As filed with the Securities and Exchange Commission on August 2, 1999
Registration No. 333-75585
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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PENN LAUREL FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
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Pennsylvania 6711 25-1525451
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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
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(Address, including ZIP Code, and telephone (Address, including ZIP Code, and telephone
number, including area code, of registrant's number, including area code, of registrant's
principal executive offices) principal executive offices)
With a Copy to: With a Copy to:
Nicholas Bybel, Jr., Esquire William T. Harvey, Esquire
SHUMAKER WILLIAMS, P.C. TUCKER ARENSBERG, P.C.
P.O. Box 88 1500 One PPG Place
Harrisburg, Pennsylvania 17108 Pittsburgh, Pennsylvania 15222
(717) 763-1121 (412) 594-5550
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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. _____
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CALCULATION OF REGISTRATION FEE
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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 Offering Price Fee (2)
Per Share
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Common Stock, par value
$5.00 per share 559,505 $62.50(1) $34,969,062.50 $9,721.40
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(1) Shares to be issued in the merger 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.
(2) Fee paid prior to original filing on April 2, 1999.
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.
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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
September 8, 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 will have the right to
receive 0.97 shares of common stock of Penn Laurel for each share of Clearfield
common stock they own. On July 28, 1999, the closing sale price of Penn Laurel
common stock was $52.00, making the trading value of .97 shares of Penn Laurel
common stock equal to $50.44 on that date.
Penn Laurel common stock is traded on a very limited basis in the
over-the-counter market and is quoted on the OTC Bulletin Board.
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 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.
The date of this proxy statement/prospectus is August 2, 1999.
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We have not authorized any person to give any information or to make any
representation not contained in this proxy statement/prospectus, and if given or
made, you should not rely on any such information or representation as being
authorized by management of Clearfield or Penn Laurel. 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.
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TABLE OF CONTENTS
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SUMMARY .................................................................................
The Meetings.....................................................................
Clearfield Bank & Trust Company..................................................
Penn Laurel Financial Corp.......................................................
The Merger.......................................................................
Material Conditions to the Merger................................................
Comparison of Shareholder Rights.................................................
Federal Income Tax Consequences of the Merger....................................
Accounting Treatment.............................................................
Dissenters' Rights...............................................................
Required Vote....................................................................
Regulatory Approvals.............................................................
Management and Operations Following the Merger...................................
Adjournment of the Meeting.......................................................
Opinion of Financial Advisors....................................................
Recommendation of the Board of Directors.........................................
FORWARD LOOKING STATEMENTS................................................................
COMPARATIVE PER SHARE DATA................................................................
General ........................................................................
Market Value of Securities.......................................................
Pro Forma Per Share Information..................................................
SELECTED FINANCIAL DATA AND PRO FORMA INFORMATION.........................................
THE MEETINGS..............................................................................
General ........................................................................
Voting, Revocation and Solicitation of Proxies...................................
Voting Securities and Securities Ownership.......................................
Interests of Certain Persons in the Merger.......................................
APPROVAL OF THE MERGER....................................................................
Background of the Merger, Reasons and Recommendation
of the Boards of Directors.....................................................
Clearfield Background............................................................
Penn Laurel Background...........................................................
Reasons for the Merger as Determined by Both Boards of Directors.................
Preliminary Discussions..........................................................
The Boards' Determination About the Merger.......................................
OPINION OF FINANCIAL ADVISORS.............................................................
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General..........................................................................
Ryan, Beck's Initial Analysis....................................................
Analysis of Historical Results...................................................
Detailed Comparison of Clearfield and Penn Laurel................................
Market Share Analysis............................................................
Determination of the Exchange Ratio..............................................
Exchange Ratio of 0.94 to 0.99 Shares for 1.00...................................
Potential Cost Savings...........................................................
Clearfield Opinion of Financial Advisor..........................................
INFORMATION ABOUT THE MERGER..............................................................
Penn Laurel Opinion of Financial Advisor.........................................
Dissenters' Rights...............................................................
Terms of the Merger..............................................................
Business Pending the Merger......................................................
Conditions, Amendment and Termination............................................
Effective Date...................................................................
Management and Operations Following the Merger...................................
Estimates of Future Operations...................................................
Federal Income Tax Consequences..................................................
Investment Agreement.............................................................
Accounting Treatment.............................................................
Restriction on Resale of Stock Held By Affiliates................................
COMPARATIVE STOCK PRICES AND DIVIDENDS AND RELATED SHAREHOLDER MATTERS....................
No Established Market for Shares.................................................
Common Stock of Clearfield.......................................................
Common Stock of Penn Laurel......................................................
INFORMATION CONCERNING CLEARFIELD BANK & TRUST COMPANY....................................
Information Concerning Clearfield................................................
Description of Business and Property.............................................
Employees........................................................................
Legal Proceedings................................................................
Dividends........................................................................
Information about Beneficial Ownership of Significant Shareholders, Directors
and Executive Officers.........................................................
Executive Compensation...........................................................
Defined Benefit Pension Plan.....................................................
Profit Sharing Plan..............................................................
Director Compensation............................................................
Loans ........................................................................
Description of Clearfield Common Stock...........................................
Liquidation......................................................................
Anti-takeover Provisions.........................................................
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Indemnification..................................................................
INFORMATION CONCERNING PENN LAUREL FINANCIAL CORP.........................................
Information Concerning Penn Laurel...............................................
Description of Business and Property.............................................
Employees........................................................................
Legal Proceedings................................................................
Dividends........................................................................
Information about Beneficial Ownership of Significant Shareholders, Directors
and Executive Officers.........................................................
Executive Compensation...........................................................
KSOP Plan........................................................................
Employment Contracts.............................................................
Executive Supplemental Income Agreement..........................................
Compensation of Directors........................................................
Directors' Deferred Compensation Plan............................................
Loans.............................................................................
Description of Penn Laurel Common Stock..........................................
Liquidation......................................................................
Anti-takeover Provisions.........................................................
Indemnification..................................................................
COMPARISON OF SHAREHOLDER RIGHTS..........................................................
YEAR 2000 ISSUES..........................................................................
Clearfield.......................................................................
Penn Laurel......................................................................
Readiness Efforts................................................................
Current Status..................................................................
Costs...........................................................................
Risk Assessment.................................................................
Contingency Plan................................................................
CLEARFIELD BANK & TRUST COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.....................................................
Balance Sheet Analysis..........................................................
Investment Securities...........................................................
Interest Rate Risk..............................................................
Loans .......................................................................
Allowance for Possible Loan Losses..............................................
Premises and Equipment..........................................................
Deposits .......................................................................
Capital .......................................................................
Results of Operations...........................................................
Net Interest Income.............................................................
Provision for Loan Losses.......................................................
Other Income....................................................................
Other Operating Expenses........................................................
Income Tax......................................................................
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PENN LAUREL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.....................................................
Balance Sheet Analysis..........................................................
Investment Securities...........................................................
Interest Rate Sensitivity.......................................................
Loans...........................................................................
Allowance for Possible Loan Losses..............................................
Deposits .......................................................................
Capital .......................................................................
Results of Operations...........................................................
Net Interest Income.............................................................
Provision for Loan Losses.......................................................
Other Income....................................................................
Other Operating Expenses........................................................
ADJOURNMENT OF THE MEETING...............................................................
EXPERTS ................................................................................
LEGAL OPINIONS...........................................................................
OTHER MATTERS............................................................................
AVAILABLE INFORMATION....................................................................
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.
Annex G-Tax Opinion of Shumaker Williams, P.C.
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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 has
called a special meeting of shareholders for Wednesday, September 8, 1999, at
1:00 p.m. at The Knights of Columbus, 512 Arnold Avenue, Clearfield,
Pennsylvania 16830. Only shareholders whose ownership appears on the records of
Clearfield at the close of business on Wednesday, July 28, 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 with and into Clearfield. If
we complete the merger, shareholders of Clearfield will receive 0.97 shares of
Penn Laurel common stock in exchange for each share of Clearfield common stock
they hold.
Penn Laurel Financial Corp. The Board of Directors of Penn Laurel has
called a special meeting of shareholders for Wednesday, September 8, 1999, at
9 a.m. at 434 State Street, Curwensville, Pennsylvania 16833. Only shareholders
whose ownership appears on the records of Penn Laurel at the close of business
on Wednesday, July 28, 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, with and into Clearfield.
Clearfield Bank & Trust Company
Clearfield 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 March 31,
1999, the bank had total assets of approximately $183.4 million, total deposits
of approximately $161.6 million and shareholders' equity of approximately $20.4
million.
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Penn Laurel Financial Corp.
Penn Laurel 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 was incorporated on May 30, 1986.
Penn Laurel, 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 March 31, 1999, Penn Laurel had consolidated total assets of
approximately $134.9 million, total deposits of approximately $114.4 million and
shareholders' equity of $14.8 million.
The Merger
The proposed merger provides that CSB Bank will merge into Clearfield. CSB
Bank will cease to exist when the merger is complete. Clearfield will continue
operations after the merger, as a subsidiary of Penn Laurel. In addition,
Clearfield 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 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 will
receive 0.97 shares of Penn Laurel common stock in exchange for each share of
Clearfield common stock they hold, and become shareholders of Penn Laurel.
Clearfield shareholders will not receive any fractional shares of Penn
Laurel common stock in the merger. Instead, Penn Laurel 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 should issue approximately 559,505 shares of Penn Laurel common
stock in this transaction. When the merger is complete, the former Clearfield
shareholders will hold approximately 61.03% of all outstanding Penn Laurel
common stock and the current Penn Laurel shareholders will hold approximately
38.97% of the combined entity.
We attach a copy of the agreement as Annex A to this proxy statement/
prospectus. Please read the agreement carefully.
Material Conditions to the Merger
The merger is subject to various conditions, including, among others:
o approval by Clearfield's shareholders;
o approval by Penn Laurel's shareholders; and
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o approval by certain banking regulatory agencies.
There are 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 that more than 10% of the outstanding shares
of Clearfield 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 and Clearfield may agree to amend the agreement. After the
shareholders vote, no amendment can affect the number of shares to be received
by Clearfield 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 will
become shareholders of Penn Laurel. Clearfield is a Pennsylvania chartered bank
and trust company. Penn Laurel is a Pennsylvania business corporation. After the
merger is completed, the rights of former shareholders of Clearfield will be
governed by Pennsylvania corporate law as well as the articles of incorporation
and bylaws of Penn Laurel. Differences exist in the rights of the shareholders
of Clearfield and of Penn Laurel. These differences are due, in part, to the
differences in the articles of incorporation and bylaws of Clearfield and the
articles of incorporation and bylaws of Penn Laurel, as well as to the
differences in Pennsylvania corporate law and Pennsylvania banking law.
Some of the material 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;
and
o Mergers require approval of 66 2/3% of the outstanding shares at
Clearfield and 75% at Penn Laurel.
See "COMPARISON OF SHAREHOLDER RIGHTS" for disclosure of the material
differences in 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 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
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cash for fractional shares of Penn Laurel common stock will recognize taxable
gain or loss, based upon the amount of cash received. Clearfield 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 and certain other federal
income tax consequences of the merger. In addition, Shumaker Williams has issued
a tax opinion, dated the date of this proxy statement/prospectus, which is
attached for your review as Annex G. You should consult with your own tax
advisers regarding the tax consequences of the merger that apply to your
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 their shares as requested by the
notice to demand payment that will be sent by Clearfield or
Penn Laurel; and
o comply with 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 as a result of 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.
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Required Vote
In order for the merger to occur, the shareholders of each of Clearfield
and of Penn Laurel 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 July 28, 1999, the
directors and officers of Clearfield and persons or entities that they control
own 100,519 shares of Clearfield common stock, or 17.43% of the outstanding
shares, and the directors and officers of Penn Laurel and persons or entities
that they control own 64,482 shares of Penn Laurel common stock, or 18.05% of
the outstanding shares.
The Directors of Clearfield and of Penn Laurel each entered into agreements
to vote the shares they own "FOR" the merger. However, the agreements do not
include shares owned by others that may be included in the beneficial ownership
tables on pages 76 and 84, below. Each company expects its directors and
officers to vote "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 July 28, 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 July 28, 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 must file applications or notices 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 and Penn Laurel Bank & Trust will consist of all people who were
members of the Boards of Directors of Penn Laurel or Clearfield on December 31,
1998, and Wesley M. Weymers. One director from each board, however, chose not to
continue as a director of his respective company after the 1999 Annual Meeting
of Shareholders and, therefore, will not to be on the board of Penn Laurel or
Penn Laurel Bank & Trust. In addition, Sherwood C. Moody, President, Chief
Executive Officer and a director of Clearfield, resigned, effective June 25,
1999, to become President and Chief Executive Officer of a banking institution
in Maine, and will not be on the Boards of Penn Laurel or Penn Laurel Bank &
Trust. The rest of the persons, who were directors
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on December 31, 1998, will serve until their successor's are elected and assume
office. In addition, Clearfield's Board of Directors appointed William E. Wood,
who has replaced Mr. Moody as President and Chief Executive Officer of
Clearfield, to serve the remainder of Mr. Moody's term on the Board of
Directors. In order for Penn Laurel Bank & Trust 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
on the day of merger. In addition, Penn Laurel will amend its bylaws where
appropriate to accommodate the new board members.
The following table lists the members of the boards following the
merger:
Board of Directors
Penn Laurel and Penn Laurel Bank & Trust
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.
Joseph P. Leyo
Richard L. Lininnger
Michael R. Lytle
Laurance B. Seaman
Joseph A. Shaw
Darrell G. Spencer
Ray S. Walker
Wesley M. Weymers
Richard A. Wilkinson
William E. Wood
H. Rembrandt Woolridge
After the merger, the following people will hold the following offices
at Penn Laurel and at Penn Laurel Bank & Trust:
William L. Bertram Chairman of the Board of Directors of Penn Laurel
and of Penn Laurel Bank & Trust
Larry W. Brubaker President and Chief Executive Officer of Penn
Laurel and Penn Laurel Bank & Trust
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Wesley M. Weymers Executive Vice President of Penn Laurel and Penn
Laurel Bank & Trust
William E. Wood Executive Vice President of Penn Laurel and
Penn Laurel Bank & Trust
Messrs. Brubaker, Wood 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
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. 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 dated December 31, 1998, 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. Ryan, Beck
has updated its opinion to the day of this proxy statement/prospectus. We
recommend that you read the updated 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. 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, dated December 30, 1998, and updated to the day of this proxy
statement/prospectus, 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
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perceived future prospects. We recommend that you read the updated 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.
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FORWARD LOOKING STATEMENTS
This proxy statement/prospectus contains forward-looking statements
including statements regarding intent, belief or current expectations about
matters (including statements as to "beliefs," "expectations," "anticipations,"
"intentions" or similar words) that may or may not occur in the future.
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 tables show per share financial information for Clearfield
and Penn Laurel individually, on an historical basis, and together on a pro
forma basis, for the last five years and for the first quarter of 1999 and of
1998. You should read this information in conjunction with the historical
financial statements and related notes attached to this proxy statement/
prospectus. The pro forma information assumes that Clearfield and Penn Laurel
had always been combined for accounting and financial reporting purposes
throughout the periods presented. The Penn Laurel pro forma information gives
effect to the merger, accounted for as a pooling of interests, assuming that .97
shares of Penn Laurel common stock were issued for each outstanding share of
Clearfield common stock. Clearfield equivalent share amounts are calculated by
multiplying the pro forma basic and diluted earnings per share, historical per
share dividend and historical shareholders' equity by the exchange ratio of .97
shares of Penn Laurel common stock so that the per share amounts equate to the
respective values for one share of Clearfield common stock. The combined pro
forma per share equivalent information is based on average shares outstanding
during the period, except for book value per share, which is based on period end
shares outstanding.
-9-
<PAGE>
The information shows how a share of stock that you had would have
participated in the income from continuing operations, cash dividends and book
value if the merger had been completed. You should not rely on the pro forma
information as being indicative of the historical results that Clearfield and
Penn Laurel would have had if they had been combined or the future results that
they will experience after the merger. The pro forma information does not
-10-
<PAGE>
include any expense savings anticipated as a result of the merger or any one
time merger related expenses.
SELECTED HISTORICAL, PRO FORMA
COMBINED AND EQUIVALENT PER SHARE DATA
<TABLE>
<CAPTION>
As of and for
the Three Months
Ended March 31, As of and for the Years Ended December 31,
------------------ ---------------------------------------------------------------
(unaudited)
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>?
Penn Laurel Financial Corp.
Historical Per Common
Share:
Average Shares
Outstanding:
Basic 357,259 345,735 346,048 345,932 346,915 346,915 346,915
Diluted 357,259 345,735 346,048 345,932 346,915 346,915 346,915
Book Value $41.36 $39.42 $41.20 $38.80 $33.21 $30.89 $26.83
Cash Dividends .30 .29 1.32 1.26 1.05 .95 .90
Net Income
Basic 1.04 1.94 3.70 3.82 3.16 2.98 2.62
Diluted 1.04 1.94 3.70 3.82 3.16 2.98 2.62
Clearfield, Penn Laurel
Combined Pro Forma
Equivalent
Per Common Share:
Average Shares
Outstanding:
Basic 916,764 905,240 905,553 905,437 906,420 906,420 906,420
Diluted 916,764 905,240 905,553 905,437 906,420 906,420 906,420
Book Value $38.37 $36.56 $38.23 $36.11 $32.75 $31.24 $27.22
Cash Dividends .30 .29 1.32 1.26 1.05 .95 .90
Net Income
Basic .87 1.16 3.54 3.44 3.18 3.02 2.96
Diluted .87 1.16 3.54 3.44 3.18 3.02 2.96
</TABLE>
-11-
<PAGE>
SELECTED HISTORICAL, PRO FORMA
COMBINED AND EQUIVALENT PER SHARE DATA
<TABLE>
<CAPTION>
As of and for
the Three Months
Ended March 31, As of and for the Years Ended December 31,
------------------- ----------------------------------------------------------------
(unaudited)
1999 1998 1998 1997 1996 1995 1994
------ ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Clearfield Bank & Trust
Company
Historical Per Common Share:
Average Shares
Outstanding:
Basic 576,809 576,809 576,809 576,809 576,809 576,809 576,809
Diluted 576,809 576,809 576,809 576,809 576,809 576,809 576,809
Book Value $35.37 $33.75 $35.30 $33.42 $31.49 $30.51 $26.64
Cash Dividends .31 .31 1.64 1.60 1.56 1.51 1.45
Net Income
Basic .74 .66 3.33 3.10 3.09 2.96 3.08
Diluted .74 .66 3.33 3.10 3.09 2.96 3.08
Combined Pro Forma
Equivalent Per Common Share
of Clearfield:
Book Value $37.32 $35.46 $37.08 $35.03 $31.77 $30.30 $26.40
Cash Dividends .29 .28 1.28 1.22 1.02 .92 .87
Net Income
Basic .84 1.13 3.43 3.33 3.08 2.93 2.87
Diluted .84 1.13 3.43 3.33 3.08 2.93 2.87
</TABLE>
-12-
<PAGE>
Market Value of Securities
Based in part on the advise of their financial advisors, the managements of
Clearfield and of Penn Laurel believe that, because of the limited trades in
each company's common stock, the trading values of the companies' shares may not
be indicative of fair value. 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 July 28, 1999, as reported to Clearfield
management, was 400 shares at $49.00 per share on July 26, 1999.
The last reported sale of Penn Laurel common stock before public
announcement of the agreement and related merger was a trade of 100 shares at
$46.25 per share on December 7, 1998. The last reported sale of Penn Laurel
common stock, prior to July 28, 1999, as reported to Penn Laurel management, was
200 shares at $52.00 per share on July 19, 1999.
Pro Forma Price Per Share Information
Both the Penn Laurel common stock and the Clearfield common stock have
historically traded on a very 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.
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. On July 28, 1999, the closing sale price of Penn Laurel common stock was
$52.00, making the value of .97 shares of Penn Laurel common stock equal to
$50.44, if the merger had taken place on that date.
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 one share of Clearfield stock
for .97 shares of Penn Laurel common stock.
The pro forma equivalent per share closing bid and asked quotations for
December 30, 1998, for each share of Clearfield common stock are $52.38 and
$53.84.
-13-
<PAGE>
The pro forma equivalent per share closing bid and asked quotations for
Clearfield and Penn Laurel on December 30, 1998, are in the table, below.
Comparative Stock Prices
December 30, 1998
<TABLE>
<CAPTION>
Pro Forma
Historical Price Equivalent Price
Per Share Per Share
---------------- ----------------
<S> <C> <C>
Clearfield Bank & Trust Company $54.00 $52.38
December 30, 1998, Bid 55.50 53.84
December 30, 1998, Asked
Penn Laurel Financial Corp
December 30, 1998, Bid $45.25 N/A
December 30, 1998, Asked 46.25 N/A
</TABLE>
-14-
<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, 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.
-15-
<PAGE>
CLEARFIELD BANK & TRUST COMPANY
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share As of and for
data) the Three Months As of and for the twelve months ended
Ended March 31, December 31
(unaudited)
---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income & Expense:
Interest income $2,957 $2,988 $12,165 $11,957 $10,472 $9,990 $9,670
Interest expense 1,437 1,493 5,985 5,866 5,024 4,733 3,918
------ ------ ------ ------ ------ ------ ------
Net interest income 1,520 1,495 6,180 6,091 5,448 5,257 5,752
Loan loss provision (90) (54) (341) (257) (140) (81) (210)
------ ------ ------ ------ ------ ------ ------
Net interest income after loan loss
provision 1,430 1,441 5,839 5,834 5,308 5,176 5,542
Noninterest income 281 246 1,018 972 836 978 831
Noninterest expense 1,167 1,172 4,376 4,489 3,818 3,906 3,888
------ ------ ------ ------ ------ ------ ------
Income before income taxes 544 515 2,481 2,317 2,326 2,248 2,485
Income taxes 120 132 559 527 545 543 621
Cumulative Effect of Change in
Accounting Principles 0 0 0 0 0 0 (88)
------ ------ ------ ------ ------ ------ ------
Net income $424 $383 $1,922 $1,790 $1,781 $1,705 $1,776
====== ====== ======= ====== ======= ====== ======
Per share:
Earnings per Share: Basic $.74 $.66 $3.33 $3.10 $3.09 $2.96 $3.08
Earnings per Share: Diluted .74 .66 3.33 3.10 3.09 2.96 3.08
Cash dividends paid .31 .31 1.64 1.60 1.56 1.51 1.45
Weighted average number of common
shares:
Basic 576,809 576,809 576,809 576,809 576,809 576,809 576,809
Diluted 576,809 576,809 576,809 576,809 576,809 576,809 576,809
Book Value 35.37 33.75 35.30 33.42 31.49 30.51 26.64
Average Balance Sheet:
Total Assets $183,169 $176,707 $179,688 $173,492 $155,463 $146,821 $146,316
Investments & Money Market Investments
51,041 58,113 55,677 62,359 66,010 62,282 61,525
Federal Funds Sold 3,171 2,837 2,170 1,265 1,122 1,197 410
Loans (Net of Unearned Income) 115,800 102,969 108,763 97,655 77,955 72,722 73,110
Deposits 161,225 154,891 157,775 151,101 136,367 128,475 127,968
Borrowings 0 1,000 412 2,117 165 882 1,819
Shareholders' equity 20,633 19,501 19,999 18,889 17,791 16,560 15,839
Balance Sheet at Period End:
Total Assets $183,420 $178,526 $184,703 $175,115 $162,654 $151,660 $147,407
Investments & Money Market Investments
50,895 58,073 50,761 57,690 63,883 63,783 61,896
Federal Funds Sold 3,725 3,159 3,481 2,700 0 4,900 0
Loans (Net of Unearned Income) 115,796 102,768 114,689 102,575 89,168 73,007 72,286
Deposits 161,563 156,491 162,806 153,251 140,399 132,713 127,468
Borrowings 0 1,000 0 1,000 2,700 0 2,000
Shareholders' equity 20,403 19,465 20,362 19,278 18,164 17,600 15,365
Selected Operating Ratios:
Return on average assets .94% .88% 1.07% 1.03% 1.14% 1.16% 1.21%
Return on average shareholders' equity
8.33% 7.97% 9.61% 9.29% 9.98% 10.30% 11.21%
Leverage (shareholders' equity/assets)
10.55% 10.32% 10.38% 10.31% 11.48% 11.50% 11.17%
Average total loans as a percentage of
average deposits 71.83% 66.48% 68.93% 64.63% 57.17% 56.60% 57.13%
Net interest margin* 3.88% 3.98% 3.99% 4.05% 4.16% 4.05% 4.52%
Net interest spread* 3.18% 3.45% 3.27% 3.31% 3.54% 3.68% 4.14%
Selected Asset Quality Ratios:
Nonperforming Assets/Total loans &
OREO .16% .38% .43% .42% .54% .43% .34%
Nonperforming loans/Gross loans .14% .38% .41% .42% .54% .41% .31%
Net Charge-offs/Average loans .01% .02% .31% .11% .08% .04% .32%
Loan Loss Reserve/Total loans 1.02% 1.05% .96% 1.07% 1.06% 1.19% 1.13%
Loan Loss Reserve/Nonperforming loans 752.23% 276.53% 233.05% 252.18% 216.17% 287.42% 366.37%
</TABLE>
- ------------
* Tax Equivalent Basis
-16-
<PAGE>
PENN LAUREL FINANCIAL CORP.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per As of and for
share data) the Three Months As of and for the twelve months ended
Ended March 31, December 31
(unaudited)
-------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Income & Expense:
Interest income $2,450 $2,352 $9,973 $9,375 $8,536 $8,154 $7,053
Interest expense 1,205 1,128 4,827 4,426 3,961 3,897 2,935
------ ------ ------ ------ ------ ------ ------
Net interest income 1,245 1,224 5,146 4,949 4,575 4,257 4,118
Loan loss provision (72) (65) (319) (300) (232) (161) (178)
------ ------ ------ ------ ------ ------ ------
Net interest income after loan loss
provision 1,173 1,159 4,827 4,649 4,343 4,096 3,940
Noninterest income 319 627 1,247 586 517 565 477
Noninterest expense 1,033 1,000 4,365 3,465 3,404 3,306 3,167
------ ------ ------ ------ ------ ------ ------
Income before income taxes 459 786 1,709 1,770 1,456 1,355 1,250
Income taxes 86 116 427 448 359 322 340
------ ------ ------ ------ ------ ------ ------
Net income $373 $670 $1,282 $1,322 $1,097 $1,033 $910
====== ====== ======= ====== ====== ====== ======
Per share:
Earnings per Share: Basic $1.04 $1.94 $3.70 $3.82 $3.16 $2.98 $2.62
Earnings per Share: Diluted 1.04 1.94 3.70 3.82 3.16 2.98 2.62
Cash dividends paid .30 .29 1.32 1.26 1.05 .95 .90
Weighted average number of common shares:
Basic 357,259 345,735 346,048 345,932 346,915 346,915 346,915
Diluted 357,259 345,735 346,048 345,932 346,915 346,915 346,915
Book Value 41.36 39.42 41.20 38.80 33.21 30.89 26.83
Average Balance Sheet:
Total assets $133,812 $122,432 $128,362 $119,196 $109,032 $101,655 $94,667
Investments & Money Market
Investments 33,126 32,664 33,852 31,998 28,268 26,590 27,947
Loans (Net of Unearned Income) 93,428 82,270 87,244 80,163 74,184 68,383 60,186
Deposits 113,376 106,500 110,390 104,649 95,318 89,687 84,083
Borrowings 3,574 16 2,269 682 614 546 531
Shareholders' equity 14,748 13,522 14,010 12,467 11,118 10,012 8,971
Balance Sheet at Period End:
Total assets $134,888 $124,603 $135,181 $121,543 $114,245 $103,819 $99,490
Investments & Money Market
Investments 32,793 34,036 35,093 32,611 30,857 25,679 27,501
Loans (Net of Unearned Income) 94,206 83,017 91,369 81,880 77,197 71,170 65,595
Deposits 114,372 108,347 113,845 105,587 99,770 90,866 88,508
Borrowings 3,461 2,628 4,307 486 1,127 565 527
Shareholders' equity 14,777 13,522 14,718 13,414 11,520 10,717 9,306
Selected Operating Ratios:
Return on average assets 1.11% 2.19% 1.00% 1.11% 1.01% 1.02% .96%
Return on average shareholders' equity
10.12% 19.82% 9.15% 10.60% 9.87% 10.32% 10.14%
Leverage (shareholders' equity/assets) 11.02% 11.04% 10.87% 11.04% 10.08% 10.32% 9.35%
Average total loans as a percentage of
average deposits 82.41% 77.25% 79.03% 76.60% 77.83% 76.25% 71.58%
Net interest margin* 4.13% 4.42% 4.48% 4.64% 4.66% 4.68% 4.90%
Net interest spread* 3.82% 4.11% 4.19% 4.38% 4.40% 4.46% 4.76%
Selected Asset Quality Ratios:
Nonperforming Assets/Total loans &
OREO .28% .89% .12% .91% .37% .21% .04%
Nonperforming loans/Gross loans .28% .88% .12% .86% .37% .21% .04%
Net Charge-offs/Average loans .06% .09% .38% .29% .33% .11% .09%
Loan Loss Reserve/Total loans .83% .93% .84% .96% .93% 1.01% .96%
Loan Loss Reserve/Nonperforming
loans 294.03% 105.41% 713.89% 157.49% 550.38% 472.55% 2200.00%
</TABLE>
- -------------
*Tax Equivalent Basis
-17-
<PAGE>
SELECTED PRO FORMA COMBINED
(In Thousands)
March 31, 1999
<TABLE>
<CAPTION>
Clearfield
Bank & Penn Laurel
Trust Financial Adjustments Pro Forma
Company Corp. (1) Combined
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Average Balance Sheet Totals:
Total Assets $183,169 $133,812 $- $316,981
Investment Securities and Money
Market Investments 51,041 33,126 - 84,167
Loans and Leases (Net of Unearned
Income) 115,800 93,428 - 209,228
Total Deposits 161,225 113,376 - 274,601
Borrowings 0 3,574 - 3,574
Shareholders' Equity 20,633 14,748 ($500) 34,881
Period End:
Total Assets $183,420 $134,888 $- $318,308
Investment Securities and Money
Market Investments 50,895 32,793 - 83,688
Loans and Leases (Net of unearned
Income) 115,796 94,206 - 210,002
Total Deposits 161,563 114,372 - 275,935
Borrowings 0 3,461 - 3,461
Shareholders' Equity 20,403 14,777 ($500) 34,680
</TABLE>
- ---------------
(1) Reflects one time merger related expenses
SELECTED PRO FORMA COMBINED
(In Thousands)
December 31, 1998
<TABLE>
<CAPTION>
Clearfield
Bank & Penn Laurel Pro
Trust Financial Adjustments Forma
Company Corp. (1) 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 ($500) 33,509
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 ($500) 34,580
</TABLE>
- -----------
(1) Reflects one time merger related expenses
-18-
<PAGE>
<TABLE>
<CAPTION>
As of and for
the Three Months
Ended March 31, As of and for the Years Ended December 31,
------------------------ --------------------------------------------------------
(unaudited)
1999 1998 1998 1997 1996 1995 1994
------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $5,407 $5,340 $22,138 $21,332 $19,008 $18,144 $16,723
Interest Expense 2,642 2,621 10,812 10,292 8,985 8,630 6,853
------ ------ ------- ------- ------- ------- -------
Net Interest Income $2,765 $2,719 $11,326 $11,040 $10,023 $9,514 $9,870
Provision for Possible
Loan Losses (162) (119) (660) (557) (372) (242) (388)
------ ------ ------- ------- ------- ------- -------
Total Other Income 600 873 2,265 1,558 1,353 1,543 1,308
Total Other Expense 2,200 2,172 8,741 7,954 7,222 7,212 7,055
------ ------ ------- ------- ------- ------- -------
Income Before Income
Taxes $1,003 $1,301 $4,190 $4,087 $3,782 $3,603 $3,735
Income Taxes 206 248 986 975 904 865 961
Cumulative Effect of
Change in Accounting
Principles 0 0 0 0 0 0 (88)
------ ------ ------- ------- ------- ------- -------
Net Income $797 $1,053 $3,204 $3,112 $2,878 $2,738 $2,686
====== ====== ======= ======= ======= ======= =======
Diluted Earnings Per
Share
Income before
Cumulative Effect of
Change in Accounting
Principles $.87 $1.16 $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 0.00 0.00 .10
------ ------ ------- ------- ------- ------- -------
Net Income $.87 $1.16 $3.54 $3.44 $3.18 $3.02 $2.96
====== ====== ======= ======= ======= ======= =======
</TABLE>
-19-
<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 The Knights of Columbus, 512 Arnold Avenue, Clearfield, Pennsylvania, on
Wednesday, September 8, 1999, at 1:00 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 434 State Street, Curwensville, Pennsylvania, on Wednesday, September 8,
1999, at 9:00 a.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
At least a majority of the total number of shares of Clearfield common
stock and of Penn Laurel common stock, outstanding on July 28, 1999, is required
for a quorum at each of the meetings. These shares may be represented by a
shareholder in person or by completing and returning the enclosed proxy.
