c) Opinion of Financial Advisors:
The opinion of financial advisors are included in the proxy
statement/prospectus as Annex B and Annex C.
Item 22. Undertakings.
(a)
1. The undersigned Registrant hereby undertakes as follows:
(A) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
<PAGE>
information set forth in the registration statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (1)(a)(i) and (1)(a)(ii) above do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registration pursuant
to Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(B) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(C) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
3. The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to the reofferings
by persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the preceding paragraph, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-operative amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
<PAGE>
4. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the bylaws of the registrant, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one (1) business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supplement by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, hereunto duly authorized, in the City of Curwensville, Commonwealth
of Pennsylvania on March 10, 1999.
PENN LAUREL FINANCIAL CORP.
By: /s/ Larry W. Brubaker
---------------------------
Larry W. Brubaker
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Larry W. Brubaker and Wesley M. Weymers, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Capacity Date
-------- ----
<S> <C> <C>
/s/ Larry W. Brubaker President and Chief Executive March 10, 1999
- ---------------------------------------- Officer
Larry W. Brubaker (Principal Executive Officer)
/s/ C. Ben Mullins, Jr. Vice President and Chief March 10, 1999
- ---------------------------------------- Financial Officer
C. Ben Mullins, Jr. (Principal Accounting or
Financial Officer)
/s/ Donald R Fezell
- ---------------------------------------- Director March 10, 1999
Donald R Fezell
<PAGE>
/s/ Guy A. Graham
- ----------------------------------------- Director March 10, 1999
Guy A. Graham
/s/ Frank J. Hoffman, Jr.
- ----------------------------------------- Chairman of the March 10, 1999
Frank J. Hoffman, Jr. Board of Directors
/s/ Joseph P. Leyo
- ----------------------------------------- Director March 10, 1999
Joseph P. Leyo
/s/ Richard L. Lininger
- ----------------------------------------- Director March 10, 1999
Richard L. Lininger
/s/ Henry A. Peterson
- ----------------------------------------- Director March 10, 1999
Henry A. Peterson
/s/ Laurence B. Seaman
- ----------------------------------------- Director March 10, 1999
Laurence B. Seaman
/s/ Joseph A. Shaw
- ----------------------------------------- Director March 10, 1999
Joseph A. Shaw
/s/ Darrell G. Spencer
- ----------------------------------------- Director March 10, 1999
Darrell G. Spencer
/s/ Richard A. Wilkinson
- ----------------------------------------- Director March 10, 1999
Richard A. Wilkinson
/s/ Wesley M. Weymers
- ----------------------------------------- Director March 10, 1999
Wesley M. Weymers
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Title Page Number in
------ ----- Sequential Number
System
------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization (the "Agreement") dated
December 31, 1998, among Penn Laurel Financial Corp., CSB Bank
and Penn Laurel Financial Corp. (Included in Annex A to the Proxy
Statement contained herein).
2.2 Agreement and Plan of Merger of Penn Laurel Financial Corp. and
CSB Bank (Included as Exhibit A to the Agreement, which Agreement
is included in Annex A to the Proxy Statement/Prospectus
contained herein).
2.3 Investment Agreement, dated as of December 31, 1998, between
Clearfield Bank & Trust Company and Penn Laurel Financial Corp.
(Included in Annex A to the Proxy Statement/Prospectus.)
2.4 Investment Agreement, dated December 31, 1998,
between Penn Laurel Financial Corp. and Penn Laurel
Financial Corp. (Included in Annex A to the Proxy
Statement/Prospectus.)
3(i) Penn Laurel Financial Corp. Restated Articles of
Incorporation (Included at Annex E to the Proxy
Statement.)
3(ii) Penn Laurel Financial Corp. Amended and Restated
Bylaws (Included at Annex F to the Proxy Statement.)
4.1 Penn Laurel Financial Corp. Restated Articles of
Incorporation (Included at Annex E to the Proxy
Statement.)
4.2 Penn Laurel Financial Corp. Amended and Restated
Bylaws (Included at Annex F to the Proxy Statement.)