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:
-20-
<PAGE>
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.
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.
-21-
<PAGE>
Voting Securities and Securities Ownership
Clearfield. Only those shareholders whose ownership appears on the
shareholder record of Clearfield as of the close of business on July 28, 1999,
are entitled to vote at the meeting. Each share of Clearfield common stock is
entitled to one vote. On July 28, 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 on the table on page 76, Clearfield's
Board of Directors is not aware of any individual, entity or group that owns
more than 10% of the Clearfield common stock.
Penn Laurel. Only those shareholders whose ownership appears on the
shareholder record of Penn Laurel as of the close of business on July 28, 1999,
are entitled to vote at the meeting. Each share of Penn Laurel common stock is
entitled to one vote. On July 28, 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.
Interests of Certain Persons in the Merger
When considering the recommendations of the Boards of Directors of
Clearfield and Penn Laurel, you should be aware that some executive officers and
directors of Clearfield and Penn Laurel 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. Mr. Wood, President and Chief Executive Officer of Clearfield,
receives an employment agreement and Mr. Bertram, Chairman of the Board of
Clearfield, receives a consulting agreement. Messrs. Brubaker, President and
Chief Executive Officer of Penn Laurel, and Weymers, President and Chief
Executive Officer of CSB Bank, each receive a new employment agreement.
Differences exist between Mr. Brubaker's current and new employment
agreements. The new agreement increases his base salary from $114,664 per year
to $143,688 per year. In the event of a change in control of Penn Laurel, Mr.
Brubaker will receive payments equal to 2.99 times his salary plus average bonus
for the past three years under his new employment agreement. Under his current
agreement, Mr. Brubaker will receive 2.5 times his annual salary plus bonus in
the event of a change in control. In addition, under his new employment
agreement, if Mr. Brubaker resigns for good reason or is terminated without
cause, he will receive the greater of 2.99 times his compensation or his
compensation due for the remainder of the employment agreement. Under his
current contract, Mr. Brubaker will receive the greater of his current
compensation for one year or his compensation due for the remainder of the
agreement under similar circumstances.
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Mr. Wood's base salary under his new employment agreement will increase to
$101,004 from his current salary of $75,000 and he will be eligible for a
performance bonus. In addition, in the event of a change in control of Penn
Laurel, Mr. Wood will receive compensation calculated by the same method as Mr.
Brubaker, and, if Mr. Wood resigns for good reason or if he is terminated
without cause, he will receive the greater of his compensation due for the
remainder of his agreement or his compensation for one year. Neither of these
provisions is a feature of his current agreement. Under his new agreement, he
will receive 2.99 times his compensation, if there is a change in control.
Mr. Weymers's base salary under his new employment agreement will increase
to $101,004 from his current salary of $88,620. Under his current agreement, if
there is a change in control of Penn Laurel, if he resigns for good reason or if
he is terminated without cause, Mr. Weymers receives compensation calculated in
the same manner as in Mr. Brubaker's current agreement. Under his new agreement,
he will receive 2.99 times his compensation, if there is a change in control.
Mr. Bertram receives $20,500 for his services as Chairman of the Board
under his new consulting agreement, as compared to $18,000 under his old
agreement. In addition, he receives $33,500 as compensation for his non-compete
covenant, as compared to $29,000 under his current agreement.
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 July 28, 1999, the directors and executive
officers of Clearfield beneficially own 84,764 shares of Clearfield common
stock. As of July 28, 1999, the directors and executive officers of Penn Laurel
beneficially own 64,482 shares of Penn Laurel common stock.
For a description of the additional terms of the new agreements, see
"APPROVAL OF THE MERGER--Management and Operations Following the Merger," and
for a description of the additional terms of the current agreements of Messrs,
Brubaker and Weymers, see "INFORMATION CONCERNING PENN LAUREL FINANCIAL
CORP.--Employment Contracts."
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 the material 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; and
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o Shareholders of Clearfield will receive 0.97 shares of Penn
Laurel 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. 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. In addition, Penn Laurel will become a Section 12 reporting company, and
as such, will be subject to the Commission's periodic reporting, proxy
solicitation and insider trading requirements. Pursuant to these requirements,
Penn Laurel will make a significant amount of information available to
shareholders, potential investors and the general public, in the form of proxy
statements, periodic reports and other Commission filings. Directors, executive
officers and 10% beneficial shareholder of Penn Laurel will also be subject to
the insider trading reporting requirements and short-swing profit recapture
provisions of Section 16 of the Securities Act.
The Boards of Directors of each of Clearfield and Penn Laurel have approved
and adopted the agreement and the plan of merger. They believe the merger is in
the best interests of the shareholders of each company. The Boards of Directors
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
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.
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Background of the Merger, Reasons and Recommendation of the Boards of Directors
Clearfield Background. Clearfield'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, its shareholders,
employees and the community. 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 bank holding company. The Board of Directors of
Clearfield has also considered the alternative of being acquired by a larger
out-of-town entity. This alternative was rejected for the following reasons:
o It would not necessarily result in a increase in market share in the
community, reducing the long term prospects for continued growth.
o It would tend to move certain of the merged bank's services, and the
related jobs, out of the community.
o It runs counter to one way in which Clearfield has differentiated
itself in the market--being a local bank for the local community.
o It runs counter to the long range goals of the Board of Directors of
enhancing shareholder value and contributing to the company's other
constituencies by either remaining independent or merging with another
local bank.
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 on and likely future ramifications for Clearfield 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
another local bank. 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.
The Board of Directors of Clearfield received a letter dated May 10, 1999
from an out-of-town bank indicating that the out-of-town bank had an interest in
acquiring the outstanding stock of Clearfield. The Clearfield Board of Directors
determined not to respond to the letter and reaffirmed its commitment to
complete its merger with Penn Laurel at the Board of Directors Meeting held May
25, 1999. In addition to the reasons stated above, the Board of Directors noted
that:
o the letter was only an indication of interest and did not contain any
binding commitment to acquire Clearfield common stock;
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o the letter was, by its terms, to be considered only if the merger with
Penn Laurel were not to occur; and
o Clearfield had entered into the agreement with Penn Laurel and
did not wish to be in breach of that agreement, one term of
which prohibits Clearfield from discussing a merger
acquisition with a third party.
The Board continues to believe that the merger with Penn Laurel, a local
bank, which is profitable and expanding, is in the best interests of Clearfield,
its shareholders, its customers, its employees and the community.
Penn Laurel Background. As part of its long-range planning, Penn Laurel's
Board of Directors periodically reviews and evaluates various strategic options
and alternatives available to maximize economic benefits for Penn Laurel and its
shareholders, including the impact that a merger might have on Penn Laurel, its
shareholders, employees and the community. The Board has considered the merits
of maintaining Penn Laurel's independence, Penn Laurel combining with a smaller
or similar size bank or bank holding company, or merging Penn Laurel with a
larger community or regional financial institution. Management evaluates and
updates the long-range plan 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, in 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 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 that 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 necessitate capital expenditures. After evaluating internal growth
methods,
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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.
Reasons for the Merger as Determined by both Boards of Directors
The Boards of Directors of both Clearfield and Penn Laurel believe that the
merger represents a unique opportunity to form a strong community bank and
financial services organization. Following the merger, the combined company will
also have a substantially larger capital base to fund new products and a
significantly expanded retail customer base.
In addition, although no assurances can be given that any specific level of
expense savings will be achieved, the managements of Clearfield and Penn Laurel
have identified potential annual pretax expense savings and revenue enhancements
of $1.6 million expected to be achieved by the end of the second year after the
merger by consolidating certain operations, facilities and business lines and
eliminating redundant costs. We cannot assure that the Penn Laurel Bank & Trust
Company, the combined company, will be able to achieve these anticipated expense
savings within the time periods contemplated or otherwise.
In determining to approve the merger agreement, the Boards of Directors of
each of Clearfield and Penn Laurel also considered, among others, the following
factors:
o The Financial and Other Terms of the Merger Agreement. The Boards of
Directors of each of Clearfield and Penn Laurel considered the terms of
the merger agreement, including the terms of the investment agreements.
Each Board considered the fairness of the exchange ratio. Although each
Board took into account the historical trading ranges for the common
stock of both Clearfield and Penn Laurel in determining the exchange
ratio, they considered the trading ranges to be less important than
other factors. The advisors of each company noted that the trading
volume of each company's common stock was so small that the prices may
not accurately indicate relative value. Instead, both boards considered
other factors in determining the exchange ratio. The Boards considered:
o the relative contribution that each company's earnings was projected
to contribute to the earnings of the combined company;
o the premium-to-book value and the multiple of earnings implied by the
exchange ratio;
o the potential impact of the merger on the price of the merged
company's common stock over the next five years;
o the resulting relative interests of Clearfield and Penn Laurel
shareholders in the equity of the combined company;
o the potential for increased earnings and book value per share for its
shareholders; and
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o the existence of the option granted by the terms of each investment
agreement and certain other provisions in the merger agreement that
might discourage third parties from seeking to acquire the companies
prior to the merger.
o Advice of Financial Advisors and Fairness Opinion. Each Board
considered advice received from its financial advisor at their Board
meetings and reviewed the detailed financial analyses, pro forma
results and other information presented by the advisors. For a
discussion of the fairness opinion of each company's financial advisor
see "Opinion of Financial Advisors," below.
o Certain Financial and Other Information. Each Board reviewed
the historical financial results of the other party, the projected
financial results provided by the other party's management, and reviewed
information with respect to the other party's business, operations,
financial condition and future prospects. Each Board also considered, in
particular, the relative strengths and weaknesses of the other party's
businesses.
o Due Diligence Review. Each Board considered the results of the
due diligence review conducted by its advisors, including, among other
things, a review of the other party's credit policies, asset quality and
interest rate risk profile.
o The Tax and Accounting Treatment of the Transaction. Each Board
considered that the merger is expected to be tax-free (other than with
respect to cash paid in lieu of fractional shares) to shareholders for
federal income tax purposes and to be accounted for under the pooling of
interests method of accounting for business combinations.
o Operating Environment. Each Board took into account:
o the current and prospective economic and competitive environment
facing the financial services industry, generally, and each of
Clearfield and Penn Laurel, in particular;
o the increasing importance of size and market share as key indicators
of shareholder value;
o the ability of larger institutions to invest in technology and
leverage fixed costs over larger markets; and
o the changing legal environment for banking and financial services.
o Continuity of Management. Each Board considered the fact that
a balance has been achieved in designating the management of the merged
company. All of the continuing members of each board would continue as
directors of the combined entity. This gives each party equal
representation on the board of directors. William L. Bertram is
appointed as Chairman of the Board of Directors of Penn
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Laurel and Penn Laurel Bank & Trust, Larry W. Brubaker is appointed as
the President and Chief Executive Officer of Penn Laurel and Penn Laurel
Bank & Trust, and Messrs. Wood and Weymers are appointed as Executive
Vice Presidents of Penn Laurel and Penn Laurel Bank & Trust. The Boards
believe that these roles will enable each company's board and management
to have balanced input in the decisions concerning the future of Penn
Laurel Bank & Trust.
o Impact on Constituencies. Each Board considered the possible negative
impact the merger would have on the various constituencies served by
their respective company, including potential job loss and the economic
effect of the merger on the communities served by each of them. Each
Board took into account that the combined entity would be able to offer
a more extensive range of products and banking services to their
customers.
o Alternatives to the Merger Agreement. Each Board considered the effect
on depositors, employees, customers and the communities of their
respective company continuing as a stand-alone entity or combining with
other potential merger partners, compared to the effect of its combining
pursuant to the proposed merger agreement, and determined that the
merger under the merger agreement presented the best opportunity for
achieving each Board's long-term strategic objectives.
The foregoing discussion of the information and factors considered by each
Board of Directors is not intended to be exhaustive, but it does include all
material factors considered by each Board. In making its decision, each Board
necessarily relied on estimates and other forward looking information on the
possible benefits of the merger. We cannot assure that these benefits will be
achieved. In reaching its determination to approve the merger agreement, neither
Board assigned any relative or specific weights to the various factors
considered by it nor did either board specifically characterize any factor as
positive or negative, except as described above, and individual directors may
have given differing weights to different factors and may have viewed certain
factors more positively or negatively than others.
Preliminary Discussions
The Boards of Directors of Penn Laurel and Clearfield held preliminary
discussions in 1996 and 1997. None of these discussions resulted in an agreement
as to the terms of a potential combination until more formal discussion between
Clearfield and Penn Laurel began in August 1998. These discussions led to the
execution of the agreement on December 31, 1998. By general direction of the
boards of each company, Messrs. Bertram and Brubaker met to discuss the
advantages and issues of a potential combination between Penn Laurel and
Clearfield. The discussions covered:
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o corporate culture and operating philosophy;
o corporate goals and objectives; and
o long term impact of a combination on the relevant
constituencies.
The parties did not agree to specific terms but decided it would be advantageous
to continue an open dialogue and discussions.
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 and 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.
At the second meeting, 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 the consulting contract for the
post-merger positions of Chairman of the Board, President and Chief Executive
Officer and Executive Vice Presidents.
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
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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 affect long term shareholder value. The key
element of the Ryan, Beck study was to establish 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 historical growth rates, historical income levels,
expected future income levels and other assumptions for each company and for the
resulting company, Ryan, Beck developed an exchange ratio range of .94 to .99
shares of Penn Laurel for each share of Clearfield. Ryan, Beck then determined a
definitive ratio of .96, which attempted to balance the anticipated benefits of
the transaction to the companies going forward. The Boards of Directors of
Clearfield and Penn Laurel negotiated the exchange ratio after review of Ryan,
Beck's report. Eventually, the Boards of Directors agreed to an exchange ratio
of .97 shares of Penn Laurel common stock for each share of Clearfield common
stock.
Clearfield and Penn Laurel determined that they should each have an
independent financial advisor to review the terms of the transaction and to
ascertain that the terms 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. The terms of the transaction were reviewed by
the Boards of Directors of Penn Laurel and Clearfield on December 16, 1998, and
on December 23, 1998. The Boards of Directors made certain modifications to the
terms of the transaction, including providing that Clearfield would survive the
merger and change its name to "Penn Laurel Bank & Trust Company." Garland
McPherson provided a fairness opinion to Penn Laurel and Ryan, Beck provided a
fairness opinion to Clearfield. The agreement was executed by the parties as of
December 31, 1998. The Boards of Clearfield and Penn Laurel approved the merger
agreement, as modified, on December 30 and December 31, 1998.
The Boards' Determination About The Merger
For the reasons outlined in "Reasons for the Merger Determined by both
Boards of Directors," above, and in "Opinion of Financial Advisors," below, the
Clearfield Board 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 "Reasons for the Merger Determined by both
Boards of Directors," above, and in "Opinion of Financial Advisors," below, the
Penn Laurel Board 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
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the agreement with Clearfield 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 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 have approved the merger agreement. The
Board of Directors of Clearfield recommend that their shareholders approve the
merger agreement.
OPINION OF FINANCIAL ADVISORS
General
During preliminary negotiations, Clearfield and Penn Laurel engaged Ryan,
Beck to give an initial analysis of a proposed transaction. Later, 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.
Ryan, Beck's Initial Analysis
On October 12, 1998, Penn Laurel and Clearfield formally engaged Ryan, Beck
to:
o develop a full understanding of the business and characteristics of
each of the companies;
o create a "fair" exchange ratio for the transaction; and
o create a list of potential cost savings.
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. These projections were not prepared with a view towards public
disclosure. The public disclosure of these projections could be misleading
because the projections were based on numerous variables and assumptions that
are inherently uncertain, including, without limitation, factors related to
general economic and competitive conditions. Accordingly, actual results could
vary significantly from those set forth in the 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 are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by the analyses.
Additionally,
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estimates of the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which the businesses or securities might
actually be sold.
Analysis of Historical Results
Ryan, Beck analyzed the historical trends of Penn Laurel and Clearfield's
income statement and balance sheets for fiscal years ended December 31, 1993,
through the nine months ended September 30, 1998, and made certain observations
based on these historical operating trends.
The compounded annual growth rates for the 4.75 year period from December
31, 1993, to September 30, 1998, for certain balance sheet categories were as
follows:
Penn
Clearfield Laurel
---------- ------
Total Assets 4.64% 8.55%
One to Four Family Mortgages 6.85 12.75
Nonfarm/Nonresidential Mortgage Loans 10.25 12.55
Commercial & Industrial Loans 11.82 16.87
Total Loans 9.48 11.67
Transaction Accounts (0.96) 2.95
Money Market Deposit Accounts 3.06 12.70
Savings Accounts (3.32) (3.25)
Certificates of Deposit 10.98 11.30
Certificates of Deposit >$100K 11.26 27.88
Total Deposits 4.41 7.38
Total Shareholders' Equity 6.05 10.69
Ryan, Beck noted that Penn Laurel's total asset growth rate for the
4.75 year period from December 31, 1993 to September 30, 1998 was superior to
that of Clearfield and much of this growth was due to the growth in Penn
Laurel's loan portfolio. Penn Laurel's total deposit growth over the 4.75 year
period was also superior to the total deposit growth of Clearfield. The fastest
growing deposit category for both Penn Laurel and Clearfield was Certificates of
Deposit greater than $100,000.
The compounded annual growth rates for the period ended December 31, 1993
to annualized year to date September 30, 1998 income statement results are as
follows:
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Penn
Clearfield Laurel
---------- ------
Net Interest Income 2.87% 5.43%
Non Interest Income 8.64 12.30
Non Interest Expenses 2.62 7.16
Net Income Before Extraordinary Items 3.55 6.45
Net Income 2.24% 4.10%
Ryan, Beck noted that, in 1998, Clearfield benefited from a reassessment of
loan origination costs for FASB 91 purposes. This had the net effect of
increasing income by approximately $170,000 versus the nine months ended
December 31, 1997. Ryan, Beck also "normalized" Penn Laurel's 1998 earnings by
excluding securities gains and deducting certain non-recurring expenses.
Detailed Comparison of Clearfield and Penn Laurel
Ryan, Beck made the following observations about Penn Laurel and
Clearfield:
Loan Portfolio
o Clearfield and Penn Laurel's ratio of total loans to total assets was
62.3% and 70.4%, respectively, as of September 30, 1998.
o Clearfield's loan portfolio is dominated by real estate loans
(66.6% of the portfolio) with 1-4 family loans comprising 39.6% of the
portfolio and commercial mortgages comprising 24.9% of the portfolio.
o Penn Laurel has a more diversified and evenly balanced loan portfolio
between 1-4 family, consumer, commercial and industrial, and commercial
real estate loans.
o Consumer loans equaled 32.8% of total loans at Penn Laurel compared to
18.1% at Clearfield.
o Penn Laurel had superior loan origination capabilities as evidenced by
the compound growth rate in loans over the last 4.75 years of 11.7% as
compared to 9.5% for Clearfield. A significant factor in Penn Laurel's
strong loan growth was the 16.9% compound growth rate in commercial and
industrial loans and the 12.7% compound growth rate in 1-4 family
mortgages.
o Clearfield's loan growth has been aided by the purchase of loan
participations.
Deposits
o Deposit structure between the two organizations is very similar.
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o Penn Laurel has experienced stronger deposit growth than Clearfield over
the past 4.75 years, with a compound growth rate of 7.4% as compared to
a compound growth rate of 4.4% at Clearfield.
o Certificates of deposit in excess of $100,000, which have grown at a
4.75 year compound growth rate of 27.9%, have been the fastest growing
source of deposits at Penn Laurel.
o Certificates of deposit have generated much of the deposit growth of
both organizations.
o The addition of the Goldenrod branch, which was purchased in 1997 with
approximately $13 million in deposits, contributed to Clearfield's
deposit growth.
Non-Performing Assets
o Clearfield experienced a significant increase in the level of
nonperforming assets in the nine months ended September 30, 1998, with
nonperforming assets as a percent of loans plus OREO increasing to 0.79%
at September 30, 1998 from 0.42% at December 31, 1997.
o Penn Laurel experienced a significant increase in the level of
nonperforming assets as a percent of loans plus OREO at December 31,
1997, with an increase to 0.91% as compared to 0.37% at December 31,
1996. By September 30, 1998, the level of nonperforming assets as a
percent of loans plus OREO had declined to 0.43%.
Comparison of Benefit Expense
o Clearfield's employee benefits expense, as a percentage of salaries and
wages, has been approximately twice as much as Penn Laurel's.
o In the financial analysis included in this proxy statement/prospectus,
Ryan, Beck has assumed that the benefits cost to the new combined
company will not exceed the sum of the benefits cost of each of the
combining companies.
o Ryan, Beck recommended that the combined company retain an employee
benefits consulting firm to establish benefits plans for the combined
company.
Market Share Analysis
Clearfield County
o As separate entities, Clearfield ranked third in market share and Penn
Laurel ranked fifth in market share in Clearfield County.
o On a pro forma basis, the combined company would rank first out of
eight financial institutions in market share in Clearfield County with
$270.8 million in deposits and a combined market share of 25.91%.
o The organizations each operate five branches in Clearfield County;
There are branch overlaps in Clearfield, Curwensville and DuBois.
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Centre County
o On a pro forma basis, the combined company will operate one branch in
Philipsburg that ranks 10th out of 13 financial institutions with 1.44%
of the Centre County market share.
Determination of the Exchange Ratio
Ryan, Beck began its analysis to determine the appropriate exchange
ratio by focusing on the three most widely accepted methods of calculating an
exchange ratio in a merger of equals context. These methods are:
o Market Value for Market Value, in other words, the Market
Capitalization Basis;
o Book Value for Book Value, in other words, the Equity Basis; and
o Earnings for Earnings, in other words, the Earnings Basis
In addition to the three most common methods, Ryan, Beck also used five
other methods to establish preliminary exchange ratios. These were:
o Estimated 1999 Earnings Excluding Benefits Expense -- Ryan, Beck
made this calculation because of the significant disparity in benefits
cost between Clearfield and Penn Laurel.
o Equity Excluding Unrealized Security Gains -- Both Clearfield's
and Penn Laurel's equity was reduced by an amount equal to their
unrealized security gains (net of deferred tax). Ryan, Beck calculated
this ratio because of the sensitivity of unrealized security gains to
conditions in either the equity or debt markets.
o Diluted Estimated 1999 Earnings -- This assumes exercise of Penn
Laurel's stock options, earnings on the proceeds of the stock options
and that the shares are outstanding. Ryan, Beck calculated this ratio
because Penn Laurel had stock options and Clearfield did not.
o Diluted Equity Basis -- Equity including proceeds from assumed
exercise of Penn Laurel's stock options. Ryan, Beck calculated this
ratio because Penn Laurel had stock options and Clearfield did not.
o Diluted Equity Basis (Excluding Unrealized Security Gains) -- Equity
includes proceeds from assumed exercise of Penn Laurel's stock options
but excludes unrealized security gains for both Clearfield and Penn
Laurel. This ratio was also calculated because Penn Laurel had stock
options and Clearfield did not.
The results of this analysis produced exchange ratios ranging from
0.876 to 1.177 shares of Penn Laurel for each share of Clearfield as shown
below:
Basis of Calculation Exchange Ratio
-------------------- --------------
Market Capitalization 1.177
Equity 0.879
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Earnings 0.962
Earnings (Excluding Benefits) 1.044
Equity (Excluding Unrealized Securities Gains) 0.956
Diluted Earnings 0.990
Diluted Equity 0.876
Diluted Equity (Excluding Unrealized Securities 0.946
Gains)
Ryan, Beck eliminated the Market Capitalization Basis from consideration
after it reviewed the trading volume of Clearfield's and Penn Laurel's shares.
Ryan, Beck noted that an average weekly trading volume of 217 shares for
Clearfield and 59 shares for Penn Laurel did not provide sufficient liquidity
for the Market Capitalization Basis to produce a meaningful exchange ratio.
Exchange Ratio of 0.94 to 0.99 Shares for 1.00
Based on the results of the previous analysis, Ryan, Beck prepared a
detailed analysis of the impact of an exchange ratio of between 0.94 and 0.99
shares of Penn Laurel for each share of Clearfield. As a result of this
analysis, Ryan, Beck recommended an exchange ratio of 0.96 shares of Penn Laurel
common stock for each share of Clearfield common stock. Ryan, Beck recommended
an exchange ratio of 0.96 to attempt to achieve a relative balance in the
expected benefits of the transaction to the shareholders of each of Penn Laurel
and Clearfield. In addition to the material discussed in this section, Ryan,
Beck's initial analysis contained peer group data and discounted dividend
analysis data substantially in the form discussed below, under "Clearfield
Opinion of Financial Advisor."
Potential Cost Savings
For a discussion of the potential cost savings, please see "Potential Cost
Savings" on page 65, below.
Clearfield Opinion Of Financial Advisor
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.
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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. 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 the date of this joint proxy statement/prospectus, based on and
subject to the assumptions, factors, and limitations set forth in the Ryan, Beck
opinion and 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. Ryan, Beck qualifies the summary of the opinion in its
entirety by reference to the full text of the 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.
In rendering its opinion, Ryan, Beck:
o Reviewed, among other things:
o the merger agreement and related documents;
o the joint proxy statement/prospectus;
o Penn Laurel's Annual Report to Shareholders for the years ended
December 31, 1998, 1997, 1996 and 1995;
o Penn Laurel's Quarterly Call Reports to the FDIC for the periods
ended March 31, 1999, September 30, 1998, June 30, 1998 and
March 31, 1998;
o Clearfield's Annual Report to Shareholders for the years ended
December 31, 1998, 1997, 1996 and 1995;
o Clearfield's Quarterly Call Reports to the FDIC for the periods
ended March 31, 1999, September 30, 1998, June 30, 1998 and
March 31, 1998; and
o Certain operating and financial information provided by the
managements 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;
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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
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 companies or that was publicly available and have not
assumed any responsibility for independently verifying such information. Ryan,
Beck relied upon the management of Clearfield and Penn Laurel with respect to
whether the financial and operating forecasts and projections (and the
assumptions and bases for them) were reasonable and achievable. In certain
instances Ryan, Beck made certain adjustments to the financial and operating
forecasts that, in its judgment, were appropriate under the circumstances. In
addition, Ryan, Beck assumed, with the consent of both Clearfield and Penn
Laurel, that the forecasts and projections (including expense savings) reflect
the best currently available estimates and judgments of the companies'
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
reflected in the balance sheets of Penn Laurel and of Clearfield at March 31,
1999. Ryan, Beck assumed that the 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 to Clearfield. Ryan, Beck has not made or obtained any independent
evaluations or appraisals of the assets and liabilities of either Penn Laurel or
Clearfield or their respective subsidiaries, nor has it reviewed any individual
loan files of Clearfield or of Penn Laurel, including its subsidiary bank.
In conducting its analysis and arriving at the Ryan, Beck opinion, Ryan,
Beck considered financial and other factors that it deemed appropriate in the
circumstances. It assumed that, in the course of obtaining the necessary
regulatory approvals for the merger and the transactions
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contemplated by the merger agreement, no restrictions will be imposed that will
have a material adverse effect on the contemplated benefits of the merger or the
transactions contemplated by the merger agreement 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 merger 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. Ryan, Beck was asked only to evaluate from a financial point of view
the fairness of the exchange ratio to Clearfield shareholders; and therefore,
did not consider, the third-party indication of interest received by Clearfield,
in May 1999, after the parties entered into the merger agreement.
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 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 these 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. These projections were not prepared with a view towards public
disclosure. The public disclosure of these projections could be misleading
because the projections were based on numerous variables and assumptions that
are inherently uncertain, including, without limitation, factors related to
general economic and competitive conditions. Accordingly, actual results could
vary significantly from those set forth in the 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 are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by the analyses.
Additionally, estimates of the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which the businesses or securities
might actually be sold.
After giving effect to the merger, Clearfield and Penn Laurel shareholders
would have a
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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 that Ryan, Beck derived from information provided by the
managements of each of Clearfield and Penn Laurel.
Based upon certain assumptions, including those with respect to cost
savings and other synergies from the merger and the stand-alone earnings
projections provided by Clearfield and Penn Laurel, the impact 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 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 the 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. Many factors beyond the control of Penn Laurel and/or
Clearfield, may affect these forward looking projections, including:
o the future direction of interest rates;
o economic conditions in the companies' market place;
o the actual amount and timing of cost savings achieved through the
merger;
o the actual level of revenue enhancements brought about through the
merger;
o future regulatory changes; and
o 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
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perpetuity. These projections are, by their nature, forward-looking and may
differ materially from the actual values or actual future results that may be
significantly more or less favorable than suggested by the projections. In
producing a range of per share Clearfield values, Ryan, Beck used the following
assumptions:
o discount rates range from 11.0% to 13.0%; and
o 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 13.00X $50.28 $48.78 $47.37
Multiple 14.00X $52.22 $50.63 $49.13
Of Earnings 15.00X $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 be
significantly more or less than the 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. These projections are,
by their nature, forward-looking and may differ materially from the actual
values or actual future results that may be significantly more or less favorable
than suggested by the projections. In producing a range of per share pro forma
combined company values, Ryan, Beck used the following assumptions:
o discount rates range from 11.0% to 13.0%;
o terminal price/earnings multiples range from 13.0x to 15.0x, which
when applied to terminal year estimated earnings produces a value that
approximates the net present value of the dividends in perpetuity,
given certain assumptions regarding growth rates and discount rates;
and
o 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.
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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 13.00X $64.17 $62.14 $60.21
Multiple 14.00X $66.88 $64.72 $62.68
Of Earnings 15.00X $69.60 $67.31 $65.14
Ryan, Beck multiplied the 0.97 exchange ratio by 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 13.00X $62.24 $60.28 $58.40
Multiple 14.00X $64.87 $62.78 $60.80
Of Earnings 15.00X $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 the assumptions.
Any variation from these assumptions would most likely produce different
results.
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% with the following Clearfield
and Penn Laurel relative contribution table:
Clearfield Penn Laurel
---------- -----------
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
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Peer Group Analysis - Individually. Ryan, Beck also compared Clearfield's
and Penn Laurel's reported financial data as of June 30, 1998, with that of a
peer group of 14 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.
The following 14 companies make up the peer group used in this analysis:
Abigail Adams National Bancorp
Annapolis National Bancorp
Bridge View Bancorp
Century Bancshares, Inc.
First Leesport Bancorp, Inc.
First Philson Financial Corp.
Intervest Bancshares Corp
Jeffersonville Bancorp
Long Island Commercial Bank
Madison Bancshares Group, Ltd.
Mid Penn Bancorp Inc.
Suburban Bancshares, Inc.
Sussex Bancorp
Unity Bancorp, Inc.
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 in the peer group:
<TABLE>
<CAPTION>
Peer Group Peer Group
Clearfield Penn Laurel Average Median
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Total Equity/Total Assets 10.84% 9.18% 9.67% 9.87%
Return on Average Assets* 1.06 1.33 0.80 0.77
Return on Average Equity* 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* 17.09X 9.99X 21.47X 19.08X
Price/Book Value 156.17% 114.32% 168.51% 150.06%
Dividend Yield 2.94 2.85 1.44 1.53
</TABLE>
- ----------
* Penn Laurel's net income includes $504,000 in non recurring securities gains.
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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 in the peer group. Additionally, Clearfield had a slightly lower cost
of interest bearing liabilities than 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 nonperforming loans than the peer group and a higher loan loss reserve when
measured as a percent of nonperforming 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 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 17 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 following 17 companies make up the peer group used in this analysis:
Bryn Mawr Bank Corp.
Carrollton Bancorp
Codorus Valley Bancorp, Inc.
Columbia Bancorp
Comm Bancorp, Inc.
Commerce Bank/Harrisburg NA
Commercial National Financial
First Colonial Group, Inc.
First Mariner Bancorp
Greater Community Bancorp
High Point Financial Corp.
Lake Ariel Bancorp, Inc.
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Letchworth Independent BS Corp.
Norwood Financial Corp.
NSD Bancorp, Inc.
Ramapo Financial Corp.
Royal Bancshares of PA
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* 1.15 1.16 1.14
Return on Average Equity* 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>
- ----------
* 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 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. The Board of Directors of Clearfield retained
Ryan, Beck as an independent contractor to act as financial advisor to
Clearfield with respect to the merger. Ryan,
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Beck received a fee for its 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. A
detailed discussion of Ryan, Beck's analysis for this engagement is in "Ryan,
Beck's Initial Analysis," above. In December 1998, when that engagement was
complete, after the exchange ratio was negotiated by the parties and with the
consent of Penn Laurel and Clearfield, Clearfield engaged Ryan, Beck to provide
a fairness opinion with respect to the merger. 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 company would pay Ryan, Beck 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 expense cannot exceed $7,500 without
the prior consent of Clearfield or Penn Laurel. Ryan, Beck was paid all fees.
Clearfield and Penn Laurel 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 expenses cannot exceed $7,500 without the prior
consent of Clearfield. Ryan, Beck was paid all 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 Opinion Of Financial Advisor
Pursuant to an engagement letter dated December 10, 1998 and accepted on
December 15, 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. According to
the terms of the engagement letter, Garland McPherson was not engaged to, and
did not,
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o solicit third party indications of interest in acquiring Penn Laurel;
or
o assist Penn Laurel in negotiating the terms of the proposed merger.
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 issued its
fairness opinion on December 24, 1998. Garland McPherson updated the opinion on
the date of this proxy statement/prospectus. The updated opinion is attached as
Annex C. Garland McPherson acted exclusively for the Penn Laurel Board of
Directors 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. 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. We
qualify the following summary of the opinion in its entirety 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 the foregoing with various senior officers of Penn Laurel
and Clearfield as well as other matters it believed relevant to its
opinion; and
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o conducted other analyses, studies and investigations that it 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 purposes of its opinion. With respect to the Penn
Laurel and Clearfield financial forecasts reviewed in rendering its opinion,
Garland McPherson assumed that the financial forecasts were reasonably prepared
reflecting the best currently available estimates and judgments of the
respective managements as to the future financial performance of the companies.
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 appraisal. Garland McPherson also did not independently
verify, and has relied on and assumed, the adequacy all allowances for loan
losses set forth in the balance sheets of Penn Laurel and of Clearfield and
that the allowances for loan losses comply with all applicable law, regulatory
policy and sound banking practice as of the date of the financial statements.
In connection with rendering the opinion, Garland McPherson performed a
variety of financial analyses. Garland McPherson used Clearfield's budgeted 1999
earnings of $2.0 million for the first year of financial projections and based
projected income for subsequent years on the premise that future earnings would
increase approximately $100,000 per year, which appeared reasonable given
historical results. 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 methodologies summarized below to reach its determination. Garland
McPherson believes its analyses must be considered as a whole and that selecting
portions of the analyses and factors considered by Garland McPherson without
considering all the 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, the attainment
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 the estimates.
A summary of selective analyses prepared and analyzed by Garland McPherson
follows.
Comparable Company Analysis. Garland McPherson compared selected financial
and operating data for Penn Laurel with those of Clearfield and a peer group
consisting of all FDIC insured commercial banking institutions with assets
between $100 and $300 million with three or more banking offices located in a
non-metropolitan area. This data includes, but was not limited to:
o return on average assets;
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o return on average equity;
o certain capital adequacy ratios; and
o certain asset quality ratios.
Garland McPherson excluded securities gains and items of non-recurring nature in
computing profitability ratios. The analysis is set forth in tabular form,
below.
COMPARABLE COMPANY ANALYSIS
Clearfield Penn Laurel Peers
---------- ----------- -----
Return on Average Assets 1.1% 1.0% 1.3%
Return on Average Equity 9.8% 9.2% 13.2%
Leverage Ratio 10.8% 10.6% 9.4%
Non-performing Loan/Total Loans 0.7% 0.3% 0.9%
Loan Loss Reserve/Nonaccrual Loans 151% 1251% 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 their respective organizations.
Analysis of Key Valuation Indices. Garland McPherson computed the tangible
book value multiples and price/earnings for a 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 5-year period under three earnings growth scenarios.
Garland McPherson premised the moderate scenario on earnings per share
increasing from $3.64 to $4.95 over a five-year period based on estimates by
Penn Laurel's management. They premised the optimistic scenario on earnings per
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share exceeding the moderate scenario by 5% in all years. The conservative
scenario assumes earnings per share fall short of the moderate scenario by 5%.
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 5-year period under three growth scenarios. Garland McPherson premised the
moderate scenario on earnings per share increasing from $3.47 to $4.17 over a
5-year period based on estimates by Clearfield's management. They premised the
optimistic scenario on earnings per share exceeding the moderate scenario by 5%
in all years. The conservative scenario assumes earnings per share fall short of
the moderate scenario by 5%. 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 share, including management's estimates of
transaction related savings, and the book value per share of Clearfield. In
computing pro forma combined earnings per share, Garland McPherson incorporated
Ryan Beck's estimate of merger economies, which appear reasonable to Garland
McPherson. While the combination is dilutive to Penn Laurel shareholders in
terms of book value per share, pro forma earnings per share increase 7.6% and
dividends per share increase 20.7%.
Garland McPherson applied a price/earnings ratio of 18.0 to the pro forma
combined earnings per share, which produced an implied value of $78.58 per
share. This compares to a value of $59.78 indicated by the price/earnings
approach for Penn Laurel on a stand-alone basis. The indicated value on a pro
forma combined basis is significantly higher than that on a stand-alone basis,
providing evidence that the exchange ratio is fair to Penn Laurel shareholders.
Using discounted dividend analysis, Garland McPherson estimated the present
value of the future dividend streams that the pro forma combined entity could
produce over a 5 year period under the moderate earnings growth scenario. The
discounted dividend analysis indicated a range of per share values from $66.40
to $72.35. This compares to a range of discounted cash flow values of $58.33 to
$63.66 per share for Penn Laurel on a stand-alone basis under the moderate
earnings growth scenario. The range of values on a pro forma combined basis are
significantly higher than those on a stand-alone basis, providing evidence that
the exchange ratio is fair to Penn Laurel shareholders.
In reaching its opinion as to fairness, Garland McPherson did not assign a
greater significance to any of the analyses. As a result of its consideration of
all factors present and all
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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 updated Garland McPherson opinion,
included in Annex C, Garland McPherson updated certain of its analyses and
reviewed the assumptions on which the analyses were based and the factors
considered.
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 no change in applicable law or
regulation would occur 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 Garland McPherson opinion, as of the date of this
proxy statement/prospectus, which sets forth assumptions made and matters
considered, is attached as Annex C to this proxy statement/prospectus. We urge
you to read the opinion in its entirety. Garland McPherson's opinion is directed
only to the consideration to be received by shareholders in the transaction and
does not constitute a recommendation as to how a shareholder should vote at the
meeting.
INFORMATION ABOUT THE MERGER
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 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 shareholders meeting, 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.
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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 your
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.
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:
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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.
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.
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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 the 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. 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.
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
third or fourth 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
Clearfield shareholder will receive detailed instructions concerning the
procedure for surrendering the certificates. Upon proper surrender of the
certificates, each former shareholder of Clearfield will receive a stock
certificate representing the number of whole shares of Penn Laurel common stock
into which the 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.
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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 certificates.
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 the shareholder's 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 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;
o not change any method, practice or principle of accounting except as
may be required by generally accepted accounting principles or any
applicable regulator;
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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 Clearfield and Penn Laurel 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;
o continued effectiveness of the Registration Statement containing this
proxy statement/prospectus;
o determination that the merger can be accounted for as a pooling of
interests for financial reporting purposes;
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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, which,
when added to the fractional shares required to be purchased, would
require Penn Laurel to pay cash for less than 10% 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 10, 1999, pursuant to Section
3(a)(3) of the Bank Holding Company Act, which the Federal Reserve
Bank of Philadelphia approved by letter dated May 19, 1999;
o an Application with the Pennsylvania Department of Banking pursuant to
Section 115 of the Pennsylvania Banking Code, on April 19, 1999, and
an Application to Merge on July 8, 1999;
o an Application for Merger with the FDIC on May 28, 1999; and
o an Application for Merger with the Pennsylvania Department of Banking,
on July 8, 1999.
By letter dated May 18, 1999, the Board of Governors approved the
notification. We await final action from the FDIC and The Pennsylvania
Department of Banking.
Any term or condition of the merger 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, the parties may not adopt a change in
the amount of consideration to be received by the Clearfield shareholders unless
the shareholders of Clearfield and Penn Laurel approve the change. In addition,
the parties may not amend the agreement and materially adversely affect
Clearfield or Penn Laurel shareholders rights without shareholder approval of
the change.
One of the conditions to the consummation of the merger, the approval of
the FDIC, has not yet occurred and may not occur prior to October 31. If timely
approval is not received from the FDIC, the merger agreement would terminate
regardless of whether the shareholders have approved the merger, unless both
parties agree to extend the termination date. The parties have not agreed to do
so as of the date of this proxy statement/prospectus.
The merger 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;
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o unilateral action either party if a material breach by the other party
of any representation, warranty or covenant is not cured within 30
days or, through no fault of the terminating party, a condition
precedent to the terminating party's obligation to close the
transaction is not satisfied by October 31, 1999; or
o automatically, in the event of a failure to close the transaction by
October 31, 1999, unless extended by the parties, in writing, prior to
that date.
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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. The agreement and
plan of merger is attached as Exhibit A to the merger agreement, which is
attached as Annex A to this proxy statement/prospectus.
The transaction will close 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 merger agreement.
Management and Operations Following the Merger
Following the merger, the Board of Directors of Penn Laurel and Penn Laurel
Bank & Trust will consist of all people who were members of the Boards of
Directors of Clearfield and of Penn Laurel on December 31, 1998, and Wesley M.
Weymers, except that one director from each board elected not to continue as a
director of his respective company after the 1999 Annual Meeting of Shareholders
and will not be on the board of Penn Laurel or Penn Laurel Bank & Trust. Mr.
William T. Davis of the Clearfield Board of Directors did not stand for
re-election due to his health and Mr. Henry A. Peterson of the Penn Laurel Board
of Directors reached the mandatory retirement age of 72. Neither Mr. Davis nor
Mr. Peterson will receive any severance or other payments as a result of their
departure from their respective Boards of Directors. In addition, Sherwood C.
Moody, a director and the President and Chief Executive Officer of Clearfield
resigned, effective June 25, 1999, to become President and Chief Executive
Officer of a savings bank in Maine. The Clearfield Board of Directors appointed
William E. Wood as President and Chief Executive Officer and as a director of
Clearfield. Mr. Wood will serve as an Executive Vice President and a director of
Penn Laurel and Penn Laurel Bank & Trust. The rest of the persons will serve as
directors until their successors are elected and qualified.
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In order for Penn Laurel Bank & Trust 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. Penn Laurel will also amend its bylaws to permit individuals over
age 72 to serve on the Board of Directors.
The following table lists the members of the Board of Directors of Penn
Laurel & Penn Laurel Bank & Trust following the merger, their ages, their
principal occupation for the past five years and the length of their service as
directors:
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<TABLE>
<CAPTION>
Principal Occupation
Age as of for Past Five Years and Director
Name May 1 Positions Held Since
- ---- --------- ----------------------- --------
<S> <C> <C> <C>
George L. Beard 63 Retired; 1989
Director of Clearfield
William L. Bertram 66 Chairman of the 1972
Clearfield Board
Larry W. Brubaker 63 President and CEO 1986
of Penn Laurel
D. Stephen Butler 56 President, Butler Trucking; 1985
Director of Clearfield
Robert W. Dotts 75 President, Dotts Motor 1956
Company; Director of
Clearfield
Donald R. Fezell 60 Owner, Fezell Enterprise 1996
I, II, III; Director of
Penn Laurel
Guy A. Graham 58 President, Clearfield 1990
Foundation; Director of
Penn Laurel
Craig L. Hile 49 Vice President, Bloom 1986
Insurance; Director of
Clearfield
Frank J. Hoffman, Jr. 79 Chairman of the Board of 1990
Penn Laurel
Barbara J. Hugney-Shope 59 Attorney-at-law; Director 1989
of Clearfield
Robert M. Kurz, Jr. 66 President, Chairman and 1962
CEO, Kurz Bros.;
Director of Clearfield
Joseph P. Leyo 64 President, Leyo's Inc.; 1986
Director of Penn Laurel
Richard L. Lininger 71 Retired; 1986
Director of Penn Laurel
Michael R. Lytle 49 Commissioner; 1990
Director of Clearfield
</TABLE>
-62-
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Age as of for Past Five Years and Director
Name May 1 Positions Held Since
- ---- --------- ----------------------- --------
<S> <C> <C> <C>
Laurance B. Seaman 52 Attorney-at-Law, Gates 1986
& Seaman; Director of
Penn Laurel
Joseph A. Shaw 68 Retired; 1986
Director of Penn Laurel
Darrell G. Spencer 71 Director, Hepburnia Coal 1986
Co., Inc.;
Partner, Spencer Land Co.;
Director of Penn Laurel
Ray S. Walker 87 President, Walker Foundation; 1962
Director of Clearfield
Wesley M. Weymers 41 Director of Penn Laurel 1994
and President and CEO of
CSB Bank since January,
1999; prior thereto, Vice
President of Penn Laurel
Richard A. Wilkinson 64 Auto Dealer, Wilkinson's 1986
Subaru, Inc.;
Director of Penn Laurel
William E. Wood 51 President, CEO and 1997
Director of Clearfield
since June, 1999; prior
thereto, Assistant Vice
President and Commercial
Loan Officer for Clearfield
from 1997; prior thereto,
Senior Vice President U.S.
Bank and investment
representative at Paine Webber
H. Rembrandt Woolridge 85 President, Moshannon 1962
Falls Mining;
Director of Clearfield
</TABLE>
Messrs. Bertram, Brubaker, Wood and Weymers will serve as executive
officers of Penn Laurel and Penn Laurel Bank & Trust. William L. Bertram will be
Chairman of the Board of Directors of Penn Laurel and of Penn Laurel Bank &
Trust. Larry W. Brubaker will be President
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<PAGE>
and Chief Executive Officer of Penn Laurel and of Penn Laurel Bank & Trust.
Messrs. Wood and Weymers will serve as Executive Vice Presidents.
Mr. Brubaker, entered into an employment agreement with Penn Laurel in
connection with the transaction. Mr. Bertram entered into a consulting agreement
with Penn Laurel and Penn Laurel Bank & Trust Company. 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. Wood 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:
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 for 2 years;
-64-
<PAGE>
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.
Estimates of Future Operations
Ryan, Beck, as part of its engagement, was asked to estimate the potential
cost savings that would result from a combination of Clearfield and Penn Laurel.
Ryan, Beck had oral discussions with Penn Laurel's management regarding the
future performance of Penn Laurel for the year ending December 31, 1999. These
discussions were based on assumptions that Penn Laurel's management believed
reasonable at the time relating to the interest rate environment and to Penn
Laurel's loan portfolio growth, asset growth and deposit growth. Penn Laurel's
management's belief as to the reasonableness of its assumptions was based on
Penn Laurel's history of operations. Penn Laurel's management indicated to Ryan,
Beck that it believed that Penn Laurel's net income in 1999 would be
approximately $1.25 million, which excluded approximately $250,000 in pre-tax
security gains and excluded the expenses related to the opening of the St.
Mary's branch office.
The expectations of future performance made by Penn Laurel did not give
effect to the merger or to merger related expenses. These expectations should be
read together with the unaudited pro forma condensed combined consolidated
financial information contained in this joint proxy statement/prospectus. The
expectations of future performance made by Penn Laurel were not prepared with a
view to public disclosure. The expectations are included in this joint proxy
statement/prospectus solely because the information was discussed by Penn
Laurel. Penn Laurel's independent auditors have not examined the expectations.
The expectations as to future operations are forward-looking statements and
Penn Laurel assumes no responsibility for the accuracy of the expectations.
There can be no assurance that the expectations will be realized. The
expectations are inherently subject to significant economic and competitive
risks and uncertainties many of which are beyond Penn Laurel's control. These
risks and uncertainties could cause actual results or performance to differ
materially from our expectations as to future performance. We have described
some of the risks and uncertainties that could materially impact our respective
businesses and our expectations as to future performance under the heading
"Forward Looking Statements."
Ryan, Beck's analysis estimated that potential cost savings could range
from 15% to 19% of pro forma combined non-interest expenses and included the
following:
o Branch consolidations
o Overlapping branches are located in Clearfield, Curwensville and
DuBois
o Executive and administrative personnel
o Includes the elimination of duplicate non-branch personnel
-65-
<PAGE>
o Non-Personnel related expense savings
o Includes accounting, legal and certain marketing expenses
A summary of the total potential savings is presented in the table below:
Low High
---------- ----------
Branch Savings $ 683,858 to $ 738,359
Non-Branch Salaries and Benefits Savings 522,876 to 593,741
Non-Personnel Savings 304,500 to 304,500
---------- ----------
Total Savings $1,511,234 to $1,636,600
========== ==========
Management of Clearfield and Penn Laurel reviewed the cost savings and
determined that they were reasonable and achievable. Each company's belief that
cost savings are achievable is a forward-looking statement that is inherently
uncertain. We cannot assure that these potential cost savings or any cost
savings or synergies will be achieved as a result of the merger or as to the
timing of any actual cost savings that may be achieved. Any actual cost savings
will depend on future expense levels and operating results and general industry,
regulatory and business conditions. Many of these events will be beyond the
control of the combined company.
Federal Income Tax Consequences
The following discussion summarizes the anticipated material federal income
tax consequences of the merger. These are the material Federal tax consequences
of the merger, if the merger were to take place on the date of this proxy
statement/prospectus. This is only a general description of the federal income
tax consequences of the merger. We attach the opinion of Shumaker Williams, P.C.
as to the income tax consequences of the merger if the merger had taken place on
the date of this proxy statement/prospectus as Annex G. We recommend that you
read the opinion. However, the opinion does 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. We do not anticipate that
the law will change before closing.
The following is a summary of the opinion of Shumaker Williams, P.C.:
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 neither Clearfield nor Penn Laurel will recognize any gain or loss 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;
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<PAGE>
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;
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 will 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 will not address any state, local
or foreign tax considerations, any federal estate, gift, employment, excise or
other non-income tax considerations.
Investment Agreement
Concurrently with the execution and delivery of the agreement, Clearfield
and Penn Laurel each entered into an investment agreement. The investment
agreements are attached as exhibits to the agreement which is attached to this
proxy statement/prospectus as Annex A. These agreements protect the parties from
interference from a third party during the period of time between execution of
the agreement and merger of the companies.
-67-
<PAGE>
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
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 upon the occurrence of the following events:
o The issuer's willful breach of the agreement that would permit the
warrantholder to terminate the agreement;
o The issuer's shareholders failing to approve the merger after an
announcement by a third party of an offer or proposal to acquire 15%
or more of the issuer's common stock, to merge with the issuer or to
purchase substantially all of the issuer's assets;
o A third party's acquisition of 15% or more of the issuer's common
stock exclusive of any of the issuer's shares of common stock sold to
the third party, directly or indirectly, by the warrantholder;
o A third party beginning a tender or exchange offer for the issuer's
common stock that would result in the third party acquiring or having
the right to acquire 15% or more of the issuer's common stock;
o Application by a third party with a bank regulatory authority to begin
a tender or exchange offer for the issuer's common stock that would
result in the third party acquiring or having the right to acquire 15%
or more of the issuer's common stock; or
o A third party's entrance into an agreement with the issuer to acquire
the issuer by any method.
The parties may exercise all or only some of their warrants.
-68-
<PAGE>
Redemption rights are also granted to the warrantholder. These rights
permit the warrantholder to require the company to redeem some or all of the
shares acquired by the warrantholder upon exercise of the warrant 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.
The redemption rights are exercisable upon the occurrence of either of the
following events:
o a third party acquiring 50% or more of the Clearfield common stock
exclusive of any shares resulting from the exercise of the warrant or
shares of Clearfield common stock purchased from Penn Laurel; or
o a third party entering into an agreement with Clearfield to acquire
Clearfield by any method.
In addition, the investment agreements provide for adjustment of the
warrants in the event of a change in the common stock of the particular issuer
by reason of a stock dividend, stock split, recapitalization, combination,
conversion, division, or exchange of shares. In each 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 at their historical
recorded bases. Results of operations of Penn Laurel Bank & Trust 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.
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
-69-
<PAGE>
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 their shares, 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 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.
-70-
<PAGE>
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
No Established Market for Shares
There is no established trading market for either company's common shares.
A review of the record of the trades for the shares of each company indicates
that for the period from January 4, 1998 through December 4, 1998 (47 weeks) no
trades were made in Clearfield common stock for 32 of the 47 weeks and no trades
were made in Penn Laurel common stock in 41 of the 47 weeks.
Common Stock of Clearfield
The last reported sale of Clearfield common stock as reported on the OTC
Bulletin Board before the record date was 400 shares at $49.00 per share on July
26, 1999. Clearfield common stock is quoted on the OTC Bulletin Board under the
symbol "CLFD." Clearfield common stock has historically traded on a very 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 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. We have adjusted all information for
stock dividends and splits throughout the periods.
Cash Dividends
1999 High Low Paid Per Share
- ---- ------ ------ --------------
First Quarter $54.00 $51.50 $.31
Second Quarter 54.50 49.00 .32
Third Quarter .32*
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
- ----------
* as of July 20, 1999
-71-
<PAGE>
As of July 28, 1999, Clearfield common stock was held by approximately 458
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.