5 Form Opinion of Shumaker Williams, P.C. re: Legality.
8 Form of Opinion of Shumaker Williams, P.C. re: Tax
Matters. (Included in the proxy statement/prospectus at
"APPROVAL OF THE MERGER -- Federal Income Tax
Consequences.")
<PAGE>
10.1 Penn Laurel Financial Corp. KSOP.*
10.2 Penn Laurel Financial Corp. Employee Incentive Stock
Option Plan.*
10.3 Employment Agreement, dated January 1, 1999, between
Larry W. Brubaker and Penn Laurel Financial Corp.*
10.4 Penn Laurel Financial Corp. Employee Incentive Stock
Option Plan.*
10.5 Employment Agreement, dated February __, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and Larry W. Brubaker.*
10.6 Employment Agreement, dated February __, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and Sherwood C. Moody.*
10.7 Employment Agreement, dated February __, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and Wesley M. Weymers.*
11 Statement re: Computation of Earnings Per Share. (Included at
page __ of the proxy statement/prospectus contained herein.)
12 Computation of Ratios (Included at page __ of the proxy
statement/prospectus contained herein.)
21 Subsidiaries of Registrant.
23.1 Consent of Shumaker Williams, P.C. (Included as part of
Exhibit 5.)*
23.2 Consent of Young, Oakes, Brown & Company, P.C.
23.3 Consent of Walter Hopkins & Company, Certified Public
Accountants.
23.4 Consent of Ryan, Beck & Co., Inc.*
23.5 Consent of Garland McPherson & Associates, Inc.*
24 Power of Attorney ( Included on Signature Page.)
99.1 Form of Penn Laurel Proxy.
99.2 Letter to Shareholders of Penn Laurel.
99.3 Notice of Meeting - Penn Laurel.
<PAGE>
99.4 Form of Clearfield Proxy.
99.5 Letter to Shareholders of Clearfield.
99.6 Notice of Meeting - Clearfield.
99.7 Statutes Relating to Dissenters' Rights (Included at
Annex D to the Proxy Statement.)
</TABLE>
* To be Filed by Amendment.
EXHIBIT 5
April__, 1999
Mr. Sherwood C. Moody Mr. Larry W. Brubaker
President and Chief Executive Officer President
CLEARFIELD BANK & TRUST COMPANY PENN LAUREL FINANCIAL CORP.
11 North Second Street 434 State Street
Clearfield, PA 16830 Curwensville, PA 16833
RE: Merger of CSB Bank into Clearfield Bank & Trust Company
Our File No. 831-98
Dear Messrs Moody and Brubaker::
In connection with the proposed offering of up to 559,505 shares of common
stock, par value $5.00 per share (the "Common Stock"), by Penn Laurel Financial
Corp. (the "Company"), covered by the Company's Registration Statement on Form
S-4 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Common Stock, we, as special counsel to the Company, have reviewed:
1. Articles of Incorporation of the Company;
2. The Bylaws of the Company;
3. Resolutions adopted by the Board of Directors of the Company relating
to the Registration Statement, certified by the Secretary of the
Company;
4. The Agreement and Plan of Reorganization, dated December 31, 1998
among, the Company, CSB Bank and Clearfield Bank & Trust Company (the
"Agreement");
5. The Registration Statement; and
6. Copies of the certificates representing shares of the Common Stock.
<PAGE>
Based on our review of the foregoing, it is our opinion that:
a. The Company has been duly incorporated under the laws of the
Commonwealth of Pennsylvania and is validly existing and in good
standing under the laws of the Commonwealth; and
b. The Common Stock covered by the Registration Statement has been
duly authorized and, when issued pursuant to the terms described
in the Registration Statement and the Agreement, will be legally
issued by the Company and fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and the reference to us in the related Proxy Statement/Prospectus. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
---------------------------
SHUMAKER WILLIAMS, P.C.
Exhibit 21
SUBSIDIARIES OF REGISTRANT
PENN LAUREL FINANCIAL CORP.
<TABLE>
<CAPTION>
Name Date of Incorporation State of Incorporation
- ---- --------------------- ----------------------
<S> <C> <C>
CSB Bank August 4, 1924 Pennsylvania
CSB Financial Services Inc. July 7, 1998 Pennsylvania
CSB Financial Insurance, Inc. September 1, 1998 Pennsylvania
</TABLE>
Exhibit 23.2
Young, Oakes, Brown & Company, P.C.