Common Stock of Penn Laurel
The last reported sale of Penn Laurel common stock as reported on the OTC
Bulletin Board before the record date was 200 shares at $52.00 per share on July
19, 1999. Penn Laurel common stock is quoted on the OTC Bulletin Board under the
symbol "PELA." Penn Laurel common stock has historically traded on a very
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 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.
Cash Dividends
1999 High Low Paid Per Share
- ---- ------ ------ --------------
First Quarter $59.50 $51.50 $.30
Second Quarter 59.50 53.00 .30
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
As of July 28, 1999, Penn Laurel common stock was held by approximately 327
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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<PAGE>
INFORMATION CONCERNING CLEARFIELD BANK & TRUST COMPANY
Information Concerning Clearfield
Clearfield 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.
Nature of Bank Office
or Facility Address Date Acquired
- --------------------- ------- -------------
Main Office 11 North Second Street June 18, 1903
Clearfield, PA 16830
Bridge Street Office Corners of North Second & July 16, 1960
Bridge 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
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.
-73-
<PAGE>
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.
Clearfield's 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.
Clearfield's 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 that 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.
Clearfield's 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 June 30, 1999, Clearfield had 88 full-time equivalent employees.
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<PAGE>
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 Clearfield's management, 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 have funds available 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 June 30,
1999, Clearfield had approximately $16,068,247 available for the payment of
dividends. The agreement permits Clearfield to make normal dividend payments
during 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 and $0.32 for the second and third quarters of 1999.
Information about Beneficial Ownership of Significant Shareholders, Directors
and Executive Officers
The following table sets forth information, as of July 28, 1999, with
respect to the following beneficial owners of Clearfield common stock:
o each person who owns of record or who is known by the board of directors of
Clearfield to own more than 5% of its outstanding common stock; and
o each executive officer, each director and all executive officers and
directors as a group.
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<PAGE>
Clearfield determined beneficial ownership by applying the General Rules
and Regulations of the SEC, which state that a person may be credited with the
ownership of any common stock:
o owned by or for the person's spouse, minor children or any other
relative sharing the person's home;
o of which the person shares voting power, which includes the power to
vote or to direct the voting of the stock; and
o investment power, which includes the power to dispose or direct the
disposition of the stock, or has the right to acquire beneficial
ownership within 60 days after July 28, 1999, the record date of the
meeting.
Beneficial ownership may be disclaimed as to certain of the securities.
<TABLE>
<CAPTION>
Beneficial Ownership Table
Shares Percent of Outstanding
Name and Address of 5% Holder Beneficially Owned Common Stock Beneficially Owned
- ----------------------------- ------------------ -------------------------------
<S> <C> <C>
Cleartru Company 104,852(1) 18.18%
11 North Second Street
P.O. Box 171
Clearfield, PA 16830
Directors and Executive Officers
- --------------------------------
George L. Beard 10,015(2) 1.74%
William L. Bertram 6,000(3) 1.04%
D. Stephen Butler 5,500(4) 0.95%
Robert W. Dotts 1,100 0.19%
Craig L. Hile 1,100(5) 0.19%
Barbara J. Hugney-Shope 1,660 0.29%
Robert M. Kurtz, Jr. 8,630(6) 1.50%
Michael R. Lytle 10,075(7) 1.75%
Ray S. Walker 9,884 1.71%
William E. Wood -0- 0.00%
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<PAGE>
H. Rembrandt Woolridge 30,130(8) 5.22%
All directors and executive officers 84,764 14.70%
as a group (14 people)
</TABLE>
- ----------
(1) 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 hold 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 30,130 shares beneficially owned by Mr. & Mrs.
Woolridge.
(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 500 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 100 shares owned jointly with his spouse and 1,000 shares owned by
Bloom Insurance Agency.
(6) Includes 7,630 shares owned individually and 1,000 shares owned by Kurtz
Bros.
(7) Includes 10,075 shares owned jointly with his spouse.
(8) Includes 8,130 shares held under a trust agreement for Mr. Woolridge and
22,000 shares held under a trust agreement for his spouse.
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 the Chief Executive Officer at
December 31, 1998. There were no other executive officers of Clearfield whose
total annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
CLEARFIELD SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
---------------------------------------- ----------------------------------------------------
Awards Payout
------------------------ -----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- -------------------------------------------------------------------------------------------------------------------------
Other All other
Annual Restricted Compen-
Compen- Stock Options sation ($)
Name and Salary Bonus sation Awards /SARs Payouts (1)(2)(3)(4)
Principal Position Year ($) ($) ($) ($) (#) ($)
- -------------------------------------------------------------------------------------------------------------------------
<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(5)
- -------------------------------------------------------------------------------------------------------------------------
</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
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<PAGE>
(4) Includes company's contributions to the Defined Benefit Contribution Plan
of $7,867, $7,638 and $7,412 for 1998, 1997 and 1996.
(5) Mr. Moody resigned as President and Chief Executive Officer of Clearfield
effective June 25, 1999. William E. Wood presently serves in that position.
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, Clearfield'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 payments are reduced by $417 for each meeting missed in
excess of 4. The bank also provides life and health insurance for directors. Mr.
Bertram currently receives $18,000 annually for his services as Chairman of the
Clearfield Board of Directors and $29,000 annually as compensation for his
covenant not to compete.
Loans
Clearfield grants loans and makes other credit available to the general
public. The bank structures the extensions of credit to meet the varying needs
of businesses, individuals, and institutional customers. The bank's loans
include mortgages, lines of credit, term loans, leases and letters of credit.
The interest income generated by loans comprises a major source of revenue for
the bank and also exposes Clearfield to potential losses upon borrower default.
To minimize loss, the bank follows strict loan underwriting and risk weighing
policies. While collateral continues to play an important part in lending
decisions, the bank places primary emphasis on 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 make better credit risk assessments and, consequently,
more prudent lending decisions.
-78-
<PAGE>
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 July 28, 1999.
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 gives the 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.
-79-
<PAGE>
Clearfield's 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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<PAGE>
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 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 424 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>
Nature of Office or Facility Address Date Acquired
- ---------------------------- ------- -------------
<S> <C> <C>
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
</TABLE>
-81-
<PAGE>
<TABLE>
<CAPTION>
Nature of Office or Facility Address Date Acquired
- ---------------------------- ------- -------------
<S> <C> <C>
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 the loans on a participation basis with other financial
institutions. Penn Laurel's management periodically evaluates the offering or
continuation of these services.
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 primary service area constitutes the community delineated for CSB
Bank's Community Reinvestment Act Statement that 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.
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.
-82-
<PAGE>
Employees
As of June 30, 1999, Penn Laurel and CSB Bank had 55 full-time equivalent
employees.
Legal Proceedings
The nature of Penn Laurel's business generates a certain amount of
litigation involving matters in the ordinary course of business. In the opinion
of Penn Laurel's management, 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 June 30,
1999, Penn Laurel had approximately $9,764,809 available for the payment of
dividends. The merger agreement permits Penn Laurel to make normal dividend
payments, during 1999 to its shareholders, consistent with past practices.
Penn Laurel paid cash dividends of $1.32 per share in 1998, and $.30 for
the first and second quarters of 1999.
-83-
<PAGE>
Information about Beneficial Ownership of Significant Shareholders, Directors
and Executive Officers
The following table sets forth information, as of July 28, 1999, with
respect to the following beneficial owners of Penn Laurel common stock:
o each person who owns of record or who is known by the board of
directors of Penn Laurel to own more than 5% of its outstanding common
stock; and
o each executive officer, each director and all executive officers and
directors as a group.
Penn Laurel determined beneficial ownership by applying the General Rules
and Regulations of the SEC, which state that a person may be credited with the
ownership of any common stock:
o owned by or for the person's spouse, minor children or any other
relative sharing the person's home;
o of which the person shares voting power, which includes the power to
vote or to direct the voting of the stock; and
o investment power, which includes the power to dispose or direct the
disposition of the stock, or has the right to acquire beneficial
ownership within 60 days after July 28, 1999, the record date of the
meeting.
Beneficial ownership may be disclaimed as to certain of the securities.
<TABLE>
<CAPTION>
Beneficial Ownership Table
Shares Percent of Outstanding
Name and Address of 5% Holder Beneficially Owned Common 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
Director and Officer Share Ownership
- ------------------------------------
Name of Director
- ----------------
Larry W. Brubaker 9,438(1) 2.64%
Richard L. Lininger 600(2) 0.17%
</TABLE>
-84-
<PAGE>
<TABLE>
<S> <C> <C>
Darrell G. Spencer 14,364(3) 4.02%
Guy A. Graham 3,287(4) 0.92%
Frank J. Hoffman, Jr. 5,927(5) 1.66%
Henry A. Peterson 6,109(6) 1.71%
Joseph A. Shaw 2,750(7) 0.77%
Donald R. Fezell 400(8) 0.11%
Joseph P. Leyo 6,107(9) 1.71%
Laurance B. Seaman 2,749(10) 0.77%
Wesley M. Weymers 428(11) 0.12%
Richard A. Wilkinson 12,323(12) 3.45%
All directors and executive 64,482 18.05%
officers as a group (14 persons)
</TABLE>
- ----------
(1) 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.
(2) Includes 200 shares held jointly with Mr. Lininger's spouse.
(3) 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.
(4) Includes 3,087 shares held jointly with Mr. Graham's spouse.
(5) Includes 4,902 shares held jointly with Mr. Hoffman's spouse.
(6) Includes 5,609 shares held jointly with Mr. Peterson's spouse and 300
shares held jointly with his son.
(7) Includes 2,550 shares held jointly with Mr. Shaw's spouse.
(8) Includes 100 shares held jointly with Mr. Fezell's spouse.
(9) Includes 4,329 shares held jointly with Mr. Leyo's spouse and 141 shares
held individually by his spouse.
(10) Includes 1,209 shares held jointly with Mr. Seaman's spouse and 900 shares
held individually by his spouse.
(11) Includes 228 shares held in KSOP.
(12) Includes 8,650 shares held jointly with Mr. Wilkinson's spouse; 500 shares
held by Wilkinson's Subaru, Inc.; and 2,973 shares held by his spouse.
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 the Chief Executive Officer at
December 31, 1998. There were no other executive officers of the company whose
total annual salary and bonus exceeded $100,000.
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<PAGE>
<TABLE>
<CAPTION>
PENN LAUREL SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
---------------------------------------- ----------------------------------------------------
Awards Payout
------------------------ -----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- -------------------------------------------------------------------------------------------------------------------------
Other All other
Annual Restricted Compen-
Compen- Stock Options sation ($)
Name and Salary Bonus sation Awards /SARs Payouts (1)(2)(3)
Principal Position Year ($) ($) ($) ($) (#) ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Larry W. Brubaker 1998 114,664 6,027 12,733
President and 1997 100,659 1,621 10,800
Chief Executive 1996 93,427 1,098 9,121
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 contributions.
-86-
<PAGE>
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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<PAGE>
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.
After the merger, the agreements described on page 87, between Penn Laurel,
Penn Laurel Bank & Trust Company and each of Messrs. Brubaker and Weymers, will
supercede these agreements.
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. The bank paid a total of $258,486
in life insurance premiums during 1998 in order to fund the plan.
-88-
<PAGE>
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 per meeting. In
addition, the members of committees of the Board of Directors were paid $54 per
hour with a maximum of $162 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 July 28, 1999.
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<PAGE>
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.
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 anti-takeover provisions might be to
deter a tender offer that a majority of the company's shareholders might view to
be in their best interests. The offer could include, among other things, a
substantial premium over the market price of Penn Laurel common stock at that
time. In addition, anti-takeover 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 shareholders want to make if they were
dissatisfied with the conduct of Penn Laurel's business.
Penn Laurel's articles of incorporation and bylaws contain a number of
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; and
o lack of preemptive rights for shareholders to subscribe to purchase
additional shares of stock on a pro rata basis.
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.
In addition, the following bylaw provisions may be considered anti-takeover
in nature:
o the necessity for the affirmative vote of the holders of 75% 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% of
Penn Laurel's common stock to approve a merger, consolidation,
liquidation, or sale of substantially all assets.
-90-
<PAGE>
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% 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 and 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 Penn
Laurel's bylaws. 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 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.
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
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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 business 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.
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.
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It is a relatively common practice in corporate takeovers to pay cash to
acquire controlling equity in a 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 the
best interest of Penn Laurel and 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":
o a merger or 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
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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 or 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 or where the purchase of shares by the
interested shareholder has been approved by Penn Laurel's Board
of Directors;
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;
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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 conditions discussed above generally require that the aggregate amount
of 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.
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 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
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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 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 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. 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.
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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:
<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 Board divided into 3 classes with 3 year Board divided into 3 classes with 3 year
Directors 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.
</TABLE>
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<TABLE>
<S> <C> <C>
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>
YEAR 2000 ISSUES
The following section contains forward-looking statements that involve
risks and uncertainties. The actual impact of the Year 2000 on Clearfield or
Penn Laurel could materially differ from that which management anticipates in
these forward-looking statements as a result of changes in factors that we
identified below.
The Y2K problem arose because many existing computer programs use only the
last two digits to refer to the year. Therefore, many computer programs will not
be able to determine whether "00" represents the year 2000 or 1900. This
problem, if not corrected, could cause many computer applications to 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. While we do not yet know the extent of the
potential impact of Y2K problems, it could affect the global economy if not
corrected in a timely manner.
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
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comply with specific timetables, programs and guidance regarding the Y2K
issue. Regulators examine Clearfield's Y2K progress on a regular basis. In
addition, Clearfield's internal auditor provides written reports to the Board of
Directors on a quarterly basis.
Clearfield is committed to ensuring that the Bank's 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 following table provides a summary of the current
status of the project phases and the projected timetable for completion.
Project Phase % Completed Projected Completion
- ------------- ----------- --------------------
Awareness 100 Completed
Assessment 100 Completed
Renovation or Remediation 76 June 30, 1999
Testing or Validation 100 Completed
Implementation 100 Completed
Overall 95
In 1996, management initiated a bank wide program to prepare the bank for
the year 2000. Clearfield has developed a comprehensive inventory of all
mainframe and personal computer-based applications, third-party relationships,
environmental systems, proprietary programs and non-computer related systems.
This assessment identified 38 relationships as mission critical that could be
impacted by the century date change. Clearfield's processing and account
operations are computer reliant and could be affected by the Y2K issue.
Clearfield developed a plan to make these systems Y2K ready and tested all of
its mission critical applications by March 31, 1999 with successful results.
In 1998 Clearfield initiated communications with all of its significant
vendors, suppliers and large commercial customers to determine the extent to
which Clearfield is vulnerable to those third-parties' failure to remedy their
own Y2K problems.
As of March 31, 1999, nine of Clearfield's significant vendors had not
completed testing of their systems. Each of these vendors is a commercial bank
and each has indicated to Clearfield that it expects to be compliant by June 30,
1999. The following table summarizes the responses of Clearfield's material loan
customers, vendors and service providers.
<TABLE>
<CAPTION>
Responses Compliant
Inquiry --------- ---------
Number Number % Number %
------- ------ --- ------ ---
<S> <C> <C> <C> <C> <C>
Material Loan Customers 84 43 51 42 98
Vendors and Service Providers 49 48 91 39 81
Mission Critical 38 38 100 29 76
Non-Mission Critical 11 10 91 10 100
</TABLE>
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Management reviewed our material loan customers, vendors and service
providers through discussions and questionnaires for their Y2K preparedness. The
level of their Y2K compliance is a factor in evaluating Clearfield's loan
portfolio. Fifty percent of all material loan customers are compliant.
Management performed a risk assessment on material loan customers, vendors and
service providers who did not respond to the questionnaire. Supporting
collateral and other sources of repayment were reviewed to ensure that a lack of
Y2K preparedness will not create a loss due to a business disruption. Management
and the Board of Directors determined that the amount of risk is acceptable.
Management continues to monitor the progress of its material loan customers and
other significant third parties. However, Clearfield can give no guarantee that
the systems of these third parties will be timely renovated. If any of these
third parties experience Y2K problems, Clearfield cannot assure that the third
parties can be held legally liable for their problems.
As of December 31, 1998, Clearfield expensed $30,000 in Y2K costs.
Management expects to spend a total of $50,000 for the entire project. The Bank
does not expect the amounts required to be expensed over the next six months to
have a material adverse effect on its 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 affirmative steps to remedy the Y2K problem, we are not certain
that a partial or total systems interruption, or the cost necessary to upgrade
hardware or software, would not have a material effect on Clearfield's business,
financial condition, results of operations and business prospects.
As a precaution, Clearfield developed a Y2K contingency plan. The plan
provides operating procedures in the event that there is a partial or total
system interruption with respect to the century date change. While the
contingency plan is complete, it will be updated as necessary throughout 1999.
Penn Laurel
Readiness Efforts
In 1997, the Board of Directors developed, approved and implemented a
comprehensive project plan to address the Year 2000 issue and related problems
with regard to CSB Bank's operations. The scope of the plan includes five
phases: Awareness, Assessment, Renovation, Validation and Implementation, as
identified by the Federal Financial Institutions Examination Council and the
banking regulatory agencies that oversee CSB Bank.
The bank appointed a project team consisting of key members of CSB Bank's
technology staff, representatives of all business units and senior management.
This team reports quarterly to the Board of Directors.
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The bank has completed 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 the Year 2000 issue may impact these systems
through the embedded computer chips that control their functions.
CSB Bank relies on third party vendors and service providers for its data
processing capabilities, and for maintenance of its computer systems. The bank
initiated formal communications with its providers of data processing services
and other external third parties in 1997 and 1998 to assess the Year 2000
readiness of their products and services. The bank is monitoring their progress
in meeting their targeted schedules for an indication that they may not be able
to address the problems in time. Thus far, responses indicate that all of the
significant providers currently have compliant versions available or are well
into the renovation and testing phases. CSB Bank has identified and prioritized
those systems deemed to be mission critical and those that may have a
significant impact on normal operations. CSB Bank identified six mission
critical vendors. These vendors have all responded with favorable Y2K readiness
status, and expressed with confidence that their systems are Y2K compliant.
However, CSB Bank can give no guarantee that the service providers and vendors
will timely renovate the systems on which CSB Bank relies. If the service
providers experience Y2K problems, CSB Bank cannot assure that the service
providers can be held legally liable for their problems.
Additionally, CSB Bank has implemented a plan to manage the potential risk
posed by the impact of the Year 2000 issue on its major customers. Formal
communications have been initiated, and assessment is completed for CSB Bank's
loan customers and deposit customers. As of May 15, 1999, CSB Bank has received
a response of 77% from loan customers, and 67% from the deposit customers. Of
those respondents, 90% of the loan customers claim to be Y2K compliant and 100%
of the deposit customers claim to be Y2K compliant. CSB Bank assessed the
responses for Y2K risk based on the level of technology associated with each
individual or business.
Current Status
The project team estimates that as of May 15, 1999, CSB Bank's Year 2000
readiness project is 94% complete. The following table provides a summary of the
current status of the five phases of the project and a projected timetable for
completion of each phase. CSB Bank has substantially completed all phases of Y2K
readiness. The final part of our renovation, validation and implementation
phases revolve around our reader/sorter. The current reader/sorter is not Y2K
compliant. However, CSB Bank will install a new reader/sorter in the fourth
quarter of 1999 if the merger is not consummated or does not occur as
contemplated. If the merger takes place, the resulting institution proposes to
use the present Clearfield reader/sorter which is Y2K compliant.
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Project Phase % Completed Projected Completion
- ------------- ----------- --------------------
Awareness 100 Completed
Assessment 100 Completed
Renovation of Critical Systems 90 June 30, 1999
Validation 90 June 30, 1999
Implementation 90 June 30, 1999
Overall 94
Costs
CSB Bank has primarily used 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 readiness has not been and is not
anticipated to be material to its financial position in any given year. To date,
the bank has expended $38,000 to obtain Y2K readiness. In total, CSB Bank
estimates that its costs will be under $400,000. The majority of this cost is
for a replacement of the Bank's current reader/sorter and its associated
software, at a cost of $320,000, if necessary. The cost for the reader/sorter
and its associated software will be capitalized over a five-year period. The
costs of implementing the new reader/sorter are part of the bank's regular
information technology budget. This is a standard cost of upgrading equipment.
The current reader/sorter was scheduled for replacement in 1999 regardless of
the Year 2000 issue. This expenditure will not have a material impact on
Penn Laurel's financial condition or results of operations, or defer any other
technology investments. If the merger takes place, the resulting bank will use
the Clearfield reader/sorter that is Y2K compliant.
Risk Assessment
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 can give no guarantee that the systems of these
third parties will be timely renovated.
Contingency Plan
CSB Bank developed contingency plans for its mission critical systems in
the event that system disruption or failure occurs to one or more of those
systems. In a worst case scenario, the software that processes CSB Bank's
customer accounts would fail. Should this occur, CSB Bank would maintain manual
accounting of its accounts until the main processing software is corrected. CSB
Bank is committed to making available the human resources necessary to
accommodate this temporary situation.
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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, 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.
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>
For the three months ended March 31,
------------------------------------
(unaudited)
1999 1998
---- ----
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 $ 36,870 5.43% $ 494 $ 42,145 5.60% $ 582
Nontaxable
investments (1) 14,171 7.61 266 15,968 8.10 319
-------- ------ -------- ------
Total investment
securities 51,041 6.04 760 58,113 6.29 901
Loans (1) 115,800 7.93 2,265 102,969 8.52 2,163
Other rate-sensitive
assets 3,483 4.54 39 2,880 5.35 38
-------- ------ -------- ------
Total earning assets 170,324 7.30 3,064 163,962 7.67 3,102
Noninterest-earning
assets 12,845 - - 12,745 - -
-------- ---- ------ -------- ---- ------
Total assets $183,169 $3,064 $176,707 $3,102
======== ====== ======== ======
Liabilities and
Shareholders' Equity
Deposits:
Demand $ 19,622 -% $ - $ 17,936 -% $ -
Savings 55,048 2.46 334 53,890 2.72 361
Time 86,555 5.17 1,103 83,065 5.45 1,117
-------- ------ -------- ------
Total $161,225 3.61% $1,437 $154,891 3.87% $1,478
Borrowings and other
interest-bearing
liabilities - - - 1,000 6.08 15
-------- ------ -------- ------
Total interest-bearing
liabilities 161,225 3.61 1,437 155,891 3.85 1,493
Other liabilities 1,311 - - 1,315 - -
-------- ---- ------ -------- ---- ------
Total liabilities 162,536 - 1,437 157,206 - 1,493
Shareholders' equity 20,633 - - 19,501 - -
------ -------- ---- ------
Total liabilities and
shareholders' equity $183,169 - $1,437 $176,707 - $1,493
======== ==== ====== ======== ==== ======
Average effective rate
on interest-bearing
liabilities $141,603 4.12% $1,437 $137,955 4.22% $1,493
======== ==== ====== ======== ==== ======
Interest
Income/Earning
Assets $170,324 7.30% $3,064 $163,962 7.67% $3,102
Interest
Expense/Earning
Assets $170,324 3.42% $1,437 $163,962 3.69% $1,493
-------- ---- ------ -------- ---- ------
Net interest margin 3.88% 3.98%
==== =====
Net interest
spread 3.18% 3.45%
==== =====
</TABLE>
- -------------------------
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
-103-
<PAGE>
<TABLE>
<CAPTION>
For the year 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) 15,893 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
======== ======= ======== =======
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
======== ==== ====== ======== ==== ======
-104-
<PAGE>
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 3.27% 3.31%
==== =====
</TABLE>
- -------------
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
-105-
<PAGE>
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 $50,895,225 decreased $7,177,891 from March
31, 1998 to March 31, 1999. The decrease is the result of the available for sale
portfolios increasing by $942,854, while the held to maturity portfolio
decreased by $8,120,745.
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.
The March 31, 1999 federal funds sold of $3,725,000 was $566,000 higher
than March 31, 1998, balance of $3,159,000.
-106-
<PAGE>
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 March 31, 1999, 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 $1,001 $ 0 $ 0 $0 $ 1,001
Weighted average yield 5.73% 0.00% 0.00% 0.00% 5.73%
Weighted average maturity 7 Months
Obligations of other U.S. Government agencies
and corporations:
Carrying value $2,499 $6,500 $ 0 $0 $ 8,999
Weighted average yield 4.29% 3.79% 0.00% 0.00% 3.72%
Weighted average maturity 1 Year,
6 Months
</TABLE>
<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 $ 0 $ 0 $ 971 $ 1,078 $2,049
Weighted average yield 0.00% 0.00% 7.43% 7.82% 7.64%
Weighted average maturity 1 Year,
7 Months
Total:
Carrying value $3,500 $6,500 $ 971 $ 1,078 $12,049
Weighted average yield 4.70% 3.79% 7.43% 7.82% 4.71%
Weighted average maturity 1 Year,
4 Months
</TABLE>
The maturity analysis of securities available for sale, including the
weighted average yield for each category, as of March 31, 1999 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 $2,003 $ 5,856 $ 0 $ 0 $ 7,859
Weighted average yield 6.02% 6.21% 0.00% 0.00% 6.16%
Weighted average maturity 1 Year,
3 Months
Obligations of other U.S. Government agencies
and corporations:
Carrying value $ 0 $11,999 $4,495 $ 956 $17,450
Weighted average yield 0.00% 5.69% 6.75% 7.00% 6.03%
Weighted average maturity 3 Years,
2 Months
</TABLE>
-107-
<PAGE>
<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 $ 500 $ 598 $ 5,915 $ 5,053 $12,066
Weighted average yield 8.71% 9.17% 7.21% 7.84% 7.63%
Weighted average maturity 6 Years,
7 Months
Taxable Obligations of state and political subdivisions:
Carrying value $ 0 $ 0 $ 605 $ 0 $ 605
Weighted average yield 0.00% 0.00% 7.35% 0.00% 7.35%
Weighted average maturity 1 Year,
5 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 $2,503 $18,453 $11,604 $ 6,009 $ 38,569
Weighted average yield 5.96% 5.97% 6.98% 7.71% 6.58%
Weighted average maturity 3 Years,
8 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%.
The amortized cost and fair value of investment securities are as follows:
<TABLE>
<CAPTION>
March 31, 1999
--------------
(unaudited)
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 $ 7,859 $110 $ 8 $ 7,961
Obligations of other U.S. Governmental agencies
and corporations 17,450 66 115 17,401
Obligations of states and political subdivisions 12,066 245 33 12,278
Taxable Obligations of states and political
subdivisions 605 12 0 617
Equity securities 589 0 0 589
--- - - ---
Totals $38,569 $438 $156 $38,846
======= ==== ==== =======
</TABLE>
-108-
<PAGE>
<TABLE>
<CAPTION>
March 31, 1999
--------------
(unaudited)
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 $ 1,001 $ 6 $ 0 $ 1,007
Obligations of other U.S. Governmental agencies
and corporations 8,999 0 261 8,738
Obligations of states and political subdivisions 2,049 44 0 2,093
Taxable Obligations of states and political
subdivisions 0 0 0 0
Equity securities 0 0 0 0
- - - -
Totals $12,049 $50 $261 $11,838
======= === ==== =======
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
--------------
(unaudited)
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 $ 8,823 $ 97 $ 0 $ 8,920
Obligations of other U.S. Governmental agencies
and corporations 17,887 121 74 17,934
Obligations of states and political subdivisions 9,651 230 0 9,877
Taxable Obligations of states and political
subdivisions 605 12 0 621
Equity securities 551 0 0 551
- - - -
Totals $37,517 $460 $74 $37,903
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
--------------
(unaudited)
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 12,498 4 440 12,062
Obligations of states and political subdivisions 6,668 52 0 6,720
Taxable Obligations of states and political
subdivisions 0 0 0 0
Equity securities 0 0 0 0
- - - -
Totals $20,170 $58 $440 $19,788
======= === ==== =======
</TABLE>
-109-
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
-----------------
(unaudited)
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 $ 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
-----------------
(unaudited)
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
-----------------
(unaudited)
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>
-110-
<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>
Interest Rate Risk
As a financial institution, Clearfield's income is sensitive to changes in
interest rates. Changes in interest rates affect a large portion of the bank's
assets and liabilities. These changes also impact the market value of all
interest sensitive assets. The Asset Liability Committee establishes policies to
increase net interest income without undue interest rate risk.
The bank monitors interest rate risk through the use of two methods:
o static gap; and
o income simulation.
Static Gap. Static gap provides an approximation of projected repricing of
assets and liabilities at a certain point in time. Gap is the difference between
the principal amount of assets and liabilities that mature or reprice within
selected periods of time. By managing gap, management minimizes fluctuations in
net interest income, thereby achieving consistent growth in net interest income
during periods of changing interest rates.
The bank's cumulative one year gap was $44,217,096 and $7,220,396 on March
31, 1999 and 1998, and $33,956,518 and $7,971,371 on December 31, 1998 and 1997.
Clearfield is in a negative gap position. This means more liabilities are
repricing than assets. Since December 1997, investments and loans repricing and
maturing within one year has decreased by $18,880,021 and the deposits maturing
and repricing during the same period have increased by $17,365,707. Customers
prefer to have the longest term possible on loans and the shortest term possible
on deposits.
The static gap model has several shortcomings. While certain assets and
liabilities may have similar maturities or repricings, they may not react in the
same manner to changes in interest rates. Some interest rates change when market
rates change, while other interest rates may lag behind changes in market rates.
Prepayment and early withdrawal rates will change as interest rates change.
Because of these shortcomings, the bank also uses income simulation to monitor
changes in interest rates.
-111-
<PAGE>
Income Simulation. The Asset Liability Management Committee also uses
income simulation as a tool to measure and manage interest rate risk. Management
simulates possible economic conditions and interest rate scenarios in order to
quantify their impact on net income.
The income simulation model simulates the effect of various interest rate
environments on earnings. DRI/McGraw Hill, the economic forecasting firm,
provides the interest rate projections for the simulation model.
The purpose of the DRI Economic scenarios is to provide a set of realistic
rate projections for use in forecasting, planning and budgeting. The projections
are predicated on explicit underlying assumptions, documented in a narrative,
and are assigned subjective probabilities by economists.
DRI produces the economic scenarios by running a general econometric model
of the economy. DRI bases its projections on past patterns of changes in
interest rates and yield curves, calibrated to recent conditions. Rates do not
change lineally over time, nor are the upward and downward changes equal. If the
actual rate is already near its historical level, then rates will change only
modestly.
The following table summarizes the affect on changes in interest rates on
net income:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998 December 31, 1998 December 31, 1997
------------------- ------------------ ------------------- -------------------
Rates Income Rates Income Rates Income Rates Income
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Most Likely +.25% .10% -.50% .02% -.25% 1.00% -.25% 4.85%
Rising +1.50% (4.40%) +2.00% (3.99%) +1.50% (5.13%) +2.00% (8.34%)
Falling -1.25% .98% -.75% 2.88% -1.25% 2.99% -2.50% 27.09%
</TABLE>
By the use of computer generated models, the Asset Liability Committee
continues to monitor the effect of changes in interest rates on net income.
Actual results could differ significantly from these results.
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 $13,027,335 or 12.7% from $102,768,168 on March 31, 1998 to
$115,795,503 on March 31, 1999. The growth was in the real estate, commercial
and industrial,
-112-
<PAGE>
municipal and all other loans. The bank's credit quality is reflected by the
ratio of net charge offs to total loans of .01% for the first quarter of 1999
versus .02% for the first quarter of 1998. The ratio of nonperforming assets to
total assets of .14% at March 31, 1999 compared to .38% at March 31, 1998.
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.
Major classifications of loans are summarized as follows at March 31, 1999
and 1998, and December 31, 1998 and 1997:
<TABLE>
<CAPTION>
March 31, December 31,
-------------------- --------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Real estate loans - construction $ 1,453 $ 1,502 $ 2,165 $ 1,809
Real estate loans - other 77,305 68,597 77,884 65,339
Commercial & industrial loans 14,472 13,401 12,513 12,988
Installment loans 19,782 21,084 18,913 21,335
Municipal loans 2,629 829 2,567 818
All other loans 155 351 647 286
--- --- --- ---
Total 115,796 102,768 114,689 102,575
Less:
Unearned discount 0 0 0 0
Allowance for possible loan
losses (1,181) (1,084) (1,100) (1,097)
------- ------- ------- -------
Net Loans $114,615 $101,684 $113,589 $101,478
======== ======== ======== ========
</TABLE>
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:
-113-
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
-------------------- --------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Nonaccrual loans $82 $258 $397 $187
Trouble debt restructurings 0 0 0 0
Delinquent loans 75 134 75 247
-- -- -- --
Total $157 $392 $472 $434
==== ==== ==== ====
</TABLE>
Allowance for Possible Loan Losses
A summary of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
As of and for
the Three Months
Ended March 31, As of and for the year ended December 31,
---------------------- ----------------------------------------------------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Average loans $115,800 $102,969 $108,763 $ 97,655 $ 77,955 $ 72,722 $ 73,110
======== ======== ======== ======== ======== ======== ========
Allowance, beginning of
period $ 1,100 $ 1,097 $ 1,097 $ 949 $ 869 $ 817 $ 841
-------- -------- -------- -------- -------- -------- --------
Loans charged off:
Commercial and
industrial 0 0 125 1 0 0 211
Installment and other 10 83 229 125 85 43 53
Real estate 7 0 10 26 0 11 0
Lease financing 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Total loans charged off 17 83 364 152 85 54 264
-------- -------- -------- -------- -------- -------- --------
Recoveries:
Commercial and
industrial 0 0 0 0 0 0 0
Installment and other 8 16 26 43 25 25 30
Real estate 0 0 0 0 0 0 0
Lease financing 0 0 0 0 0 0 0
-------- -------- -------- -------- -------- -------- --------
Total recoveries 8 16 26 43 25 25 30
-------- -------- -------- -------- -------- -------- --------
Net loans charged off 9 67 338 109 60 29 234
-------- -------- -------- -------- -------- -------- --------
Provision for loan losses 90 54 341 257 140 81 210
-------- -------- -------- -------- -------- -------- --------
Allowance, end of period $ 1,181 $ 1,084 $ 1,100 $ 1,097 $ 949 $ 869 $ 817
======== ======== ======== ======== ======== ======== ========
Ratio of net charge offs to
average loans
outstanding 0.01% 0.02% 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
-114-
<PAGE>
possible loan losses. Management deems the aggregate amount reserved to be
adequate to absorb future loan losses. Management maintains an allowance that is
adequate to absorb losses as required by SFAS 5 and the AICPA Bank Credit Guide.
The allowance for possible loan losses of $1,181,041 at March 31, 1999 was
1.02% of loans, compared to 1.05% of loans on March 31, 1998.
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
periods ended March 31, 1999 and 1998, and for the years ended December 31, 1998
and 1997 are summarized as follows:
<TABLE>
<CAPTION>
As of and for As of and for
the Three Months the Year Ended
Ended March 31, December 31,
--------------------- --------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Beginning balance $1,100 $1,097 $1,097 $ 949
Provision charged to operations 90 54 341 257
Recovery of loans previously
charged off 8 16 26 43
- -- -- --
1,198 1,167 1,464 1,249
Loans charged off 17 83 364 152
-- -- --- --
Ending balance $1,181 $1,084 $1,100 $1,097
====== ====== ====== ======
</TABLE>
Premises and Equipment
Clearfield's premises and equipment are summarized as follows at March 31,
1999 and 1998, and December 31, 1998 and 1997:
<TABLE>
<CAPTION>
March 31, December 31,
---------------------- ----------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Land $ 792 $ 792 $ 792 $ 792
Clearfield premises 5,532 5,435 5,532 5,435
Furniture & Equipment 2,212 2,446 2,214 2,225
------- ------- ------- -------
8,536 8,673 8,538 8,452
Less accumulated depreciation (3,353) (3,320) (3,281) (3,240)
------- ------- ------- -------
Clearfield premises and equipment, net $ 5,183 $ 5,353 $ 5,257 $ 5,212
======= ======= ======= =======
</TABLE>
Deposits
-115-
<PAGE>
The following table is a distribution of average balances and average rates
paid on the deposit categories for March 31, 1999 and 1998, and December 31,
1998 and 1997.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
(unaudited)
1999 1998
-------------------- ------------------
(Dollars in thousands) Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C>
Noninterest-bearing $ 19,622 -% $ 17,936 -%
Interest-bearing
checking accounts 13,421 1.00 13,509 1.32
Money market
accounts 13,819 3.40 13,914 3.99
Savings 27,807 2.70 26,466 2.76
Time--under $100,000 73,173 5.15 72,526 5.41
Time--over $100,000 13,383 5.27 10,540 5.77
-------- --------
Total $161,225 3.61 $154,891 3.87
======== ========
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1998 1997
-------------------- ------------------
(Dollars in thousands) Amount Rate Amount Rate
------ ---- ------ ----
<S> <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 3.78 $151,101 3.80
======= =======
</TABLE>
A maturity distribution of total certificates of deposit of $100,000 and
over is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
---------- ------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Three months or less $ 5,491 $ 3,634 $ 3,779 $ 2,803
Over three months to six months 2,049 1,051 3,726 672
Over six months to twelve months 3,232 743 1,920 696
Over twelve months 2,898 5,775 4,477 5,379
------- ------- ------- -------
Total $13,670 $11,203 $13,902 $ 9,550
======= ======= ======= =======
</TABLE>
-116-
<PAGE>
Deposits are the primary source of funding for loans and investment
securities. Total deposits of $161,562,429 on March 31, 1999 were $5,071,042 or
3.2% higher than on March 31, 1998. This increase was primarily the result of
increases in noninterest-bearing, savings and time deposits. These increases are
partially offset by decreases in interest-bearing checking and money market
accounts.
Total deposits of $162,806,314 on December 31, 1998 were $9,554,956, or
6.2% higher than the 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.
Deposits are summarized as follows at March 31, 1999 and 1998, and December
31, 1998 and 1997:
<TABLE>
<CAPTION>
March 31, December 31,
----------- ------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Noninterest-bearing $ 20,098 $ 18,720 $ 20,579 $ 18,437
Interest-bearing checking accounts 13,083 13,621 14,243 13,961
Money market accounts 14,023 14,349 14,073 14,116
Savings 27,467 26,932 27,156 25,176
Time, under $100,000 73,222 71,666 72,853 72,011
Time, over $100,000 13,670 11,203 13,902 9,550
------ ------ ------ -----
Total Deposits $161,563 $156,491 $162,806 $153,251
======== ======== ======== ========
</TABLE>
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 March 31, 1999 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 March
31, 1999, Clearfield's Tier 1 risk-adjusted capital ratio was 17.4% and the
total risk-adjusted capital ratio was 18.5%. 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.
March 31, December 31,
----------- ------------
(unaudited)
1999 1998 1998 1997
---- ---- ---- ----
Tier 1 Capital Ratio 17.4% 17.9% 17.1% 17.3%
Total Capital Ratio 18.5 19.0 18.1 18.4
Leverage Ratio 10.6 10.3 10.4 10.3
-117-
<PAGE>
Shareholders' equity increased by $938,243 or 4.8% from March 31, 1998 to
March 31, 1999. This increase is due to the retention of earnings. Cash
dividends paid during the first quarter of 1999 were unchanged from the first
quarter of 1998.
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%.
Results of Operations
Consolidated net income for the first quarter of 1999 was $423,824 or 10.7%
above first quarter of 1998 income of $382,709. Earnings per share were $.74
during the first quarter of 1999 compared to $.66 during the first quarter of
1998.
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 an annualized 8.33%
for the first quarter of 1999, compared to an annualized 7.97% for the first
quarter of 1998. Net income as a percentage of average assets was an annualized
.94% for the first quarter of 1999, compared to an annualized .88% for the first
quarter of 1998.
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, Clearfield 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 for the first quarter of 1999 was $225,869
compared to $366,015 for the first quarter of 1998. 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
-118-
<PAGE>
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 $25,131 or 1.7% to $1,519,837 in the first
quarter of 1999 from the first quarter of 1998 amount of $1,494,706. This
increase in interest income was the result of the 12.5% growth in average loans
outstanding of $12,830,694 to $115,799,923.
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 decreased $55,636 or 3.7% to $1,437,394 during the first
quarter of 1999 from the first quarter 1998 amount of $1,493,030.
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%.
<TABLE>
<CAPTION>
As of and for As of and for
the Three Months the Year Ended,
Ended March 31, December 31,
---------------- ---------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997 1996
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest income $2,957 $2,988 $12,165 $11,957 $10,472
Interest expense 1,437 1,493 5,985 5,866 5,024
----- ----- ----- ----- -----
Net interest income 1,520 1,495 6,180 6,091 5,448
Tax equivalent adjustment 107 114 479 453 427
--- --- --- --- ---
Net interest income
(fully taxable equivalent) $1,627 $1,609 $ 6,659 $ 6,544 $ 5,875
====== ====== ======= ======= =======
</TABLE>
-119-
<PAGE>
Three Months Ended
March 31, 1998
vs.
March 31, 1999
------------------
Increase(decrease)
due to changes in
------------------
(Dollars in thousands) Net
Change Rate Volume
------ ----- ------
Interest Income:
Investment securities(1) $(141) $ 304 $(445)
Loans(1) 102 (991) 1,093
Other assets 1 (31) 32
----- ----- -----
Total (38) (718) 680
----- ----- -----
Interest
Expense:
Savings deposits (27) (58) 31
Time deposits (14) (204) 190
Borrowings and
other interest-
bearing liabilities (15) 46 (61)
----- ----- -----
Total (56) (216) 160
----- ----- -----
Changes in net
interest income $ 18 $(502) $ 520
===== ===== =====
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
vs. vs.
December 31, 1997 December 31, 1996
------------------ ------------------
Increase(decrease) Increase(decrease)
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>
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.
-120-
<PAGE>
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 $90,000 during the
first quarter of 1999 compared to $54,000 during the first quarter of 1998.
Clearfield experienced net charge offs during the first quarter of 1999 of
$9,140 compared to $66,844 during the first quarter of 1998.
In 1998, the provision for loan losses was $341,000, compared to $257,000
in 1997. Clearfield experienced net charge offs in 1998 of $337,590 compared to
$109,342 in 1997.
Based on its analysis of the loan portfolio, management believes that the
allowance for loan losses at March 31, 1999 is adequate to absorb potential loan
losses. Management maintains an allowance that is adequate to absorb losses as
required by SFAS 5 and the AICPA Bank Credit Guide.
Other Income
Other income grew 13.9% from $246,524 for the first quarter of 1998 to
$280,874 for the first quarter of 1999. Other income grew 4.7% from $971,982 for
1997, to $1,018,137 for 1998. The increases are 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 $1,166,773 during the first quarter of 1999,
were $5,324 lower than the first quarter of 1998. 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.
-121-
<PAGE>
Income Tax
The provision for federal income taxes was $120,144 for the first quarter
of 1999, compared to $132,424 for the first quarter of 1998. The provision for
federal income taxes was $559,148 for 1998, compared to $526,910 for 1997. The
increase in the current tax provision is due to a higher level of taxable
income. The overall tax provision has decreased because of a decrease in the
deferred federal income taxes.
-122-
<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.
-123-
<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 the first three months of 1999, 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>
As of and for
the Three Months
Ended March 31,
----------------
(unaudited)
1999 1998
------- -------
(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 $ 22,850 4.90% $ 280 $ 23,088 5.58% $ 322
Nontaxable investments (1) 10,276 6.89 177 9,576 6.94 166
-------- ------ -------- ------
Total investment securities 33,126 5.52 457 32,664 5.98 488
Loans (1) 93,428 8.79 2,054 82,270 9.29 1,911
Other rate-sensitive assets - - - - - -
- - - - - -
-------- ------- ------ -------- ----- ------
Total earning assets 126,554 7.94 2,511 114,934 8.35 2,399
Noninterest-earning assets 7,258 - - 7,498 - -
-------- ------- ------ -------- ----- ------
Total assets $133,812 $2,511 $122,432 $2,399
======== ====== ======== ======
Liabilities and Shareholders' Equity
Deposits:
Demand $ 9,042 - - $ 8,222 - $ -
Savings 40,312 2.66 268 39,484 2.94 290
Time 64,022 5.57 891 58,794 5.70 837
-------- ------ -------- ------
Total $113,376 4.09 $1,159 $106,500 4.24 $1,127
Borrowings and other interest-bearing
liabilities 3,574 5.15 46 16 25.00 1
-------- ------ -------- ------
Total interest bearing liabilities 116,950 4.12 1,205 106,516 4.24 1,128
Other liabilities 2,114 - - 2,394 - -
Total liabilities 119,064 - - 108,516 - -
Shareholders' equity 14,748 - - 13,522 - -
Total liabilities and shareholders equity $133,812 - $1,205 $122,432 - $1,128
======== ====== ======== ======
Average effective rate on interest-bearing
liabilities $107,908 4.47 $1,205 $ 98,294 4.59 $1,128
======== ==== ====== ======== ===== ======
Interest Income/Earning Assets $126,554 7.94 $2,511 $114,934 8.35 $1,128
Interest Expense/Earning Assets $126,554 3.81 $1,205 $114,934 3.93 $2,399
---- -----
Net Interest Margin 4.13 4.42
==== =====
Net Interest Spread 3.82 4.11
==== =====
</TABLE>
-124-
<PAGE>
<TABLE>
<CAPTION>
As of and for the Year 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, decreased
$1,243,000 or 3.7% from $34,036,000 at March 31, 1998 to $32,793,000 at March
31, 1999. During the period, the available for sale category showed slight
increases in obligations of states and political subdivisions and marketable
securities; however, the greatest change was a decrease in other obligations of
U.S. Government Agencies. The March 31, 1999 portfolio decreased $2,300,000 or
6.6% over the December 31, 1998 portfolio. The March 31, 1999 portfolio did not
change significantly over the December 31, 1997 portfolio.
-125-
<PAGE>
The March 31, 1999 federal funds sold of $1,675,000 was $650,000 lower than
the March 31, 1998 balance of $2,325,000.
The maturity analysis of investment securities held to maturity,
including the weighted average yield for each category as of March 31, 1999, is
as follows:
<TABLE>
<CAPTION>
Under 5-10 Over
(Dollars in thousands) 1 year 1-5 years years 10 years Total
------ --------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Corporate Debt Securities:
Carrying value $995 - - - $995
Weighted average yield 4.88% - - - 4.88%
Weighted average maturity 1 month
Total:
Carrying value $995 - - - $995
Weighted average yield 4.88% - - - 4.88%
Weighted average maturity 1 month
</TABLE>
The maturity analysis of securities available for sale, including the
weighted average yield for each category, as of March 31, 1999 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 $1,499 - $1,989 - $3,488
Weighted average yield 5.61% - 5.90% - 5.77%
Weighted average maturity 1 year
3 months
Obligations of other U.S. Government agencies:
Carrying value $500 $4,500 - - $5,000
Weighted average yield 5.60% 5.74% - - 5.72%
Weighted average maturity 3 years
5 months
Obligations of states and political subdivisions:
Carrying value - $1,983 $3,617 $4,459 $10,059
Weighted average yield 6.68% 7.06% 6.91% 6.92%
Weighted average maturity 10 years
0 months
Equity Securities:
Carrying value - - $3,388 - $3,388
Weighted average yield - - 4.47% - 4.47%
Weighted average maturity 0 years
0 months
Corporate Debt Securities:
Carrying value $1,141 $1,550 - - $2,691
</TABLE>
-126-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Weighted Average Yield 7.59% 5.68% - - 6.48%
Weighted Average Maturity 2 years
0 months
Mortgage Backed and Asset Backed Securities
Carrying Value $35 $1,883 $515 $585 $3,018
Weighted Average Yield 6.79% 5.99% 6.00% 6.36% 6.07%
Weighted Average Maturity 11 years
1 month
Other Securities:
Carrying value $1,675 - - - $1,675
Weighted average maturity 4.75% - - - 4.75%
Weighted average yield 1 month
Total:
Carrying value $4,850 $9,916 $9,509 $5,044 $29,319
Weighted average yield 5.79% 5.97% 5.84% 6.84% 6.39%
Weighted average maturity 6 years
3 months
</TABLE>
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>
Corporate Debt Securities:
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>
-127-
<PAGE>
<TABLE>
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 0 years
0 months
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 computed by dividing the annualized interest
income, including the accretion of discounts and the amortization of premiums,
by the carrying value. Tax-exempt securities were adjusted to a tax-equivalent
basis and are based on the federal statutory tax rate of 34%.
The amortized cost and fair value of investment securities are as follows:
-128-
<PAGE>
<TABLE>
<CAPTION>
March 31, 1999
--------------
(unaudited)
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 $3,488,117 $36,610 $0 $3,524,727
Obligations of Other U.S. Government Agencies 5,000,178 2,560 19,460 4,983,278
Obligations of States and Political Subdivision 10,058,976 158,893 66,767 10,151,102
Marketable Equities 3,388,146 2,500,658 133,574 5,755,230
Other Securities 7,383,874 24,121 24,386 7,383,609
--------- ------ ------ ---------
TOTAL $29,319,291 $2,722,842 $244,187 $31,797,946
=========== ========== ======== ===========
Securities Held to Maturity:
- ----------------------------
Other Securities $995,527 $ - $ - $995,527
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1998
--------------
(unaudited)
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 $3,977,340 $20,161 $1,353 $3,996,148
Obligations of Other U.S. Government Agencies 7,994,434 28,522 11,936 8,016,020
Obligations of States and Political Subdivision 8,842,110 84,426 41,504 8,885,032
Marketable Equities 2,096,903 2,241,561 - 4,338,464
Other Securities 7,154,259 28,180 11,210 7,171,229
--------- ------ ------ ---------
TOTAL $30,070,046 $2,402,850 $66,003 $32,406,893
=========== ========== ======= ===========
Securities Held to Maturity:
- ----------------------------
Obligations of States and Political Subdivision $1,628,653 $44,760 $ - $1,673,413
========== ======= ======= ==========
</TABLE>
-129-
<PAGE>
<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>
Interest Rate Sensitivity
The level and volatility of interest rates can have a significant impact on
Penn Laurel's profitability. The objective of interest rate management is to
identify and manage the sensitivity of net interest income to changing interest
rates and other market factors in order to achieve overall financial goals.
The Asset and Liability Committee is responsible for establishing policies
to increase net interest income and to monitor the interest rate risk. Penn
Laurel's Asset and Liability Committee monitors interest rate risk through the
use of two methods:
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<PAGE>
o static gap; and
o income simulation.
Static gap classifies assets and liabilities into maturity and repricing
time frames in order to identify potential mismatches among these positions. The
cumulative one year gap was ($23,234,210) and $9,391,815 on March 31, 1999 and
1998 and ($14,148,899) and $7,572,479 on December 31, 1998 and 1997. Currently,
Penn Laurel is in a negative gap position which means more liabilities will
reprice than assets during the year. During 1999, the gap position will be
affected by a large volume of maturing certificates of deposits.
Penn Laurel's Asset and Liability Committee also uses income simulation as
another tool to measure and manage interest rate risk. Management simulates
possible economic conditions and interest rate scenarios in order to forecast
the impact on net income. The following table summarizes the effect on changes
in interest rates on net income:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998 December 31, 1998 December 31, 1997
-------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Rising rates (+200/-200 basis points) (6.00%) 7.0% 3.8% 6.8%
Falling rates (+200/-200 basis points) 4.40% (8.6%) (6.1%) (8.7%)
</TABLE>
Penn Laurel's Asset and Liability Committee will continue to monitor the
effect of changes in interest rates on net income through these computer
generated models.
Loans
Penn Laurel grants commercial loans, residential mortgages, and consumer
loans to customers located primarily within Central Pennsylvania. Loans grew
$11,189,000 or 13.5% from $83,017,000 at March 31, 1998 to $94,206,000 at March
31, 1999. The growth was primarily the result of an increase in real estate
related loans. The March 31, 1999 loan balance was 3.1% higher than the December
31, 1998 loan balance and 15.1% higher than the December 31, 1997 loan balance.
The increase in loans from December 31, 1997 to March 31, 1999 was also
primarily the result of increased real estate related loans.
Major classifications of loans are summarized as follows at March 31, 1999
and 1998, and December 31, 1998 and 1997:
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<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
(unaudited)
1999 1998 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $27,192,780 $25,718,843 $26,472,381 $25,956,075
Real Estate 36,821,995 29,616,555 35,200,147 28,608,637
Installment 31,180,243 29,065,687 30,739,970 28,861,122
----------- ----------- ----------- -----------
95,195,018 84,401,085 92,412,498 83,425,834
Unearned discount (200,850) (604,582) (271,846) (757,169)
----------- ----------- ----------- -----------
94,994,168 83,796,503 92,140,652 82,668,665
Allowance for loan losses (788,226) (779,534) (771,478) (788,807)
----------- ----------- ----------- -----------
$94,205,942 $83,016,969 $91,369,174 $81,879,858
=========== =========== =========== ===========
</TABLE>
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:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Nonaccrual loans $268 $740 $121 $501
Delinquent loans 32 91 27 210
---- ---- ---- ----
Total $300 $831 $148 $711
==== ==== ==== ====
</TABLE>
Allowance for Possible Loan Losses
The allowance for possible loan losses of $788,000 at March 31, 1999 was
.84% of loans, compared to .94% of loans at March 31, 1998. This decrease is
primarily due to the increase in the volume of loans. 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.
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<PAGE>
A summary of the allowance for loan losses is as follows:
As of and for
the Three Months
Ended March 31,
----------------
(unaudited)
(Dollars in thousands) 1999 1998
---- ----
Average loans $93,428 $82,270
======= =======
Allowance, beginning of period $771 $789
---- ----
Loans charged off:
Commercial, financial and agricultural 4 108
Installment 54 67
Real estate - residential 7 13
- --
Total loans charged off 65 188
-- ---
Recoveries:
Commercial, financial and agricultural 5 77
Installment 5 20
Real estate - residential 0 17
- --
Total recoveries 10 114
-- ---
Net loans charged off 55 74
Provision for loan losses 72 65
Allowance, end of period $788 $780
==== ====
Ratio of net charge offs to average loans outstanding 0.24% 0.36%
===== =====
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
-----------------------------------------
(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
periods ended March 31, 1999 and 1998 and for the years ended December 31, 1998
and 1997 are summarized as follows:
-133-
<PAGE>
<TABLE>
<CAPTION>
As of and for As of and for the
the Three Months Year Ended
Ended March 31, December 31,
---------------- -----------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance $771 $789 $ 789 $ 721
Provision charged to operations 72 65 319 300
Recovery of loans previously charged off 10 114 149 168
---- ---- ------ ------
853 968 1,257 1,189
Loans charged off 65 188 486 400
---- ---- ------ ------
Ending balance $788 $780 $ 771 $ 789
==== ==== ====== ======
</TABLE>
Penn Laurel premises and equipment are summarized as follows at March 31,
1999 and 1998 and December 31, 1998 and 1997:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Land $ 471 $ 517 $ 471 $ 519
Buildings 1,906 1,744 1,770 1,744
Furniture & Equipment 2,013 2,052 2,104 2,004
----- ----- ------ ------
4,390 4,313 4,345 4,267
Less accumulated depreciation 2,511 2,333 2,464 2,283
----- ----- ------ ------
Penn Laurel premises and equipment, net $1,879 $1,980 $1,881 $1,984
====== ====== ====== ======
</TABLE>
Deposits
Total deposits of $114,372,000 at March 31, 1999 were $6,025,000 or 5.6%
higher than March 31, 1998. This increase is primarily the result of increases
in money market accounts and time deposits. These increases were particularly
offset by decreases in non-interest bearing and interest bearing checking
accounts and savings accounts. Total deposits of $113,845,000 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 March 31, 1999 and 1998.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
(unaudited)
1999 1998
---- ----
(Dollars in thousands) Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
Noninterest-bearing $ 9,042 -% $ 8,222 -%
Interest-bearing checking
accounts 16,889 2.03 17,246 2.39
Money market accounts 8,308 4.07 6,463 4.65
Savings 15,115 2.65 15,774 2.88
Time--under $100,000 53,693 5.57 50,204 5.68
Time--over $100,000 10,329 5.54 8,591 5.81
-------- --------
Total $113,376 $106,500
======== ========
</TABLE>
-134-
<PAGE>
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>
For the Year Ended
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:
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Three months or less $ 4,123 $1,708 $1,791 $1,899
Over three months to six months 1,990 402 3,825 1,705
Over six months to twelve months 2,931 1,615 2,230 432
Over twelve months 2,013 5,338 2,053 4,164
------- ------ ------ ------
Total $11,057 $9,063 $9,899 $8,200
======= ====== ====== ======
</TABLE>
Deposits are summarized as follows at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(Dollars in thousands) March 31, December 31,
--------- ------------
(unaudited)
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Noninterest-bearing $ 8,572 $ 8,919 $ 9,734 $ 8,000
Interest-bearing checking accounts 16,903 17,447 17,281 17,082
Money market accounts 8,889 6,606 8,301 6,672
Savings 15,167 15,686 15,128 15,884
Time -- under $100,000 53,784 50,626 53,502 49,749
Time -- over $100,000 11,057 9,063 9,899 8,200
-------- -------- -------- --------
Total Deposits $114,372 $108,347 $113,845 $105,587
======== ======== ======== ========
</TABLE>
-135-
<PAGE>
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 March 31, 1999 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 March
31, 1999, Penn Laurel's Tier 1 risk-adjusted capital ratio was 12.77% and the
total risk-adjusted capital ratio was 14.73%, both well above the regulatory
requirements.
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
(unaudited)
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Tier 1 Capital Ratio 12.97% 13.69% 11.35% 12.39%
Total Capital Ratio 14.73 15.63 12.50 13.31
Leverage Ratio 11.08 11.26 9.30 7.53
</TABLE>
Results of Operations
Consolidated net income at March 31, 1999 was $373,999 or 44.3% below March
31, 1998. This decrease in net income is primarily the result of $348,000
decrease in security gains. The 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.