Certified Public Accountants
INDEPENDENT AUDITOR'S CONSENT
We have issued our report dated January 21, 1999 accompanying the
consolidated statements of condition of the Clearfield Bank & Trust Company as
of December 31, 1998, and 1997, and the related consolidated statements of
income, changes in stockholder's equity, and cash flows for each of the three
years in the period ended December 31, 1998, which are included in this
Registration Statement and Proxy Statement/Prospectus. We consent to the
inclusion of the aforementioned report in the Registration Statement and Proxy
Statement/Prospectus and to the use of our name as it appears under the caption
"Experts."
/s/ Young, Oakes, Brown & Company, P.C.
---------------------------------------
March 31, 1999 Young, Oakes, Brown & Company, P.C.
Altoona, Pennsylvania
Exhibit 23.3
INDEPENDENT AUDITOR'S CONSENT
We have issued our report dated January 20, 1999 accompanying the
consolidated statements of condition of Penn Laurel Financial Corp. And its
wholly owned subsidiary, CSB Bank, as of December 31, 1998, and 1997, and the
related consolidated statements of income, comprehensive income, changes in
stockholder's equity, and cash flows for the years then ended, which are
included in this Registration Statement and Proxy Statement/Prospectus. We
consent to the inclusion of the aforementioned report in the Registration
Statement and Proxy Statement/Prospectus and to the use of our name as it
appears under the caption "Experts."
/s/ Walter Hopkins & Company
-----------------------------
March 31, 1999 Walter Hopkins & Company
Clearfield, Pennsylvania
Exhibit 23.4
CONSENT OF RYAN, BECK & CO., INC.
We hereby consent to the inclusion of our opinion letter, dated __________,
1999, to the Board of Directors of Clearfield Bank & Trust Company (the
"Company") as Annex B to the Proxy Statement/Prospectus relating to the proposed
merger of the Company with CSB Bank, a subsidiary of Penn Laurel Financial Corp.
( "Penn Laurel"), contained in Penn Laurel's Registration Statement on Form S-4,
and to the references to our firm and the opinion in the Joint Proxy
Statement/Prospectus. In giving our consent, we do not admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended (the "Act"), or the rules and regulations of
the Securities and Exchange Commission thereunder (the "Regulations"), nor do we
admit that we are experts with respect to any part of the Registration Statement
within the meaning of the term "experts" as used in the Act or the Regulations.
April __, 1999 Ryan, Beck & Co., Inc.
Livingston, New Jersey
Exhibit 23.5
CONSENT OF GARLAND MCPHERSON & ASSOCIATES, INC.
We hereby consent to the inclusion of our opinion letter, dated __________,
1999, to the Board of Directors of Penn Laurel Financial Corp. (the "Company")
as Annex C to the Proxy Statement/Prospectus relating to the proposed merger of
CSB Bank, a subsidiary of Penn Laurel Financial Corp. With and into Clearfield
Bank & Trust Company, contained in the Company's Registration Statement on Form
S-4, and to the references to our firm and the opinion in the Joint Proxy
Statement/Prospectus. In giving our consent, we do not admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended (the "Act"), or the rules and regulations of
the Securities and Exchange Commission thereunder (the "Regulations"), nor do we
admit that we are experts with respect to any part of the Registration Statement
within the meaning of the term "experts" as used in the Act or the Regulations.
April __, 1999 Garland McPherson & Associates, Inc.
Baltimore, Maryland
Exhibit 99.1
PENN LAUREL FINANCIAL CORP.