On January 1, 1998, the Corporation adopted the Financial Accounting
Standards Board's SFAS No. 130 "Reporting Comprehensive Income." Comprehensive
income is the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. Other
comprehensive income consists of net unrealized gains on investment securities
available for sale. Subsequent to the adoption date, all prior- period amounts
are required to be restated to confirm to the provision of SFAS No. 130.
Comprehensive income for the first three months of 1999 was ($166,000) compared
to ($316,000) for the first three months of 1998. Comprehensive income for
December 31, 1998 and 1997 was ($1,225,000) and $2,368,000 respectively.
Net Interest Income
Net interest income at March 31, 1999 of $1,245,000 was 1.7% higher than
the March 31, 1998 net interest income of $1,224,000. This increase was the
result of 10.1%
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<PAGE>
increase in earning assets during this period. Partially offsetting this
increase was a reduction in the net interest margin during the first three
months of 1999, compared to the same period in 1998. The net interest margin for
the first three months in 1999 and 1998 was 4.13% and 4.42% respectively. This
reduction in net interest margin was due primarily to a decrease in yield on
average earning assets.
Net interest income at December 31, 1998 of $5,146,000 was 10.5% higher
than the December 31, 1997 net interest income of $4,949,000. The net interest
margin for December 31, 1998 and 1997 was 4.19% and 4.38% respectively.
The net interest margin for the period earning December 31, 1997 of 4.38%
was lower than the 4.40% for December 31, 1996 and lower than the 4.46% for
December 31, 1995.
<TABLE>
<CAPTION>
For the Three Months For the Year Ended
Ended March 31, December 31,
-------------------- ------------------
(unaudited)
(Dollars in thousands) 1999 1998 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $2,450 $2,352 $9,973 $9,375 $8,536
Interest expense 1,205 1,128 4,827 4,426 3,961
------ ------ ------ ------ ------
Net interest income 1,245 1,224 5,146 4,949 4,575
Tax equivalent adjustment 67 62 274 232 221
------ ------ ------ ------ ------
Net interest income
(fully taxable equivalent) $1,312 $1,286 $5,420 $5,181 $4,796
====== ====== ====== ====== ======
</TABLE>
-137-
<PAGE>
Three Months Ended
March 31, 1998
vs.
March 31, 1999
--------------
Increase(decrease)
due to changes in
-----------------
(Dollars in Net
thousands) Change Rate Volume
------ ---- ------
Interest Income:
Investment
securities (1) $ (38) $(37) $ (1)
Loans (1) 141 (19) 160
Other assets 0 0 0
-- -- --
Total 103 (56) 159
----- ---- ----
Interest Expense:
Savings deposits (14) (13) (1)
Time deposits 53 (22) 75
Borrowings and
other interest-
bearing 38 19 19
----- ---- ----
liabilities
Total 77 (16) 93
----- ---- ----
Changes in net
interest income $ 26 $(40) $ 66
===== ==== ====
- ------------
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
Year Ended Year Ended
December 31, 1998 December 31, 1997
vs. vs.
December 31, 1997 December 31, 1996
----------------- -----------------
Increase(decrease) Increase(decrease)
due to changes in due to changes in
----------------- -----------------
Net Net
Change Rate Volume Change Rate Volume
------ ---- ------ ------ ---- ------
$14 $ (91) $105 $104 $ 5 $ 99
--- ----- ---- ---- ---- ----
629 (18) 647 727 190 537
--- ----- ---- ---- ---- ----
(3) (3) - 19 5 14
--- ----- ---- ---- ---- ----
640 (112) 752 850 200 650
--- ----- ---- ---- ---- ----
67 35 32 33 10 23
--- ----- ---- ---- ---- ----
237 (11) 248 470 - 470
--- ----- ---- ---- ---- ----
97 (2) 99 (38) - (38)
--- ----- ---- ---- ---- ----
401 22 379 465 10 455
--- ----- ---- ---- ---- ----
$239 (134) $373 $385 $190 $195
==== ===== ==== ==== ==== ====
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<PAGE>
Provision for Loan Losses
The provision for loan losses for the first three months of 1999 was
$72,000, compared to $65,000 for the same period in 1998. Penn Laurel
experienced a $55,000 net charge-off on loans during the first three months of
1999, compared to a $74,000 net charge-off during the same period in 1998. The
provision for loan losses for the year ending December 31, 1998 and 1997 was
$319,000 and $300,000 respectively. Net charge-offs for the year ending December
31, 1998 and 1997 was $337,000 and $232,000 respectively.
Other Income
Other income decreased 49% from $627,000 during the first three months of
1998 to $319,000 during the same period in 1999. The decrease was primarily due
to security gains being reduced from $481,000 during the first three months of
1998 to $133,000 for the same period in 1999.
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.
Other Operating Expenses
Other operating expenses of $1,033,000 for the first three months of 1999,
was $33,000 or 3.3% higher than the same period in 1998. This increase was the
result of higher salaries, wages and benefits. During the year 1998, 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.
-139-
<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 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 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.
The consolidated financial statements of Penn Laurel 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.
LEGAL OPINIONS
The legality of the shares of Penn Laurel 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.
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
-140-
<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 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 has been provided or verified by Penn Laurel.
-141-
<PAGE>
CLEARFIELD BANK & TRUST COMPANY
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY FINANCIAL INFORMATION
Page
----
Selected Financial Data and Pro Forma Information 11
Management's Discussion and Analysis 101
INDEPENDENT AUDITOR'S REPORT F-2
AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 (unaudited)
Consolidated Statement of Condition F-3
Consolidated Statement of Income F-5
Consolidated Statement of Changes in Stockholders' Equity F-7
Consolidated Statement of Cash Flows F-8
YEARS ENDED DECEMBER 31, 1998 AND 1997
Consolidated Statement of Condition F-4
Consolidated Statement of Income F-6
Consolidated Statement of Changes in Stockholders' Equity F-7
Consolidated Statement of Cash Flows F-9
NOTES TO FINANCIAL STATEMENTS F-10
<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 the Three Months Ended March 31, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and Balances Due from Banks $ 5,884,736 $ 7,367,672
Interest Bearing Deposits with Banks 63,006 57,947
Federal Funds Sold 3,725,000 3,159,000
Investment Securities Available for Sale 38,845,918 37,903,064
Investment Securities to be Held to Maturity 12,049,307 20,170,052
Loans $ 120,650,666 $ 107,716,997
Less: Unearned Income (4,855,163) (4,948,829)
Allowance for Possible Loan Losses (1,181,041) (1,083,927)
------------- -------------
Net Loans $ 114,614,462 $ 101,684,241
------------- -------------
Bank Premises and Equipment $ 5,183,435 $ 5,353,511
Accrued Income and Other Assets 3,053,860 2,831,005
------------- -------------
TOTAL ASSETS $ 183,419,724 $ 178,526,492
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Demand Deposits $ 20,097,710 $ 18,720,546
Savings and NOW Deposits 54,573,312 54,901,706
Time Deposits 86,891,407 82,869,135
------------- -------------
Total Deposits $ 161,562,429 $ 156,491,387
Other Borrowed Money -0- 1,000,000
Accrued Expense and Other Liabilities 1,453,979 1,570,032
------------- -------------
Total Liabilities $ 163,016,408 $ 159,061,419
------------- -------------
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 15,819,536 14,808,611
Accumulated Other Comprehensive Income 182,516 255,198
------------- -------------
Total Stockholders' Equity $ 20,403,316 $ 19,465,073
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 183,419,724 $ 178,526,492
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<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-4
<PAGE>
CLEARFIELD BANK & TRUST COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended March 31, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
INTEREST INCOME 1999 1998
---- ----
<S> <C> <C>
Interest and Fees on Loans $ 2,248,558 $ 2,156,432
Interest on Investment Securities Available for Sale 545,614 538,115
Interest on Investment Securities to be Held to Maturity 124,290 254,691
Interest on Federal Funds Sold 34,987 37,892
Interest on Deposits with Banks 3,782 606
----------- -----------
Total Interest Income $ 2,957,231 $ 2,987,736
----------- -----------
INTEREST EXPENSE
Interest on Deposits:
Savings and NOW Deposits $ 333,790 $ 361,010
Time Deposits 1,103,604 1,116,732
----------- -----------
Total Interest on Deposits $ 1,437,394 $ 1,477,742
----------- -----------
Interest on Federal Funds Purchased - 0 - - 0 -
Interest on Other Borrowed Money - 0 - 15,288
----------- -----------
Total Interest Expense $ 1,437,394 $ 1,493,030
----------- -----------
Net Interest Income $ 1,519,837 $ 1,494,706
Provision for Possible Loan Losses (90,000) (54,000)
----------- -----------
Net Interest Income After Provision for
Possible Loan Losses $ 1,429,837 $ 1,440,706
----------- -----------
OTHER INCOME
Income from Fiduciary Activities $ 122,509 $ 125,960
Service Charges on Deposit Accounts 81,747 80,424
Net Realized Gains (Losses) on Sales of Investment
Securities Available for Sale - 0 - - 0 -
Other Operating Income 76,618 40,140
----------- -----------
Total Other Income $ 280,874 $ 246,524
----------- -----------
OTHER EXPENSE
Salaries and Wages $ 481,329 $ 473,213
Pension, Profit Sharing and Other Employee Benefits 253,353 239,358
Net Occupancy Expense 109,390 115,213
Furniture and Equipment Expense 116,091 103,282
Other Operating Expense 206,610 241,031
----------- -----------
Total Other Expense $ 1,166,773 $ 1,172,097
=========== ===========
Income Before Income Taxes $ 543,938 $ 515,133
Applicable Income Taxes 120,114 132,424
----------- -----------
NET INCOME $ 423,824 $ 382,709
=========== ===========
Earnings Per Share: Based on Average Shares Outstanding
Earnings Before Taxes $ 0.94 $ 0.89
Applicable Income Taxes 0.21 0.23
Net Earnings $ 0.73 0.66
=========== ===========
Cash Dividends Declared $ 0.32 $ 0.31
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<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-6
<PAGE>
Clearfield Bank & Trust Company
- ------------------------------------------------------------------------------
Consolidated Statement of Changes in Stockholders' Equity
For the Period Ended March 31, 1999 and December 31, 1998, 1997 and 1996
(unaudited)
<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
- --------------------------------------------------------------------------------------------------------------------
1999 Additions (Deductions):
Comprehensive Income
Net Income - 0 - - 0 - 423,824 - 0 - 423,824
Unrealized Gains/Losses
Net of Income Taxes of ($94,023) - 0 - - 0 - - 0 - (197,955) (197,955)
Total Comprehensive Income $225,869
- -------------------------------------------------------------------------------------------------------------------
Cash Dividends Declared
($.32 Per Share) - 0 - - 0 - (184,879) - 0 - (184,579)
- -------------------------------------------------------------------------------------------------------------------
Balance - March 31, 1999 $901,264 $3,500,000 $15,819,537 $182,515 $20,403,316
===================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-7
<PAGE>
CLEARFIELD BANK & TRUST COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
---- ----
<S> <C> <C>
Net Income
Adjustments to Reconcile Net Income to Net $ 423,824 $ 382,709
Cash Provided by Operating Activities:
Depreciation and Amortization 129,637 112,583
Provision for Possible Loans Losses 90,000 54,000
Deferred Income Taxes (20,073) 1,554
Net Realized (Gains) Losses on Investment Securities
Available for Sale - 0 - - 0 -
Net Amortization of Premiums (Accretion
of Discounts) on Investment Securities (4,278) (4,347)
(Increase) Decrease in Accrued Income
and Other Assets (150,948) 3,199
Increase (Decrease) in Accrued Expense
and Other Liabilities (83,491) (15,675)
----------- -----------
Net Cash Provided by Operating Activities $ 384,671 $ 534,023
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Interest Bearing
Deposits with Banks $ 37,881 ($ 8,074)
Net (Increase) Decrease in Federal Funds Sold (244,000) (459,000)
Purchases of Investment Securities Available for Sale (3,528,470) (4,103,358)
Proceeds from Sales of Investment Securities
Available for Sale - 0 - - 0 -
Proceeds from Maturities of Investment Securities
Available for Sale 2,174,075 1,568,065
Purchases of Investment Securities to be Held
to Maturity - 0 - - 0 -
Proceeds from Maturities of Investment Securities
to be Held to Maturity 925,000 2,000,000
Net (Increase) Decrease in Loans (1,115,559) (259,925)
Purchases of Premises and Equipment (36,879) (234,912)
Purchases of Goodwill from Branch Acquisition - 0 - - 0 -
----------- -----------
Net Cash Used by Investing Activities ($1,787,952) ($1,497,204)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease) in Demand Deposits,
Savings and NOW Accounts ($1,379,462) 1,931,673
Net Increase (Decrease) in Time Deposits 135,577 1,308,356
Net Increase (Decrease) in Federal Funds Purchased
Net Increase (Decrease) in Other Borrowed Money - 0 - - 0 -
Cash Dividends Paid (178,811) (178,811)
----------- -----------
Net Cash Provided by Financing Activities ($1,422,696) 3,061,218
----------- -----------
Increase (Decrease) in Cash and Due from Banks ($2,825,977) $ 2,098,037
Cash and Due from Banks at the Beginning of the Year 8,710,713 5,269,635
----------- -----------
Cash and Due from Banks at the End of the Year $ 5,884,736 $ 7,367,672
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Income Taxes Paid - 0 - 843
=========== ===========
Interest Paid $ 1,927,234 $ 1,997,565
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<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-9
<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-10
<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>
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-11
<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-12
<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-13
<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-14
<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-15
<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-16
<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-17
<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-18
<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-19
<PAGE>
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-20
<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-21
<PAGE>
PENN LAUREL FINANCIAL CORP.
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY FINANCIAL INFORMATION
Page
----
Selected Financial Data and Pro Forma Information 11
Management's Discussion and Analysis 121
Independent Auditor's Report F-23
AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 1998 (unaudited)
Consolidated Statements of Condition F-24
Consolidated Statements of Income F-26
Consolidated Statements of Comprehensive Income F-28
Consolidated Statements of Cash Flows F-30
Consolidated Statements of Changes in Stockholders' Equity F-32
YEARS ENDED DECEMBER 31, 1998 AND 1997
Consolidated Statements of Condition F-25
Consolidated Statements of Income F-27
Consolidated Statements of Comprehensive Income F-29
Consolidated Statements of Cash Flows F-31
Consolidated Statements of Changes in Stockholders' Equity F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-33
F-22
<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-23
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF CONDITION
AS OF AND FOR
THE THREE MONTHS
ENDED MARCH 31
(unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,665,934 $ 3,712,380
Federal Funds Sold 1,675,000 2,325,000
Securities available for sale 30,122,948 30,082,149
Securities held to maturity 995,527 1,628,653
Total Loans 95,195,018 84,401,085
Less: Unearned Discount (200,850) (604,582)
Reserve for Loan Losses (788,226) (779,534)
------------- -------------
Net Loans 94,205,942 83,016,969
Bank premises and equipment 1,879,430 1,979,732
Goodwill 85,219 -0-
Other assets 2,257,912 1,858,329
------------- -------------
TOTAL ASSETS $ 134,887,912 $ 124,603,212
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest Bearing Deposits $ 8,571,529 $ 8,918,541
Interest Bearing Deposits 105,800,535 99,428,423
------------- -------------
Total Deposits 114,372,064 108,346,964
Other Borrowings 3,461,161 -0-
Other Liabilities 2,277,838 2,626,727
Total liabilities 120,111,063 110,973,691
------------- -------------
Stockholders' equity:
Common stock 1,800,000 1,800,000
Additional paid-in capital 1,754,401 1,500,975
Retained earnings 9,655,272 9,135,857
Treasury stock, at cost (67,240) (349,810)
Accumulated other comprehensive income 1,634,416 1,542,499
Total stockholders' equity 14,776,849 13,629,521
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 134,887,912 $ 124,603,212
============= =============
</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 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-25
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF INCOME
AS OF AND FOR
THE THREE MONTHS
ENDED MARCH 31,
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Interest Income:
Interest and fees on loans $2,048,663 $1,908,051
Interest on Federal Funds Sold 12,658 12,092
Taxable Interest on Investments 229,673 285,447
Non Taxable Interest on Investments 121,296 113,880
Dividends 37,851 32,102
Interest on Balances with Banks 357 762
---------- ----------
Total Interest Income 2,450,498 2,352,334
---------- ----------
Interest Expenses:
Interest on deposits 1,158,964 1,127,488
Interest on Borrowed Funds 46,207 607
---------- ----------
Total Interest Expense 1,205,171 1,128,095
---------- ----------
Net interest income 1,245,327 1,224,239
Less: Provision for Loan Losses 72,000 65,100
---------- ----------
Net interest income after provision for loan losses 1,173,327 1,159,139
---------- ----------
Other Income:
Service fees on Deposit Accounts 99,949 85,693
Other Service Charges & Fees 49,001 50,828
Other Income 36,668 9,862
Security Gains (Losses) 133,226 480,959
---------- ----------
Total Other Income 318,844 627,342
---------- ----------
Other Expenses:
Salaries & Employee Benefits 559,608 504,225
Occupancy Expense 77,688 85,374
Equipment & Processing Expense 145,422 163,515
Other operating expenses 250,558 246,485
---------- ----------
1,033,276 999,599
---------- ----------
Income before income taxes 458,895 786,882
Provision for Income Taxes 85,799 116,000
---------- ----------
NET INCOME $ 373,096 $ 670,882
========== ==========
Net income per share $ 1.04 $ 1.94
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-26
<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-27
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
AS OF AND FOR
THE THREE MONTHS
ENDED MARCH 31
(unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net Income $ 373,096 $ 670,882
--------- ---------
Other comprehensive income, before tax:
Unrealized holding gains arising during period 237,989 726,540
Less: Reclassification adjustment for gains included in net income (133,226) (480,959)
--------- ---------
Other comprehensive income, before tax: 477,859 916,463
Income tax expense related to other comprehensive income (104,763) (245,581)
Other comprehensive income, net of tax (207,542) (355,081)
--------- ---------
Comprehensive income $ 165,554 $ 315,801
========= =========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-28
<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-29
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 373,096 $ 670,882
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation 46,519 49,308
Provision for loan losses 72,000 65,100
Provision for deferred taxes (3,201) --
Gain on sale of investment securities (133,226) (480,959)
(Decrease) increase in taxes payable 89,000 99,859
(Increase) decrease in interest receivable 51,321 70,805
Increase (decrease) in interest payable (4,461) 8,093
Increase (decrease) in accrued expenses (12,841) (44,766)
Decrease (increase) in other assets (190,605) (311,635)
----------- -----------
Net cash provided by operating activities 287,602 126,687
----------- -----------
Cash flows from investing activities:
Securities held to maturity - net 981,517 56,786
Securities available for sale - net 2,813,919 995,032
Net increase in loans (2,908,768) (1,202,211)
Capital expenditures (45,432) (45,419)
----------- -----------
Net cash provided (used) in investing activities 841,236 (195,812)
----------- -----------
Cash flows from financing activities:
Net increase in demand, time and savings deposits 527,148 2,760,101
Dividends paid (107,178) (100,263)
Increase (decrease) in funds purchased and security repurchase agreements (845,364) 0
Payments on long-term debt 0 (3,700)
----------- -----------
Net cash provided by financing activities (425,394) 2,656,138
----------- -----------
Net increase in cash and cash equivalents 703,444 2,587,013
Cash and due from banks at beginning of year 4,637,490 3,450,367
----------- -----------
Cash and due from banks, March 31 $ 5,340,934 $ 6,037,380
=========== ===========
Supplemental disclosures:
Interest paid $ 1,209,632 $ 1,120,002
Income taxes paid $ 0 $ 16,141
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-30
<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-31
<PAGE>
PENN LAUREL FINANCIAL CORP. AND SUBSIDIARY
Curwensville, Pennsylvania
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIODS ENDING MARCH 31, 1999 AND DECEMBER 31, 1998, 1997 AND 1996
<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
============ ============ ============ ============ ============ ============
Net Income $ 73,096 $ 373,096
Cash Dividends declared (107,178) (107,178)
Comprehensive income $ (207,542) (207,542)
------------ ------------ ------------ ------------ ------------ ------------
Balance
March 31, 1999 $ 1,800,000 $ 1,754,401 $ 9,655,273 $ 1,634,416 $ (67,240) $ 14,776,850
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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
============ ============
F-41
<PAGE>
LIABILITIES
Dividend payable $ 163,225 $ 161,665
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)
------------ ------------
F-42
<PAGE>
Cash flow from financing activities:
Payments on long-term debt (485,845) (15,926)
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-43
<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.
G Tax Opinion of Shumaker Williams, P.C.
<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
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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
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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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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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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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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
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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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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
3
<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
4
<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.
5
<PAGE>
(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.
7
<PAGE>
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
8
<PAGE>
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
9
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Annex B
Ryan, Beck & Co., Inc.
Fairness Opinion
<PAGE>
August 2, 1999
The Board of Directors
Clearfield Bank & Trust Company
11 North Second Street
Clearfield, PA 16830
Members of the Board:
Clearfield Bank & Trust Company ("Clearfield") and Penn Laurel Financial
Corp. ("Penn Laurel") have entered into an Agreement and Plan of Reorganization
dated December 31, 1998 (the "Agreement"). Pursuant to the Agreement, among
other things Clearfield will merge with and into Penn Laurel in a merger of
equals (the "Merger"), and each share of Clearfield's issued and outstanding
common stock will be converted into and become the right to receive 0.97 shares
of Penn Laurel Common Stock subject to certain adjustments as set forth in the
Agreement (the "Exchange Ratio"). You have requested our opinion as to whether
the Exchange Ratio in the Merger is fair, from a financial point of view, to the
holders of Clearfield Common Stock. We have assumed that the Merger will be a
tax free reorganization and will be accounted for as a pooling of interests by
Penn Laurel.
Ryan, Beck & Co., as a customary part of its investment banking business,
is engaged in the valuation of banking and savings institutions and their
securities in connection with mergers and acquisitions. In conducting our
investigation and analysis of this transaction, we have met separately with
members of senior management of Penn Laurel and Clearfield to discuss their
respective operations, historical financial statements, strategic plans and
future prospects including the strategic rationale for, and the potential
benefits of the Merger. We have reviewed and analyzed material prepared in
connection with the Merger, including but not limited to the following: (i) the
Merger Agreement and related documents; (ii) the joint proxy
statement/prospectus; (iii) Penn Laurel's Annual Reports to Shareholders for the
years ended December 31, 1998, 1997, 1996 and 1995, and Penn Laurel's Quarterly
Call Reports filed with the Federal Deposit Insurance Corporation for the
periods ended March 31, 1999, September 30, 1998, June 30, 1998 and March 31,
1998; (iv) Clearfield's Annual Reports to Shareholders for the years ended
December 31, 1998, 1997, 1996 and 1995, and Clearfield's Quarterly Call Reports
filed with the Federal Deposit Insurance Corporation for the periods ended March
31, 1999, September 30, 1998, June 30, 1998 and March 31, 1998; (v) certain
operating and financial information provided to us by the managements of Penn
Laurel and Clearfield relating to their business and prospects; (vi) the
historical stock prices and trading volume of Penn Laurel's Common Stock; (vii)
the historical stock prices and trading volume of Clearfield's Common Stock;
(viii) the publicly available financial data of commercial banking organizations
which Ryan, Beck deemed generally comparable to Clearfield; and (ix) the
publicly available financial data of commercial banking organizations which
Ryan, Beck deemed generally comparable to
<PAGE>
Penn Laurel. We also conducted or reviewed such other studies, analyses,
inquiries and examinations as we deemed appropriate.
While we have taken care in our investigation and analyses, we have relied
upon and assumed the accuracy, completeness and fairness of the financial and
other information provided to us by the respective institutions or which was
publicly available and have not assumed any responsibility for independently
verifying such information. We have also relied upon the managements of Penn
Laurel and Clearfield as to the reasonableness and achievability of the
financial and operating forecasts and projections (and the assumptions and bases
therefor) provided to us and in certain instances we have made certain
adjustments to such financial and operating forecasts which in our judgment were
appropriate under the circumstances. In addition, we have assumed with your
consent that such forecasts and projections (including expense savings) reflect
the best currently available estimates and judgments of the respective
managements. We are not experts in the evaluation of allowances for loan losses.
Therefore, we have not assumed any responsibility for making an independent
valuation of the adequacy of the allowances for loan losses set forth in the
balance sheets of Penn Laurel and Clearfield at March 31, 1999, and we assumed
such allowances were adequate and comply fully with applicable law, regulatory
policy, sound banking practice and policies of the Securities and Exchange
Commission as of the date of such financial statements. We also assumed that the
Merger in all respects is, and will be consummated in compliance with all laws
and regulations applicable to Penn Laurel and Clearfield. We 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 have
we reviewed any individual loan files of Clearfield and Penn Laurel, including
its subsidiary bank.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered such financial and other factors as we have deemed
appropriate in the circumstances. We have assumed that in the course of
obtaining the necessary regulatory approvals for the Merger and the transactions
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. Our opinion is necessarily based on
economic, market and other conditions and projections as they exist and can be
evaluated on the date hereof. Ryan, Beck does not express any opinion as to the
price or range at which Penn Laurel Common Stock might trade subsequent to the
Merger. Our 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. Our opinion does not address the relative merits of the Merger
and alternative business strategies. In that regard, we were not requested 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. We were not requested to, and we did not consider, the third party
indication of interest received by Clearfield in May 1999 after the Agreement
was entered into.
We have 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 have received a fee for our services. Ryan, Beck, in October
1998, was jointly engaged by Penn Laurel and
<PAGE>
Clearfield to develop a full understanding of the business and characteristics
of Penn Laurel and Clearfield to facilitate the Merger. 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. Ryan, Beck has had no other investment banking
relationships with either Penn Laurel or Clearfield. Ryan, Beck is a market
maker for both Penn Laurel's and Clearfield's Common Stock and, in that
capacity, may from time to time own either Clearfield or Penn Laurel common
stock. Ryan, Beck's research department does not cover either Penn Laurel or
Clearfield.
Our opinion is directed to the Board of Directors of Clearfield and does
not constitute a recommendation to any shareholder of Clearfield as to how such
shareholder should vote at any shareholder meeting held in connection with the
Merger.
Based upon and subject to the foregoing it is our opinion as investment
bankers that the Exchange Ratio in the Merger as provided and described in the
Agreement is fair to the holders of Clearfield Common Stock from a financial
point of view.
Very truly yours,
/s/ Ryan, Beck & Co., Inc.
----------------------
RYAN, BECK & CO., INC.
<PAGE>
Annex C
Garland McPherson & Associates, Inc.
Fairness Opinion
<PAGE>
[GARLAND McPHERSON & ASSOCIATES, INC. LETTERHEAD]
August 2, 1999
The Board of Directors
Penn Laurel Financial Corp.
434 State Street
Curwensville, PA 16833
Members of the Board:
You have requested that we update our opinion as to the fairness, from a
financial point of view, to the shareholders of Penn Laurel Financial Corp.
("PLFC") of the Agreement and Plan of Reorganization (the "Agreement") pursuant
to which Clearfield Bank & Trust Company ("CBT") will combine with and into PLFC
by means of a merger of PLFC's wholly owned subsidiary, CSB Bank, with and into
CBT. Under the terms of the Agreement, each outstanding share of CBT common
stock will be converted into the right to receive 0.97 shares of PLFC common
stock.
Garland McPherson & Associates, Inc., as part of its investment banking and
bank consulting business, is engaged in the valuation of financial institution
securities for a variety of purposes, including mergers and acquisitions, and
the determination of adequate consideration in such transactions.
For purposes of this opinion and the original opinion that was rendered on
December 24, 1998, we reviewed and analyzed information pertaining to the
financial and operating condition of PLFC and CBT. This review included, but was
not limited to: (i) the Agreement and Plan of Reorganization; (ii) financial and
other information which was publicly available or provided to us by PLFC and
CBT; (iii) certain financial information relating to the banking industry in
general; (iv) the respective history of dividends paid by the two institutions;
(v) our evaluation of future prospects for the merged institution; and (vi) such
other financial reviews, analyses, and investigations as we deemed appropriate.
In rendering our opinion, we conducted discussions with members of senior
management of PLFC and CBT concerning their respective businesses and prospects
and have relied on the accuracy and completeness of information and
representations delivered to us by PLFC and CBT and their officers, directors
and counsel. We have not independently verified the information reviewed by us
(either publicly available or provided to us by PLFC and CBT) and, in rendering
our opinion, have relied upon such information as being complete and accurate in
all material respects.
<PAGE>
We have assumed that the allowances for loan losses indicated on the
balance sheets of PLFC and CBT as of March 31, 1999 are adequate to cover such
losses. We have not reviewed the loan files of PLFC and CBT, nor did we make an
independent valuation or appraisal of the assets and liabilities of PLFC and
CBT.
We assumed that in the course of obtaining the necessary regulatory
approvals for the Merger, no restrictions will be imposed on CBT that would have
a material adverse effect on the contemplated benefits of the Merger to PLFC. We
further assumed that no change would occur in applicable law or regulation that
would cause a material adverse change in the prospects or operations of the
resulting organization after the Merger. We express no opinion as to the tax
consequences of the merger to PLFC and its shareholders.
Our conclusion, with respect to this updated opinion, is based on the
market, economic and other conditions prevailing as of the date hereof and the
current conditions and prospects of PLFC and CBT. Events occurring subsequent to
this date could materially affect the assumptions and conclusions contained in
our opinion. We express no opinion as to what the value of combined
organization's common stock will be at the time the Merger is consummated. Our
opinion pertains only to the financial consideration of the Merger and does not
constitute a recommendation to the Board of PLFC nor a recommendation as to how
PLFC shareholders should vote with regard to the Merger.
Based upon and subject to the foregoing, it is our opinion as of the date
hereof, that the exchange ratio is fair, from a financial point of view, to the
shareholders of Penn Laurel Financial Corp.
Sincerely,
/s/ Garland McPherson & Associates, Inc.
-----------------------------------------
Garland McPherson & Associates, Inc.
<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>
Annex G
Tax Opinion of Shumaker Williams, P.C.
<PAGE>
ANNEX G
August 2, 1999
Board of Directors Board of Directors
CLEARFIELD BANK & TRUST PENN LAUREL FINANCIAL CORP.
COMPANY
Re: Clearfield Bank & Trust Company/ Penn Laurel Financial Corp.
Our File No. 831-98
Dear Members of the Board:
You have asked for our opinion regarding material federal income tax
consequences of the merger of CSB Bank (the "Bank") into Clearfield Bank & Trust
Company (the "Surviving Bank") pursuant to which the shareholders of the
Surviving Bank will receive voting common stock of the Bank's parent, Penn
Laurel Financial Corp. (the "Holding Company").
In providing our opinions, we have reviewed the Agreement and Plan of
Reorganization dated December 31, 1998, by and among the Holding Company, the
Surviving Bank and the Bank (the "Plan of Reorganization") and the Agreement and
Plan of Merger dated December 31, 1998, between the Bank and the Surviving Bank
(the "Agreement of Merger"). In rendering our opinions, we have assumed that:
(a) all parties have the legal right, power, capacity and authority
to enter into and perform all obligations under the Plan of
Reorganization and the Agreement of Merger;
(b) the due and proper execution and delivery of all relevant or
necessary instruments and documents;
(c) the receipt of all federal and state regulatory approvals
necessary to consummate the merger transaction; and
(d) the satisfaction or proper waiver of any other conditions under
the Plan of Reorganization and the Agreement of Merger so that
the merger transaction may
<PAGE>
Board of Directors
August 2, 1999
Page 2
be consummated.
All statements in this letter regarding the federal income tax consequences of
this merger transaction are based upon the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Regulations promulgated by the United States
Department of Treasury (the "Regulations"), current positions of the Internal
Revenue Service (the "IRS") as contained in published Revenue Rulings and
Procedures, current published administrative positions of the IRS, and existing
court decisions, all as in effect as of this date and each of which is subject
to change at any time.
Our opinions are based upon and assume the following Factual Background and
Assumptions relating to the merger transaction:
I. Factual Background
A. The Bank is a state banking institution organized and chartered
under the laws of the Commonwealth of Pennsylvania. The Bank is a
full-service commercial and retail bank, and commenced operations
on August 4, 1924. Its principal place of business is located at
434 State Street, Curwensville, Clearfield County, Pennsylvania.
All of the Bank authorized and issued shares of common stock are
held by Penn Laurel Financial Corp.
B. The Surviving Bank is a state banking institution organized and
chartered under the laws of the Commonwealth of Pennsylvania. The
Surviving Bank is a full-service commercial and retail bank. Its
principal place of business is located at 11 North 2nd Street,
Clearfield, Clearfield County, Pennsylvania. The Bank is
authorized to issue 617,600 shares of common stock, par value
$1.5625 per share, of which on July 31, 1999, 576,809 shares were
issued and outstanding (the "Surviving Bank Common Stock"). The
Surviving Bank has approximately 458 shareholders. The Surviving
Bank Common Stock is publicly traded in the local
over-the-counter market with the last known trade occurring on
July 26, 1999 at a price of $49.00 per share. The common stock is
the only class of security, authorized or outstanding, of the
Surviving Bank.
C. The Holding Company is a business corporation organized on
October 10, 1986, under the laws of the Commonwealth of
Pennsylvania. The Holding Company is solely organized to engage
in the business and activities associated with bank holding
companies. The Holding Company is authorized to issue 2,500,000
shares of common stock, par value $5.00 per share, of which on
July 31, 1999,
<PAGE>
Board of Directors
August 2, 1999
Page 3
346,587 shares were issued and outstanding. Each share of the
Surviving Bank Common Stock will be exchanged for .97 shares of
the Holding Company's common stock ("Holding Company Common
Stock"), subject to anti-dilution adjustments for stock splits
and stock dividends. The Holding Company's common stock will be
the only class of security to be outstanding. After the
consummation of the proposed transaction, the Holding Company
will have approximately 785 shareholders of record, less any
dissenting shareholders who exercise their rights of appraisal
and payment in cash for their stock.
D. In accordance with law and the terms of each of the Plan of
Reorganization and the Plan of merger, the Bank will merge with
and into the Surviving Bank. Upon the effective date of the
merger:
(a) the separate corporate existence of the Bank will terminate;
(b) the Surviving Bank will acquire all of the assets and assume
all of the liabilities of the Bank;
(c) the Surviving Bank will change its name to Penn laurel Bank
& Trust Company; and
(d) the Surviving Bank will continue to carry on the banking
business previously carried on by the Bank.
The approval of shareholders owning at least 66 2/3% the
outstanding stock of the Surviving Bank and at least 75% of the
Holding Company is required by federal law to approve the merger.
E. The shareholders of the Surviving Bank will be entitled to
receive .97 shares of the Holding Company Common Stock for each
share of the Surviving Bank Common Stock held by the shareholder
on the effective date of the merger, subject to anti-dilution
adjustments for stock splits and stock dividends.
F. Dissenters to the merger transaction, if any, will receive cash
for their shares, pursuant to the Pennsylvania Business
Corporation Law of 1988, as amended.
II. Assumptions
A. The Bank proposes to merge into the Surviving Bank in order to:
<PAGE>
Board of Directors
August 2, 1999
Page 4
(1) allow the Bank to acquire access to enhanced management
support systems and specialized banking and trust services
thus expanding services to their customers;
(2) allow the Bank to take advantage of any opportunities which
may arise as a result of changes in the Pennsylvania banking
laws; and
(3) allow the Holding Company to expand its market in the area.
B. The fair market value of the Holding Company Common Stock and
other consideration received by each shareholder of the Surviving
Bank will be approximately equal to the fair market value of the
Surviving Bank Common Stock surrendered in exchange.
C. There is no plan or intention by the shareholders of Surviving
Bank who own one percent (1%) or more of the Surviving Bank
Common Stock, and to the best of the knowledge of the management
of Surviving Bank, there is no plan or intention on the part of
the remaining shareholders of Surviving Bank to sell, exchange or
otherwise dispose of a number of shares of Holding Company Common
Stock received in the transaction that would reduce the Surviving
Bank shareholders' ownership of Holding Company Common Stock to a
number of shares having a value, as of the date of the
transaction, of less than 50% of the value of all of the formerly
outstanding Surviving Bank Common Stock as of the same date. For
purposes of this assumption, shares of Surviving Bank Common
Stock exchanged for cash or other property, surrendered by
dissenters or exchanged for cash in lieu of fractional shares of
Holding Company Common Stock, are and will be treated as
outstanding Surviving Bank Common Stock on the date of the
transaction, and shares of Surviving Bank Common Stock and shares
of Holding Company Common Stock held by the Surviving Bank
shareholders and otherwise sold, redeemed, or disposed of prior
or subsequent to the merger transaction will be considered.
D. The Surviving Bank will acquire at least ninety percent (90%) of
the fair market value of the net assets and at least seventy
percent (70%) of the fair market value of the gross assets held
by the Bank immediately prior to the merger transaction. For the
purposes of this assumption, amounts paid by the Surviving Bank
to dissenters, amounts paid by the Surviving Bank to shareholders
who receive cash or other property, assets of the Surviving Bank
used to pay its reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by the
Surviving Bank immediately preceding the transfer, are and will
be included as assets of the Surviving Bank held immediately
prior to the
<PAGE>
Board of Directors
August 2, 1999
Page 5
merger transaction.
E. Following the transaction, the Surviving Bank will not issue
additional shares of its stock that would result in the Holding
Company losing control of the Surviving Bank within the meaning
of Code Section 368(c)(1).
F. The Holding Company has no plan or intention to redeem or
otherwise reacquire any of its stock to be issued in the merger
transaction.
G. The Holding Company has no plan or intention to liquidate the
Surviving Bank; to merge the Surviving Bank with and into another
corporation, other than the Bank as described in this letter; to
sell or otherwise dispose of the stock of the Surviving Bank; or
to cause the Surviving Bank to sell or otherwise dispose of any
of the assets of the Bank to be acquired in the merger
transaction, except for dispositions made in the ordinary course
of business, and transfers described in Code Section
368(a)(2)(C).
H. The liabilities of the Bank to be assumed by the Surviving Bank
and the liabilities to which the transferred assets of the Bank
are subject were incurred by the Bank in the ordinary course of
its business, and are associated with the assets to be
transferred.
I. Following the merger transaction, the Surviving Bank will
continue the historic business of the Bank or use a significant
portion of the Bank's business assets in a business.
J. The Holding Company, the Bank, the Surviving Bank and the
shareholders of the Surviving Bank will pay their respective
expenses, if any, incurred in connection with the merger
transaction.
K. There is no intercorporate indebtedness existing between the
Holding Company and the Surviving Bank or between the Surviving
Bank and the Bank that was issued or acquired, or will be settled
at a discount.
<PAGE>
Board of Directors
August 2, 1999
Page 6
L. The adjusted basis and fair market value of the Bank's assets to
be transferred to the Surviving Bank will, in each instance,
equal or exceed the sum of the Bank's liabilities to be assumed
by the Surviving Bank, plus the liabilities, if any, to which the
transferred assets are subject.
M. No stock of the Surviving Bank will be issued to any of the
shareholders of the Bank in the merger transaction.
N. There is no larger integrated transaction of which the merger
transaction constitutes only one step.
O. The expenses of the merger transaction and the amount to be paid
to dissenters, if any, will not exceed 10% of the fair market
value of the net assets of the Surviving Bank.
P. There are no fractional shares of the Surviving Bank Common Stock
outstanding and no fractional shares will be issued in the merger
transaction.
Q. The Surviving Bank has no plan or intention of disposing of the
assets of the Bank to be received by it in the merger
transaction, other than in the ordinary course of business.
R. No dividends or distributions have been or will be made with
respect to any of the Surviving Bank Common Stock immediately
prior to the merger transaction.
S. None of the compensation received by any shareholder-employees of
the Surviving Bank will be separate consideration for, or
allocable to, any of their shares of the Surviving Bank Common
Stock; none of the shares of the Holding Company Common Stock
received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement; and
the compensation paid to any shareholder-employees will be for
services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's-length for similar
services.
T. There is no present plan or intention to issue any of the
authorized common stock of the Holding Company in excess of the
amounts described in this letter in the
<PAGE>
Board of Directors
August 2, 1999
Page 7
merger transaction.
U. Prior to the effective date of the merger transaction, neither
the Holding Company nor the Bank held either directly or
indirectly any stock or securities in the Surviving Bank.
V. The payment of cash in lieu of fractional shares of the Holding
Company Common Stock is solely for the purpose of avoiding the
expense and inconvenience to the Holding Company of issuing
fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in
the proposed transaction to the shareholders of the Surviving
Bank instead of issuing fractional shares of the Holding Company
Common Stock will not exceed one percent (1%) of the total
consideration that will be issued in the proposed transaction to
the shareholders of the Surviving Bank in exchange for their
shares of Surviving Bank Common Stock. Each shareholder of the
Surviving Bank will be aggregated with no shareholder receiving
cash in an amount greater than the value of one share of the
Holding Company Common Stock.
Based on the foregoing and subject to and specifically relying upon the
aforesaid Factual Background and Assumptions and other matters herein referred
to, it is our opinion that:
1. The acquisition by the Surviving Bank of substantially all of the
assets of the Bank in exchange for the Holding Company Common Stock
and the assumption by the Surviving Bank of all of the liabilities of
the Bank plus liabilities to which the acquired assets of the Bank may
be subject, will qualify as a reorganization within the meaning of
Code Sections 368(a)(1)(A) and (a)(2)(E). For purposes of this
opinion, "substantially all" means at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of
the gross assets of the Bank. The Holding Company, the Surviving Bank,
and the Bank will each be "a party to a reorganization" within the
meaning of Code Section 368(b).
2. No gain or loss will be recognized by either the Holding Company, the
Surviving Bank or the Bank on the transfer of substantially all of
Bank's assets to the Surviving Bank in exchange for the Holding
Company Common Stock and the assumption by the Surviving Bank of all
of the liabilities of the Bank plus the liabilities to which the
acquired assets of the Bank may be subject.
3. No gain or loss will be recognized to the shareholders of the
Surviving Bank upon
<PAGE>
Board of Directors
August 2, 1999
Page 8
the exchange of their Surviving Bank Common Stock solely for the
Holding Company Common Stock pursuant to the Plan of Reorganization
and Agreement of Merger, except in respect of cash that is received in
lieu of the issuance of fractional shares of the Holding Company
Common Stock and for any shareholder of the Surviving Bank who
receives payment in cash as a dissenting shareholder.
4. In the case of cash received by any shareholder of the Surviving Bank
in lieu of the issuance of a fractional share of Holding Company
Common Stock, taxable gain or loss will be recognized by such
shareholder to the extent of the difference between the amount the
cash received and the adjusted tax basis of such fractional share
interest.
5. In the case of cash received by any shareholder of the Surviving Bank
who exercises dissenter's rights, taxable gain or loss will be
recognized by such shareholder to the extent of the difference between
the amount of the cash received and the adjusted tax basis of the
shares as to which dissenter's rights are exercised, provided that the
purchase is a complete redemption of the shareholder's stock ownership
interest in the Surviving Bank.
6. The basis of the shares of the Holding Company Common Stock to be
received by the shareholders of the Surviving Bank will be the same as
the basis of the shares of Surviving Bank Common Stock exchanged
therefor.
7. The holding period of the shares of the Holding Company Common Stock
to be received by the shareholders of the Surviving Bank will include
the period during which the Surviving Bank Common Stock, surrendered
in exchange therefor, was held by the shareholders of the Surviving
Bank, provided the Surviving Bank Common Stock was held as a capital
asset in the hands of the shareholders of the Surviving Bank at the
time of the exchange.
8. Surviving Bank, as the surviving bank to the merger, will carry-over
and take into account all accounting items and tax attributes, and tax
basis and holding periods of the assets of the Bank.
The opinions set forth in this letter are given and based upon the
existence of the assumed facts as hereinabove set forth, all as of the date of
this letter. Should any facts or assumptions be otherwise than as hereinabove
set forth, no opinion is made or expressed with respect thereto or as to the
legal, tax or other consequences thereof. We make no and disclaim any opinion as
to any facts occurring after the date of this letter or as to the legal, tax or
other consequences thereof. We assume no obligation to investigate, research or
determine any facts or laws, rules or regulations occurring, existing or in
effect after the date hereof, or to update or supplement any
<PAGE>
Board of Directors
August 2, 1999
Page 9
of the opinions herein expressed to reflect any facts or circumstances or
changes in law that hereafter may occur or come to our attention.
The Holding Company, the Bank, the Surviving Bank and the shareholders of
the Surviving Bank may rely upon this opinion letter. No other person, whether
natural or otherwise, may rely upon this opinion letter, and it may not be
disclosed to any other persons without our prior written consent. We further
consent to the inclusion of this opinion as an exhibit to the Registration
Statement and to the reference of our firm in the section of the Registration
Statement entitled "Federal Income Tax Consequences".
Sincerely,
/s/ Shumaker Williams, P.C.
-----------------------
SHUMAKER WILLIAMS, P.C.
<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 Opinion of Shumaker Williams, P.C. re: Tax
Matters. (Included at Annex G to the Proxy
Statement/Prospectus).
10.1 Penn Laurel Financial Corp. Employee Incentive Stock
Option Plan.
10.2 Employment Agreement, dated January 1, 1999, between
Larry W. Brubaker and Penn Laurel Financial Corp.
10.3 Employment Agreement, dated July 22, 1999, between
Penn Laurel Financial Corp., Penn Laurel Bank & Laurel
Company and Larry W. Brubaker.
10.4 Employment Agreement, dated July 22, 1999, between
Penn Laurel Financial Corp., Penn Laurel Bank & Laurel
Company and William E. Wood.
10.5 Employment Agreement, dated July 22, 1999, between
Penn Laurel Financial Corp., Penn Laurel Bank & Laurel
Company and Wesley M. Weymers.
10.6 Engagement Agreement, dated May 27, 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 Amendment No. 1 to the Registration Statement No 333-75585,
on Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Curwensville, Commonwealth of Pennsylvania on July
30, 1999.
PENN LAUREL FINANCIAL CORP.
By: /s/ Larry W. Brubaker
---------------------------
Larry W. Brubaker
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the 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 July 30, 1999
- ---------------------------------------- Officer
Larry W. Brubaker (Principal Executive Officer)
/s/ C. Ben Mullins, Jr. Vice President and Chief July 30, 1999
- ---------------------------------------- Financial Officer
C. Ben Mullins, Jr. (Principal Accounting or
Financial Officer)
/s/ Donald R Fezell
- ---------------------------------------- Director July 30, 1999
Donald R Fezell
<PAGE>
/s/ Guy A. Graham
- ----------------------------------------- Director July 30, 1999
Guy A. Graham
/s/ Frank J. Hoffman, Jr.
- ----------------------------------------- Chairman of the July 30, 1999
Frank J. Hoffman, Jr. Board of Directors
/s/ Joseph P. Leyo
- ----------------------------------------- Director July 30, 1999
Joseph P. Leyo
/s/ Richard L. Lininger
- ----------------------------------------- Director July 30, 1999
Richard L. Lininger
/s/ Laurence B. Seaman
- ----------------------------------------- Director July 30, 1999
Laurence B. Seaman
/s/ Joseph A. Shaw
- ----------------------------------------- Director July 30, 1999
Joseph A. Shaw
/s/ Darrell G. Spencer
- ----------------------------------------- Director July 30, 1999
Darrell G. Spencer
/s/ Richard A. Wilkinson
- ----------------------------------------- Director July 30, 1999
Richard A. Wilkinson
/s/ Wesley M. Weymers
- ----------------------------------------- Director July 30, 1999
Wesley M. Weymers
/s/ Larry W. Brubaker
- -----------------------------------------
Larry W. Brubaker
(Attorney-in-Fact)
</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 Opinion of Shumaker Williams, P.C. re: Legality.
8 Opinion of Shumaker Williams, P.C. re: Tax Matters.
(Included at Annex G to the Proxy Statement/Prospectus).
<PAGE>
10.1 Penn Laurel Financial Corp. Employee Incentive Stock
Option Plan.
10.2 Employment Agreement, dated January 1, 1999, between
Larry W. Brubaker and Penn Laurel Financial Corp.
10.3 Employment Agreement, dated July 22, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and Larry W. Brubaker.
10.4 Employment Agreement, dated July 22, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and William E. Wood.
10.5 Employment Agreement, dated July 22, 1999,
between Penn Laurel Financial Corp., Penn Laurel Bank
& Laurel Company and Wesley M. Weymers.
10.6 Engagement Agreement, Dated May 27, 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.
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>
August 2, 1999
Mr. William E. Wood 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. Wood 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.
/s/ Shumaker Williams, P.C.
-----------------------
Shumaker Williams, P.C.
PENN LAUREL FINANCIAL CORP.
CURWENSVILLE, PENNSYLVANIA
INCENTIVE STOCK OPTION PLAN
1. Purpose and Scope
The purpose of this Stock Option Plan is to promote the interests of the
Company and its shareholders by strengthening its ability to attract and retain
key officers by furnishing additional incentives whereby such present and future
employees may be encouraged to acquire, or to increase their acquisition of, the
Company's common shares, thus maintaining their personal and proprietary
interest in the Company's continued success and progress. The Stock Option Plan
provides for the grant of Incentive Stock Options in accordance with the terms
and conditions set forth below.
2. Definitions
Unless otherwise required by the context:
2.01. "Company" shall mean Penn Laurel Financial Corp., a Company doing
business in Pennsylvania, and any subsidiary corporation.
2.02 "Board" shall mean the Board of Directors of the Company.
2.03. "Committee" shall mean the Stock Option Plan Committee, which
consists of three members appointed by the Board.
2.04. "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.05. "Incentive Stock Option" shall mean a right to purchase Stock,
granted pursuant to the Stock Option Plan, which qualifies under Section 422 of
the Code and the regulations thereunder.
2.06. "Optionee" shall mean anyone to whom an Incentive Stock Option is
granted under the Stock Option Plan.
2.07. "Options" shall mean an Incentive Stock Option.
<PAGE>
2.08. "Option Price" shall mean the purchase price for Stock under an
Incentive Stock Option, as determined in Section 6 below.
2.09. "Stock Option Plan" shall mean the Penn Laurel Financial Corp.
Incentive Stock Option Plan.
2.10. "Stock" shall mean the common shares of Penn Laurel Financial Corp.
2.11. "Stock Option Agreement" shall mean an agreement between an Optionee
and the Company containing the terms and conditions of the Option as set forth
in Section 8.
3. Stock to be Optioned
Subject to the provisions of Section 15 of the Stock Option Plan, the
maximum number of shares of Stock that may be subject to Options under the Stock
Option Plan is 40,000 shares. Such shares of Stock may be treasury, or
authorized, but unissued, shares of Stock of the Company. If any Incentive Stock
Option granted under the Stock Option Plan shall expire or terminate for any
reason without having been exercised in full, the shares not purchased shall
again be available for purposes of the Stock Option Plan.
4. Administration
The Stock Option Plan shall be administered by the Committee. Two members
of the Committee shall constitute a quorum for the transaction of business. The
Committee shall be responsible to the Board for the operation of the Stock
Option Plan, and shall make recommendations to the Board with respect to
participation in the Stock Option Plan by employees of the Company, and with
respect to the extent of that participation. The interpretation and construction
of any provision of the Stock Option Plan by the Committee shall be final,
unless otherwise determined by the Board. However, no Committee member shall
have any discretion in regard to either his Options or his participation in the
Stock Option Plan. No member of the Board or the Committee shall be liable for
any action or determination made by him in good faith.
5. Eligibility
The Board, upon recommendation of the Committee, may grant Incentive Stock
Options to any officer, key executive, administrative or other employee of the
Company (including an employee who is a director of the Company). Options may be
awarded by
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<PAGE>
the Board at any time and from time to time to new Optionees, or to then
Optionees, or to a greater or lesser number of Optionees, and may include or
exclude previous Optionees, as the Board, upon recommendation by the Committee
shall determine. Options granted at different times need not contain similar
provisions.
6. Option Price
Except as otherwise provided in Section 9.02, the purchase price for Stock
under each Option shall be 100 percent of the Fair Market Value of the Stock at
the time the Option is granted.
7. Fair Market Value of Stock
The Committee shall have sole discretion to determine the Fair Market Value
of Stock, taking into consideration such factors as the then most recent annual
independent appraisal of Stock under the Penn Laurel Financial Corp. Employee
Stock Ownership Plan with 401(k) Provisions, and Stock trades or events since
the most recent appraisal that affect such most recent appraisal price.
8. Terms and Conditions of Options
Options granted pursuant to the Stock Option Plan shall be authorized by
the Board and shall be evidenced by a Stock Option Agreement in such form as the
Board, upon recommendation of the Committee, shall from time to time approve.
Such Stock Option Agreements shall comply with and be subject to the following
terms and conditions:
8.01. Employment Agreement. The Board may, in its discretion, include in
any Option granted under the Stock Option Plan a condition that an
employee-Optionee shall agree to remain in the employ of, and to render services
to, the Company for a period of time (specified in the Employment Agreement)
following the date the Option is granted. No such Employment Agreement shall
impose upon the Company, however, any obligation to employ the Optionee for any
period of time.
8.02. Noncompetition. The Board may, in its discretion, include in any
Option granted under the Stock Option Plan a condition that an Optionee agree
not to compete with the Company for a specific period of time and/or within a
specific geographic area.
3
<PAGE>
8.03. Time and Method of Payment. The Option Price shall be paid in cash by
certified check or bank cashier's check at the time an Option is exercised under
the Stock Option Plan. Promptly after the exercise of an Option, and the payment
of the full Option Price in cash, the Optionee shall be entitled to the issuance
of a stock certificate evidencing his ownership of the shares of Stock subject
to the Option. An Optionee shall have none of the rights of a shareholder with
respect to Stock purchased under the Stock Option Plan until a stock certificate
representing such Stock is issued to him, and no adjustment will be made for
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
8.04. Number of Shares. Each Option shall state the total number of shares
of Stock to which it pertains.
8.05. Option Period and Limitations on Exercise of Options. The Board may,
in its discretion, provide that an Option may not be exercised in whole or in
part for any period or periods of time specified in the Stock Option Agreement.
Except as provided in the Stock Option Agreement, an Option may be exercised in
whole or in part at any time during its term. No Option may be exercised after
the expiration of ten years from the date it is granted. No Option may be
exercised for a fractional share of Stock.
9. Provisions Applicable to Incentive Stock Options
It is intended that Incentive Stock Options granted under the Stock Option
Plan shall constitute Incentive Stock Options within the meaning of Section 422
of the Code. The following provisions are applicable to any Incentive Stock
Option granted under the Stock Option Plan.
9.01. Term of Incentive Stock Option. No Incentive Stock Option shall be
exercisable after the date ten years from the date such Incentive Stock Option
is granted.
9.02. Ten Percent Shareholder. Notwithstanding any other provision herein
contained, no Optionee may receive an Incentive Stock Option under the Stock
Option Plan if such Optionee, at the time the Option is granted, owns (as
defined in Section 424(d) of the Code) stock possessing more than ten percent of
the total combined voting power of all classes of stock of the Company, unless
the Option Price for such Incentive Stock Option is at least 110 percent of the
fair market value of the Stock subject to such Incentive Stock Option on the
date of the grant and such Incentive Stock Option is not exercisable after the
date five years from the date such Incentive Stock Option is granted.
4
<PAGE>
9.03. Limitation on Amounts. The aggregate fair market value (determined
with respect to each Incentive Stock Option as of the time such Incentive Stock
Option is granted) of the Stock with respect to which Incentive Stock Options
are exercisable for the first time by an Optionee during any calendar year shall
not exceed $100,000.
9.04. Grant of Incentive Stock Option. An Incentive Stock Option granted
pursuant to the Stock Option Plan must be granted within ten years from the date
the Stock Option Plan is adopted or the date the Stock Option Plan is approved
by Company shareholders, whichever is earlier.
10. Exercise of Options
The Committee, in granting Options hereunder, shall have discretion to
determine the terms upon which such Options shall be exercisable, subject to the
applicable provisions of the Stock Option Plan and the applicable Stock Option
Agreement.
If an Optionee is discharged for just cause at any time, any existing and
unexercised Options granted to him shall be forfeited. For this purpose, "just
cause" shall mean theft, fraud, embezzlement or willful misconduct causing
significant property, financial, or other economic damage to the Company or
personal injury to any employee of the Company. The Committee shall have sole
discretion in determining just cause within the terms of this definition.
11. Termination of Employment
Following the date of termination of employment other than for just cause,
an Optionee may at any time within three (3) months exercise his Options to the
extent that he was entitled to exercise them on the date of termination of
employment, but in no event shall any Option be exercisable more than ten (10)
years from the date it was granted. The Committee shall determine, unless
overruled by the Board, in each case and, subject to applicable law whether a
leave of absence shall constitute a termination of employment. Any such
determination of the Committee shall be final and conclusive, unless overruled
by the Board.
12. Rights in Event of Death
If an Optionee leaves the employment of the Company due to death or dies
within three (3) months after having terminated continuous employment, without
having fully exercised his Options, the executors or administrators, or
legatees or heirs, of his estate
5
<PAGE>
shall have the right to exercise all of his Options, provided, however, that in
no event shall the Options be exercisable more than three (3) months from the
date of the Optionee's death or termination of continuous employment, nor at any
date that exceeds ten years from the date such Options were granted.
13. No Obligations to Exercise Option
The granting of an Option shall impose no obligation upon the Optionee to
exercise such Option.