PROXY
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON __________ __, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints ____________________ and
____________________ and each or any of them, proxies of the undersigned, with
full power of substitution, to vote all of the shares of Penn Laurel Financial
Corp. (the "Company") that the undersigned may be entitled to vote at the
Special Meeting of Shareholders of the Company to be held at 434 State Street,
Curwensville, Pennsylvania 16833 on ________, ________ __, 1999, commencing at
____ p.m., prevailing time, and at any adjournment or postponement thereof, as
follows:
1. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF REORGANIZATION.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
2. PROPOSAL TO POSTPONE OR ADJOURN THE SPECIAL MEETING OF SHAREHOLDERS TO
ANOTHER TIME AND/OR PLACE FOR THE PURPOSE OF SOLICITING ADDITIONAL PROXIES,
IN THE EVENT THAT THERE ARE NOT SUFFICIENT VOTES AT THE TIME OF THE SPECIAL
MEETING TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF REORGANIZATION.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
<PAGE>
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting and any
adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 AND FOR PROPOSAL 2.
Dated:__________________________, 199__
Signature of Shareholder
Signature of Shareholder
Number of Shares Held of Record
on _________ __, 1998
THIS PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER AND RETURNED PROMPTLY
TO THE COMPANY IN THE ENCLOSED ENVELOPE. WHEN SHARES ARE HELD BY JOINT TENANTS,
BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF MORE THAN ONE TRUSTEE, ALL SHOULD
SIGN. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
EXHIBIT 99.2
[PENN LAUREL FINANCIAL CORP. LETTERHEAD]
________ __, 1999
Dear Shareholder:
You are invited to attend a special meeting of the shareholders of your
company, Penn Laurel Financial Corp. This special meeting will be held on
________________, 1999, at ____, at 434 State Street, Curwensville,
Pennsylvania. The main purpose of the meeting is to vote on the merger of
Clearfield Bank & Trust Company with CSB Bank, a subsidiary of Penn Laurel. If
the merger is completed, Penn Laurel will issue approximately ____ shares of
common stock to the shareholders of Clearfield Bank & Trust Company in exchange
for their Clearfield stock. Completion of the merger is subject to certain
conditions. The two principal conditions that the merger must meet are that the
shareholders of Clearfield Bank & Trust Company and the shareholders of Penn
Laurel Financial Corp. must approve the merger and that certain banking
regulatory agencies approve the merger.
The attached notice of special meeting and proxy statement/prospectus
describe the formal business to be transacted at the meeting. The directors and
officers of Penn Laurel Financial Corp. will be present at the meeting to
respond to any questions from shareholders.
We urge you to carefully read the enclosed proxy statement/prospectus that
describes the merger in detail and the requirements needed to complete the
merger. The information contained in the "SUMMARY" portion of the proxy
statement/prospectus gives a basic description of the merger. If you have any
questions after a review of the proxy statement/prospectus consult with your own
advisors or contact Larry W. Brubaker, President and Chief Executive Officer of
the Penn Laurel Financial Corp. at (814) 236-2441.
Garland McPherson & Associates, Inc., the company's investment banker,
provided the Board of Directors with an opinion that the consideration in the
merger transaction is fair, from a financial point of view.
Your Board of Directors believes that the merger is in the best interests
of the shareholders and urges you to vote for the merger.
Sincerely yours,
Larry W. Brubaker
President and Chief Executive
Officer
Exhibit 99.3
Penn Laurel Financial Corp.
434 State Street
Curwensville, Pennsylvania 16833
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON _________ __, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Penn
Laurel Financial Corp. will be held at ____ p.m., _____ ____ Time, on _____,
______ __ , 1999, at 434 State Street, Curwensville, Pennsylvania 16833. We
enclose a form of proxy and a proxy statement/prospectus for the meeting.
We are holding the meeting for the purpose of considering and acting upon
the following matters:
1. Approval and adoption of the Agreement and Plan of Reorganization,
dated December 31, 1998, among Penn Laurel Financial Corp., CSB Bank
and Clearfield Bank & Trust Company. The agreement provides that CSB
Bank, a subsidiary of Penn Laurel Financial Corp. will merge into
Clearfield Bank & Trust Company. Upon completion of the merger, Penn
Laurel will issue approximately ____ shares of common stock and each
Clearfield Bank & Trust Company shareholder will have the right to
receive .97 shares of the Penn Laurel Financial Corp. common stock, par
value $5.00 per share, in exchange for each share of common stock of
Clearfield Bank & Trust Company, par value $1.5625 per share, held by
the shareholder;
2. Postponement or adjournment of the meeting to a later date, if
necessary, to permit the solicitation of additional proxies in the
event that there are not sufficient votes at the time of the meeting to
approve the agreement and the merger; and
3. Other matters as may properly come before the meeting and any
adjournment or postponement of the meeting.
We may take action on any one of these proposals at the meeting, or on any
dates to which, we may adjourn the meeting. Only those shareholders whose
ownership appears on the shareholder records of Penn Laurel Financial Corp. at
the close of business on ________, _________ __, 1999, will be entitled to
receive notice of the meeting and to vote at the meeting.
<PAGE>
Your Board of Directors believes that this merger is in the best interests
of Penn Laurel Financial Corp. and its shareholders. Our reasons for this belief
are provided in the enclosed proxy statement/prospectus. We urge you to vote for
the merger. Your participation at the meeting, in person or by sending in a
completed proxy, is important. We need the affirmative vote of at least 75% of
the outstanding shares of common stock to approve the merger.
If you do not send in a completed proxy or you do not attend the meeting
and vote, it has the same effect as voting against the merger. Therefore, we
urge you to complete, sign, date and return the enclosed form of proxy in the
enclosed postage-paid envelope as soon as possible so that your shares will be
voted at the meeting. If you do attend the meeting and wish to vote in person,
you can do so by giving written notice to the Secretary of the Penn Laurel
Financial Corp. Your ballot at the meeting will replace your proxy.
On behalf of the Board of Directors, I thank you for your support and urge
you to vote "FOR" approval of the agreement and merger.
By Order of the Board of Directors,
Larry W. Brubaker
President and Chief Executive Officer
Curwensville, Pennsylvania
________ __, 1999
Exhibit 99.4
CLEARFIELD BANK & TRUST COMPANY
PROXY
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON __________ __, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints ____________________,
_________________ and ____________________ and each or any of them, proxies of
the undersigned, with full power of substitution, to vote all of the shares of
Clearfield Bank & Trust Company (the "Bank") that the undersigned may be
entitled to vote at the Special Meeting of Shareholders of the Bank to be held
at 11 North Second Street, Clearfield, Pennsylvania 16830 on _______, _______
__, 1999, commencing at _____ p.m., prevailing time, and at any adjournment or
postponement thereof, as follows:
1. PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN
OF REORGANIZATION.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
2. PROPOSAL TO POSTPONE OR ADJOURN THE SPECIAL MEETING OF SHAREHOLDERS TO
ANOTHER TIME AND/OR PLACE FOR THE PURPOSE OF SOLICITING ADDITIONAL
PROXIES, IN THE EVENT THAT THERE ARE NOT SUFFICIENT VOTES AT THE TIME
OF THE SPECIAL MEETING TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF
REORGANIZATION.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
<PAGE>
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting and any
adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 AND FOR PROPOSAL 2.
Dated: , 199__
Signature of Shareholder
Signature of Shareholder
Number of Shares Held of Record
on __________ __, 1999
THIS PROXY MUST BE DATED, SIGNED BY THE SHAREHOLDER AND RETURNED PROMPTLY
TO THE COMPANY IN THE ENCLOSED ENVELOPE. WHEN SHARES ARE HELD BY JOINT TENANTS,
BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF MORE THAN ONE TRUSTEE, ALL SHOULD
SIGN. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.
EXHIBIT 99.5
[CLEARFIELD BANK & TRUST COMPANY LETTERHEAD]
________ __, 1999
Dear Shareholder:
You are invited to attend a special meeting of the shareholders of your
company, Clearfield Bank & Trust Company. This special meeting will be held on
________________, 1999, at ____, at 11 North Second Street, Clearfield,
Pennsylvania. The main purpose of the meeting is to vote on the merger of
Clearfield Bank & Trust Company with CSB Bank, a subsidiary of Penn Laurel
Financial Corp., a bank holding company located in Curwensville, Clearfield
County, Pennsylvania. If the merger is completed, you will receive .97 shares of
Penn Laurel Financial Corp. common stock in exchange for each of your shares of
Clearfield Bank & Trust Company. The exchange of Clearfield Bank & Trust Company
stock for Penn Laurel Financial Corp. stock (other than cash paid for fractional
shares) will be tax-free to the bank's shareholders for federal income purposes.
Completion of the merger is subject to certain conditions. The two principal
conditions that the merger must meet are that our shareholders and the
shareholders of Penn Laurel Financial Corp. Must approve the merger and that
certain banking regulatory agencies approve the merger.
The attached notice of special meeting and proxy statement/prospectus
describe the formal business to be transacted at the meeting. The directors and
officers of Clearfield Bank & Trust Company will be present at the meeting to
respond to any questions from our shareholders.
We urge you to carefully read the enclosed proxy statement/prospectus
that describes the merger in detail and the requirements needed to complete the
merger. The information contained in the "SUMMARY" portion of the proxy
statement/prospectus gives a basic description of the merger. If you have any
questions after a review of the proxy statement/prospectus consult with your own
advisors or contact Sherwood C. Moody, President and Chief Executive Officer of
the bank at (814) 765-7551.
Ryan, Beck & Co., Inc., the bank's investment banker, provided the
Board of Directors with an opinion that the consideration to be received by the
shareholders in the merger transaction is fair, from a financial point of view.
Your Board of Directors believes that the merger is in the best
interests of the shareholders and urges you to vote for the merger.
Sincerely yours,
Sherwood C. Moody
President and Chief Executive Officer
Exhibit 99.6
Clearfield Bank & Trust Company
11 North 2nd Street
Post Office Box 171
Clearfield, Pennsylvania 16830-0170
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON _________ __, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Clearfield Bank & Trust Company will be held at ____ p.m., _____ ____ Time, on
_____, ______ __ , 1999, at 11 North 2nd Street, Clearfield, Pennsylvania 16830.
We enclose a form of proxy and a proxy statement/prospectus for the meeting.
We are holding the meeting for the purpose of considering and acting
upon the following matters:
1. Approval and adoption of the Agreement and Plan of Reorganization,
dated December 31, 1998, among Penn Laurel Financial Corp., CSB Bank
and Clearfield Bank & Trust Company. The agreement provides that CSB
Bank, a subsidiary of Penn Laurel Financial Corp. will merge into
Clearfield Bank & Trust Company. Upon completion of the merger, each
Clearfield Bank & Trust Company shareholder will have the right to
receive .97 shares of Penn Laurel Financial Corp. common stock, par
value $5.00 per share, in exchange for each share of common stock of
Clearfield Bank & Trust Company, par value $1.5625 per share, held by
the shareholder;
2. Postponement or adjournment of the meeting to a later date, if
necessary, to permit the solicitation of additional proxies in the
event that there are not sufficient votes at the time of the meeting to
approve the agreement and the merger; and
3. Other matters as may properly come before the meeting and any
adjournment or postponement of the meeting.
We may take action on any one of these proposals at the meeting, or on
any dates to which, we may adjourn the meeting. Only those shareholders whose
ownership appears on the shareholder records of Clearfield Bank & Trust Company
at the close of business on ________, _________ __, 1999, will be entitled to
receive notice of the meeting and to vote at the meeting.
Your Board of Directors believes that this merger is in the best
interests of Clearfield Bank & Trust Company and its shareholders. Our reasons
for this belief are provided in the
<PAGE>
enclosed proxy statement/prospectus. We urge you to vote for the merger. Your
participation at the meeting, in person or by sending in a completed proxy, is
important. We need the affirmative vote of at least 66 2/3% of the outstanding
shares of common stock to approve the merger.
If you do not send in a completed proxy or you do not attend the
meeting and vote, it has the same effect as voting against the merger.
Therefore, we urge you to complete, sign, date and return the enclosed form of
proxy in the enclosed postage-paid envelope as soon as possible so that your
shares will be voted at the meeting. If you do attend the meeting and wish to
vote in person, you can do so by giving written notice to the Secretary of the
Clearfield Bank & Trust Company Your ballot at the meeting will replace your
proxy.
On behalf of the Board of Directors, I thank you for your support and
urge you to vote "FOR" approval of the agreement and merger.
By Order of the Board of Directors,
Sherwood C. Moody
President and Chief Executive Officer
Clearfield, Pennsylvania
________ __, 1999