14. Nonassignability
Options shall not be transferable other than by will or by the laws of
descent and distribution, and during an Optionee's lifetime shall be exercisable
only by such Optionee.
15. Effect of Change in Stock Subject to the Stock Option Plan
The aggregate number of shares of Stock available for Options under the
Stock Option Plan, the Stock subject to any Option and the price per share shall
be proportionately adjusted for any increase or decrease in the number of issued
shares of Stock subsequent to the effective date of the Stock Option Plan
resulting from (1) a subdivision or consolidation of shares or any other capital
adjustment, (2) the payment of a stock dividend, or (3) other increase or
decrease in such shares effected without receipt of consideration by the
Company. If the Company shall be the surviving corporation in any merger or
consolidation, any Option shall pertain, apply, and relate to the securities to
which a holder of the number of shares of Stock subject to the Option would have
been entitled after the merger or consolidation. Upon dissolution or liquidation
of the Company, or upon a merger or consolidation in which the Company is not
the surviving corporation, or upon a sale of substantially all of the shares of
Stock or assets of the Company, all Options outstanding under the Stock Option
Plan shall terminate; provided, however, that the Board shall give at least 30
days' prior written notice of such event to each Optinee (and each other person
entitled under Sections 12 or 14 to exercise an Option) during which time he
shall have the right to exercise all of his Options in whole or in part.
6
<PAGE>
16. Amendment and Termination
Neither the Board nor the Committee may, without the consent of the holder
of an Option, alter or impair any Option, previously granted under the Stock
Option Plan, except as authorized herein. Unless sooner terminated, the Stock
Option Plan shall remain in effect for a period of ten (10) years from the
earlier of the date of the Stock Option Plan's adoption by the Board or approval
by the Company shareholders. Termination of the Stock Option Plan shall not
affect any Option previously granted.
With respect to any shares of Stock to which Options have not been granted
under the Stock Option Plan, the Board, without further action on the part of
the shareholders of the Company, may from time to time alter, amend, or suspend
certain provisions of the Stock Option Plan except that it may not, without the
approval of the shareholders of the Company: (i) change the number of shares of
Stock available for grant under the Stock Option Plan, (ii) extend the duration
of the Stock Option Plan, (iii) increase the maximum term of Options under the
Stock Option Plan, (iv) decrease the minimum Option Price of Options, (v) change
the class of employees eligible to be granted Incentive Stock Options under the
Stock Option Plan, or (vi) effect a change relating to Incentive Stock Options
granted under the Stock Option Plan which is inconsistent with Code Section 422
or the regulations thereunder.
17. Agreement and Representation of Employees
As a condition to the exercise of any portion of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of such exercise that any shares of Stock acquired at exercise are being
acquired only for investment and without any present intention to sell or
distribute such shares, if, in the opinion of counsel for the Company, such a
representation is required under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency.
18. Reservation of Shares of Stock
The Company, during the term of the Stock Option Plan, will at all times
reserve and keep available, and will seek or obtain from any regulatory body
having jurisdiction any requisite authority necessary to issue and to sell, the
number of shares of Stock that shall be sufficient to satisfy the requirements
of the Stock Option Plan. The inability of the Company to obtain from any
regulatory body having jurisdiction the authority deemed necessary by counsel
for the Company for the lawful issuance and sale of its Stock
7
<PAGE>
hereunder shall relieve the Company of any liability in respect of the failure
to issue or sell Stock as to which the requisite authority has not been
obtained.
19. Withholding Taxes
Whenever under the Stock Option Plan shares of Stock are to be issued upon
the exercise of Options thereunder, the Company shall have the right to require
the Optionee to remit to the Company an amount in cash sufficient to satisfy
federal, state and local withholding tax requirements, if any, prior to the
delivery of any Stock certificate or certificates for such shares. For
withholding tax purposes, the shares of Stock shall be valued at their Fair
Market Value on the date the withholding obligation is incurred.
20. Miscellaneous
20.01. Applicable Law. All questions pertaining to the validity,
construction and administration of the Stock Option Plan and Stock Options
granted hereunder shall be determined in conformity with the laws of the State
of Pennsylvania, to the extent not inconsistent with Section 422 of the Internal
Revenue Code and regulations thereunder.
20.02. Gender. As used in this instrument, the masculine, feminine, and
neuter genders shall be deemed to include the others unless the content requires
otherwise.
21. Effective Date of Stock Option Plan
The Stock Option Plan shall be effective from the earlier of the date of
the Stock Option Plan's adoption by the Board or approval by the shareholders of
the Company.
Date Approved By Board of Directors: July 22, 1998
-------------
Date Approved by Company Shareholders: May 12, 1999
------------
8
THIS AGREEMENT is made as of the 1 day of January, 1999, between CSB Bank,
a Pennsylvania banking institution (the "Bank"), Penn Laurel Financial Corp., a
Pennsylvania business corporation (the "Corporation"), and Larry W. Brubaker, an
adult individual (the "Executive").
WHEREAS, the Bank is a subsidiary of the Corporation; and
WHEREAS, the Bank desires to employ the Executive as its Chairman of the
Board and Chief Executive Officer, and the Corporation desires to employ the
Executive as its President and Chief Executive Officer, both under the terms and
conditions as set forth herein; and
WHEREAS, the Executive desires to serve the Bank and Corporation in an
executive capacity under the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and intending to be legally bound hereby, the parties agree as
follows:
1. TERMS OF EMPLOYMENT The Bank and Corporation hereby shall employ the
Executive and the Executive hereby accepts employment with the Bank and
Corporation for a term of two (2) years, beginning January 1, 1999, subject,
however, to prior termination of this Agreement as set forth below. Furthermore,
subject to the subsequent provision of the paragraph, upon the expiration of
the first two (2) years after the effective date of this Agreement, and upon
expiration of each subsequent twelve (12) full calendar months thereafter, the
term hereof shall be extended for another twelve (12) full calendar months. Such
extension of the Agreement's term shall be conditioned upon the Corporation's
and Bank's written notice of their intent to extend this Agreement upon
expiration of each twelve (12) full calendar months of the term hereof, which
written notice shall be given by the Corporation and Bank not less than ninety
(90) days before the expiration
<PAGE>
of the current twelve (12) months. Failure to give written notice of the
extension of the Agreement for an additional twelve (12) full calendar months,
shall cause termination upon the expiration of the then term.
2. POSITION AND DUTIES The executive shall serve as the President and Chief
Executive Officer of the Corporation and Chairman of the Board and Chief
Executive Officer of the Bank, and may serve as a member of the Boards of
Directors of the Corporation and Bank if properly elected, reporting only to the
Boards of Directors of the Corporation and Bank, and shall have supervision and
control over, and responsibility for, the general management and operation of
the Corporation and Bank, and shall have such other powers and duties as may
from time to time be prescribed by the Boards of Directors of the Corporation
and Bank, provided that such powers and duties are consistent with the
Executive's position as the executive officer in charge of the general
management of the Corporation and Bank.
3. ENGAGEMENT IN OTHER EMPLOYMENT The Executive shall devote all his
working time, ability, and attention to the business of the Corporation and Bank
during the term of this Agreement. The Executive shall notify the Boards of
Directors of the Corporation and Bank in writing and receive written approval
from the Corporation and Bank before the Executive engages in any other
business, commercial, voluntary, or philanthropic activities, duties or
pursuits, including, but not limited to, directorships of other companies. Under
no circumstances may the Executive engage in any business or commercial
activities, duties or pursuits which compete with the business or commercial
activities of the Corporation or Bank, nor may the Executive serve as a director
or officer, or in any other capacity in a company which competes with the
Corporation or Bank.
4. COMPENSATION
(a) ANNUAL DIRECT SALARY As compensation for services rendered the Bank
and Corporation under this Agreement, the Executive shall be entitled to receive
from the Bank an annual direct salary payable in twelve (12) substantially equal
installments (or such other intervals of
2
<PAGE>
the Bank's payroll policy), and prorated for any partial employment period. The
Annual Direct Salary shall be reviewed by the Boards of Directors of the
Corporation and the Bank, taking into the account of the position and duties of
the Executive and the performance of the Corporation and Bank under the
Executive's leadership.
(b) ANNUAL BUSINESS PLAN The Executive shall prepare a business plan
establishing the financial and business goals of the Corporation and Bank prior
to the start of each fiscal year. The business plan prepared by the Executive
shall be reviewed promptly by the Boards of Directors of the Corporation and
Bank, which may in its sole discretion alter or modify such plan prior to its
adoption. The Board of Directors of the Corporation, in its sole discretion, may
provide for payment of a yearly bonus to the Executive in such an amount as it
may deem appropriate to provide incentive to the Executive and to reward the
Executive for his performance in accordance with the business plan.
(c) DIRECTOR FEES The Executive shall be entitled to any director's fee
as paid to other members of the Board of Directors of the Bank and/or
Corporation or subsidiaries, unless prohibited by regulation. The Executive also
agrees to serve on all committees, except the audit committee, of the Board of
Directors of the Bank and/or Corporation or subsidiary of either without any
additional compensation or fees.
5. FRINGE BENEFITS, VACATION, EXPENSES, AND PERQUISITES
(a) EMPLOYEE BENEFIT PLANS The Executive shall be entitled to
participate in or receive benefits under all Bank or Corporation employee
benefit plans, including but not limited to, any pension plan, profit-sharing
plan, savings plan, life insurance plan, or disability insurance plan as made
available by the Bank or Corporation to its employees, subject to and on a basis
consistent with terms, conditions, and overall administration of such plans and
arrangements.
3
<PAGE>
(b) VACATION AND HOLIDAYS The Executive shall be entitled to the number
of paid vacation days in each calender year determined by the Bank from time to
time for its senior executive officers, but not less than five (5) weeks in any
calendar year (prorated in any calender year during which the Executive is
employed hereunder for less than the entire such year in accordance with the
number of days in such calendar year which he is so employed). The Executive
shall also be entitled to all paid holidays and personal days given by the Bank
to its other employees.
(c) BUSINESS EXPENSE During the term of his employment hereunder, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him (in accordance with the policies and procedures
established by the Board of Directors of the Bank for its senior executive
officers) in performing services hereunder, provided that the Executive properly
accounts therefor in accordance with Bank policy
(d) AUTOMOBILE The Executive shall be entitled to the use of a Bank
purchased or leased automobile, as may be agreed upon by the Board of Directors
and the Executive. The Executive shall also be entitled to reimbursement for all
operating expenses of the automobile, including but not limited to, oil,
gasoline, maintenance, repairs, and insurance.
6. POSITIONS The Executive agrees to serve with additional compensation as
a director on the Board of Directors of the Corporation or the Bank, and, if
elected or appointed thereto, in one or more offices of the Corporation or Bank,
and/or as a director of any of the Bank's subsidiaries.
7. LIABILITY INSURANCE The Bank or Corporation shall use its best efforts
to continue similar insurance coverage for the Executive under an insurance
policy covering officers and directors of the Bank or Corporation against
lawsuits, arbitrators, or other legal or regulatory proceedings; however,
nothing herein shall be construed to require the Bank or Corporation to obtain
such insurance, if the Boards of Directors of the Bank or Corporation determine
that such coverage cannot be obtained at a reasonable price.
8. UNAUTHORIZED DISCLOSURE During the term of his employment hereunder, or
at any later time, the Executive shall not, without the written consent of the
Boards of Directors of the Corporation or Bank, or a person authorized thereby,
knowingly disclose to any person, other than an employee of the Corporation or
Bank, or a person to whom
4
<PAGE>
disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of his duties as an executive of the Corporation or
Bank, any material confidential information obtained by him while in the employ
of the Corporation or Bank with respect to any of the Corporation or Bank's
service, products, improvements, formulas, designs or styles, processes,
customers, methods of business or any business practices the disclosure of which
could be or will be materially damaging to the Corporation or Bank provided,
however, that confidential information shall not include any information known
generally to the public (other than as a result of unauthorized disclosure by
the Executive or any person with the assistance, consent or direction of the
Executive) or any information of a type not otherwise considered confidential by
persons engaged in the same business or a business similar to that conducted by
the Corporation or Bank.
9. RESTRICTIVE COVENANT. The Executive covenants and agrees that the
Executive shall not directly or indirectly, within the marketing area of the
Bank (defined as an area within seventy five (75) miles of the Bank or any
branch office), enter into or engage generally in direct or indirect competition
with the Corporation or Bank or any subsidiary of the Corporation, either as an
individual on his own or as a partner or joint venturer, or as a director,
officer, shareholder, employee, agent, independent contractor, lessor or
creditor of or for any person, for a period of three (3) years after the date of
termination of his employment if the Executive's employment is terminated for
any reason whatsoever except upon resignation by the Executive for "Good Reason"
under paragraph 10(d) hereof (except that change of control shall not constitute
Good Reason for this paragraph). The existence of any clain or cause of action
of the Executive against the Corporation or Bank, whether predicated to this
Agreement or otherwise, shall not constitute a defense to the enforcement by the
Corporation or Bank of this covenant. The Executive agrees that any breach of
the restrictions set forth in this paragraph will result in irreparable injury
to the Corporation or Bank for which it shall have no adequate remedy at law and
the Corporation or Bank shall be entitled to injunctive relief in order to
enforce the provisions hereof. In the event that this paragraph shall be
determined by any court of competent jurisdiction to be unenforceable in part by
reason of it being too great a period of time or covering too great a
geographical area, it shall be in full force and effect as to that period of
time or
5
<PAGE>
geographical area determined to be reasonable by the court.
10. TERMINATION.
(a) The Executive's employment hereunder shall terminate upon his
death.
(b) If the Executive becomes disabled because of sickness, physical or
mental disability, or any other reason, the Corporation or Bank shall have the
option to terminate this Agreement by giving written notice of termination to
the Executive. Executive shall be deemed to have become "disabled" only in the
event and at such time as he qualifies (after expiration of any applicable
waiting period) to receive benefits for total disability under the employee
disability insurance benefit plan referred to in paragraph 5(a) above.
(c) The Corporation or Bank may terminate the Executive's employment
hereunder for cause. For the purposes of this Agreement, the Corporation or Bank
shall have "Cause" to terminate the Executive's employment hereunder upon (1)
the willful failure by the Executive to perform his duties hereunder, or (2) the
willful engaging by the Executive in misconduct injurious to the Corporation or
Bank, or (3) the willful violation by the Executive of the provision of
paragraphs 3 or 8 hereof, or (4) the dishonesty or gross negligence of the
Executive in the performance of his duties, or (5) the breach of Executive's
fiduciary duty involving personal profit, or (6) the violation of any law, rule
or regulation governing banks or bank officers or any final cease and desist
order issued by a bank regulatory authority, or (7) moral turpitude or other
conduct on the part of the Executive which brings public discredit to the
Corporation or Bank.
(d) The Executive may terminate his employment hereunder if (1) his
health should become impaired to an extent that it makes continued performance
of his duties hereunder hazardous to his physical or mental health or his life,
or (2) for Good Reason. The term "Good Reason" (1) shall mean (i) any assignment
to the Executive, without his consent, of any
- ----------------
(1) definition of "Good Reason"
(i) change of duties
(ii) removal from position
(iii) reduction in annual direct salary
(iv) Bank's/Corporation's violation of particular provisions in the
Agreement
(v) hostile change in control
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duties other than those contemplated by, or any limitation of the powers of the
Executive not contemplated by, paragraphs 2 and 6 hereof, or (ii) any removal of
the Executive from (other than as a result of his failure to be re-elected to
the Corporation's and Bank's Boards of Directors) any of the positions indicated
in paragraph 2 hereof, except in connection with termination of the Executive's
employment for Cause, or (iii) a reduction of the Executive's Annual Direct
Salary as provided in paragraph 4(a) hereof, or (iv) failure of the Bank to
comply with paragraph 5 hereof, or (v) any Hostile Change of Control (as defined
herein).
11. PAYMENTS UPON TERMINATION.
(a) If the Executive's employment shall be terminated because of death,
disability or for Cause, the Bank shall pay the Executive his full Annual Direct
Salary through the date of termination at the rate in effect at the time of
termination and the Corporation and Bank shall have no further obligation to the
Executive under this Agreement.
(b) If the Executive terminates his employment without Cause or Good
Reason, the Bank or Corporation shall have no further obligation to the
Executive under this Agreement.
(c) If the Executive's employment is terminated by the Corporation or
Bank (other than pursuant to paragraphs 10(a) or 10(b) or 10(c) hereof or as a
result of nonrenewal of this Agreement), or if the Executive shall terminate his
employment for Good Reason, then the Bank shall pay the Executive his full
Annual Direct Salary from the date of termination through the last day of the
term of this Agreement or an amount equal to his current Annual Direct Salary,
whichever is greater. The Bank shall also maintain in full force and effect, for
the continued benefit of the Executive for the full term of this Agreement, all
employee benefit plans and programs to which the Executive was entitled prior to
the date of termination, if the Executive's continued participation is possible
under the general terms and provisions of such plans and programs except that if
the Executive's participation in any health, medical, life insurance, or
disability plan or program is barred, the Bank shall obtain and pay for, on the
Executive's behalf, individual insurance plans, policies or programs which
provide to the Executive health, medical, life and disability insurance coverage
which is equivalent to the insurance coverage to which the Executive was
entitled prior to the date of
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termination and the Corporation and Bank shall have no further
obligations to the Executive under this Agreement.
(d) NONRENEWAL OF AGREEMENT AND SEVERANCE ALLOWANCE
In the event the Executive serves the full term of this Agreement,
and the Bank or Corporation do not offer to renew this Agreement, the Executive
shall not be entitled to any severance allowance whatsoever and the Corporation
and Bank shall have no further obligations to the Executive under this
Agreement.
12. DAMAGES FOR BREACH OF CONTRACT. In the event of a breach of this
Agreement by either the Corporation, Bank or the Executive resulting in damages
to another party, that party may recover from the party breaching the Agreement
only those damages as set forth herein. In no event shall any party be entitled
to the recovery of attorney's fees or costs.
13. DEFINITION OF CHANGE OF CONTROL. For purposes of this Agreement, the
term "Change of Control" shall mean: A change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A and any successor rule or regulation promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"); provided that, without
limitation, such a change in control shall be deemed to have occurred if (a) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act),
other than the Corporation or any "person" who on the date hereof is a director
or officer of the Corporation is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Corporation representing twenty-five percent (25%) or more of the combined
voting power of the Corporation's then outstanding securities, or (b) during any
period of two consecutive years during the term of this Agreement, individuals
who at the beginning of such period constitute the Board of Directors of the
Bank or Corporation cease for any reason to constitute at least a majority
thereof, unless the election of each director who was not a director at the
beginning of such period has been approved in advance by directors representing
at least two-thirds of the directors then in office who were directors at the
beginning of the period.
14. DEFINITION OF DATE OF CHANGE OF CONTROL. For purposes of this
Agreement, the date of Change of Control shall mean:
(a) the first date on which a single person and/or entity, or group of
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affiliated persons and/or entities, acquire the beneficial ownership of
twenty-five percent (25%) or more of the Corporation's voting securities, or
(b) the date of the transfer of all or substantially all of the Bank or
Corporation's assets, or
(c) the date on which a merger, consolidation or combination is
consummated, as applicable, or
(d) the date on which individuals who formerly constitute a majority of
the Board of Directors of the Bank or Corporation ceased to be a majority.
15. PAYMENT UPON TERMINATION AFTER A CHANGE OF CONTROL.
(a) If within a two (2) year period, the Bank or its successor shall
for any reason terminate the Executive's employment as a result of or following
a Change of Control (as defined herein), except if such termination is for Cause
(as defined herein), the Executive shall receive a lump sum payment equal to two
and one half (2-1/2) times his annual salary, including any bonus, for the most
recent twelve (12) month period. The Executive shall also be entitled (at the
expense of the Bank or its successor) to the following employee benefits; group
health and life insurance benefits, short and long-term disability insurance
benefits, plan contribution, from the date of termination through the last day
of the term of this Agreement; however, the Executive shall not be entitled to
sick or vacation pay. If participation in these benefits is prevented by law or
the terms of the plan, the Bank or its successor shall provide a substantially
equivalent substitute. In the event that termination occurs within the one (1)
year period from Change of Control, the Executive shall have the duty to
mitigate damages by actively seeking employment for a position at a comparable
level of authority and responsibility. Available employee benefits under new
employment shall negate the need for the Bank or its successor to provide
employee benefits herein, but only to the extent that the employee benefits are
duplicative and of substantially equal coverage or benefit. Any severance
payment under this Change of Control subsection shall survive the death of the
Executive.
(b) If within a two (2) year period following a Change of Control, the
Executive resigns for Good Reason as defined below, Executive shall be entitled
to the same payments as described in the preceding section.
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Any severance payment under this Change of Control subsection shall survive the
death of the Executive.
(c) DEFINITION OF CAUSE. For purposes of this Agreement, Bank or its
successor shall have "Cause" to terminate executive's employment following a
Change in Control hereunder upon: (a) the willful failure by Executive to
perform duties after notice by Bank or its successor identifying such failure of
performance and opportunity to cure within thirty (30) days; (b) the willful
engagement by Executive in misconduct injurious to Bank or its successor
(monetarily or otherwise); (c) the dishonesty or gross negligence of the
Executive in the performance of his duties; (d) the breach of the Executive's
fiduciary duties involving personal profit, a violation or violations of a
banking regulation, or the issuance of a cease and desist order; or (e) the
commission of any act constituting moral turpitude or other conduct on the part
of the Executive which publicly discredits the Bank or its successor. If
Executive is terminated or discharged for Cause as defined herein, he is not
entitled to any payments under the Agreement.
(d) DEFINITION OF RESIGNATION FOR GOOD REASON.
If Executive resigns from his position as President and Chief
Executive Officer as a result of a change in Executive's duties performed prior
to the Change of Control, or a reduction in his Annual Direct Salary paid to him
prior to the Change of Control, Executive's resignation will constitute and be
deemed a resignation for Good Reason for purposes of this Agreement. If
Executive resigns within a two (2) year period following a Change in Control for
Good Reason as defined herein, the Executive is entitled to all payments under
paragraph 15(a) of this Agreement.
16. NOTICE. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when hand-delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: [Name]
[Address]
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If to the Bank: [Name], Chairman of the Board
[Address]
If to the Corporation: [Name], Chairman of the Board
[Address]
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
17. SUCCESSOR. This Agreement shall inure to the benefit of and be binding
upon the Executive, the Corporation and the Bank; and any of their successors or
assigns, provided however, that the Executive may not commute, anticipate,
encumber, dispose or assign any payment except as set forth in paragraph 20.
18. SEVERABILITY. If any provision of this Agreement is declared
unenforceable for any reason, the remaining provisions of this Agreement shall
be unaffected thereby and shall remain in full force and effect.
19. AMENDMENT. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing.
20. PAYMENT OF MONEY DUE DECEASED EXECUTIVE. In the event of Executive's
death, any moneys that may be due him from the Bank under this Agreement as of
the date of death shall be paid to the person designated by him in writing for
this purpose, or in the absence of any such designation to his estate.
21. LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
22. ENTIRE AGREEMENT. This Agreement supersedes any and all agreements,
either oral or in writing, between the parties with respect to the employment of
the Executive by the Corporation and Bank, and this Agreement contains all the
covenants and agreements between the parties with respect to the employment.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby,
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have caused this Agreement to be duly executed in their respective names
and, in the case of the Corporation and Bank, by its authorized representatives
the day and year above mentioned.
ATTEST: PENN LAUREL FINANCIAL CORP.
/s/ Janice E. Kephart By: Frank J. Hoffman, Jr.
------------------- ---------------------
Secretary Chairman of the Board
ATTEST: CSB BANK
/s/ Janice E. Kephart By: Larry W. Brubaker
------------------- ---------------------
Secretary Chairman of the Board
WITNESS:
/s/ Janice E. Kephart By: Larry W. Brubaker
------------------- ---------------------
Executive
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 is made this 1 day of January 1999 by and among CSB
Bank, a Pennsylvania banking institution (the "Bank"), Penn Laurel Financial
Corp., a Pennsylvania business corporation (the "Corporation") and Larry W.
Brubaker, an adult individual (the "Executive").
WITNESSETH
WHEREAS, the Bank, the Corporation and the Executive entered into a certain
Employment Agreement effective the 1 day of January 1999 (the "Employment
Agreement");
WHEREAS, the Bank and the Corporation have been authorized by their
respective Boards of Directors to enter into fact finding the discussions with
the Clearfield Bank & Trust Company for the potential business combination of
the Bank with Clearfield Bank & Trust Company; and
WHEREAS, as a result of the potential business combination described above,
the Bank, the Corporation and the Executive desire to amend and modify the
definition of "Change of Control" as contained in the Employment Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, for good and valuable consideration, and intending to be legally
bound hereby, the parties agree as follows:
1. Paragraph 13 of the Employment Agreement is hereby amended and modified
to provide that in the event a merger, acquisition or business combination of
the Bank and/or the Corporation with Clearfield Bank & Trust Company in which
the Bank or the Corporation are surviving institutions after the effective date
of such merger, acquisition or business combination and the Executive is
employed as the President and Chief Executive Officer of the Corporation and the
resulting bank following such merger, acquisition or business combination, then
such merger, acquisition or business combination shall not constitute or be
defined to be a "Change of Control" within the meaning of Paragraph 13 of the
Employment Agreement. The above merger, acquisition or business combination or
the resulting change in the composition of the Board of Directors of the
Corporation or the Bank, shall not constitute a Change of Control for purposes
of Paragraph 13 of the Employment Agreement and shall not entitle the Executive
to any compensation or payments he would otherwise be entitled to receive upon
termination after a Change of Control as provided in Paragraph 15 of the
Employment Agreement. Only in the case where the Executive is not the President
and Chief Executive Officer of the Bank following a transaction with Clearfield
Bank & Trust Company, shall a Change of Control, pursuant to Paragraph 13 of the
Employment Agreement, be deemed to have occurred.
<PAGE>
2. In all other respects, the Employment Agreement, as amended above, is
hereby ratified and confirmed by the Bank, the Corporation and the Executive.
IN WITNESS WHEREOF, the parties, each intending to be legally bound, have
executed the Addendum as of the date, month and year first above written.
ATTEST: PENN LAUREL FINANCIAL CORP.
/s/ Janice E. Kephart By: Frank J. Hoffman, Jr.
------------------- ---------------------
Secretary Chairman of the Board
ATTEST: CSB BANK
/s/ Janice E. Kephart By: Larry W. Brubaker
------------------- ---------------------
Secretary Chairman of the Board
WITNESS:
/s/ Janice E. Kephart By: Larry W. Brubaker
------------------- ---------------------
Executive
Execution Copy
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of the 22nd day of July, 1999, between PENN
LAUREL FINANCIAL CORP. ("Corporation"), a Pennsylvania business corporation
having a place of business at 11 North Second Street, Clearfield, Pennsylvania
16830, PENN LAUREL BANK & TRUST COMPANY ("Bank") a state chartered bank and
trust company having a place of business at 11 North Second Street, Clearfield,
Pennsylvania 16830, and LARRY W. BRUBAKER ("Executive"), an individual residing
at Lincoln Avenue, Curwensville, Pennsylvania 16833.
WITNESSETH:
-----------
WHEREAS, the Corporation is a registered bank holding company;
WHEREAS, Corporation, CSB Bank and Clearfield Bank & Trust Company have
entered into an Agreement and Plan of Reorganization dated December 31, 1998
(the "Reorganization Agreement");
WHEREAS, pursuant to the Reorganization Agreement, Bank will be a
wholly-owned banking subsidiary of Corporation on the Effective Date as set
forth in Section 11.2 of the Reorganization Agreement;
WHEREAS, Corporation and Bank desire to employ Executive to serve in the
capacity of President and Chief Executive Officer of each of the Corporation and
Bank under the terms and conditions set forth herein;
WHEREAS, Executive desires to accept employment with Corporation and Bank
on the terms and conditions set forth herein.
AGREEMENT:
----------
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
1. Employment. Corporation and Bank hereby employ Executive and Executive
----------
hereby accepts employment with Corporation and Bank, under the terms
and conditions set forth in this Agreement.
2. Duties of Employee. Executive shall perform and discharge well and
------------------
faithfully such duties as an executive officer of Corporation and Bank
as may be assigned to Executive from time to time by the Board of
Directors of Corporation and Bank. Executive shall be employed as
President and Chief Executive Officer of Corporation and Bank, and
shall hold such other titles as may be given to him from time to time
by the Board of Directors of Corporation and Bank. Executive shall
devote his full time, attention and energies to the business of
Corporation and Bank during the Employment Period (as defined in
Section 3 of this Agreement); provided, however, that this Section 2
shall not be construed as preventing Executive from (a) engaging in
activities incident or necessary to personal investments so
<PAGE>
Execution Copy
long as it does not exceed 5% of the outstanding shares of any
publicly held company, (b) acting as a member of the Board of
Directors of any other corporation or as a member of the Board of
Trustees of any other organization, with the prior approval of the
Board of Directors of Corporation and Bank, or (c) being involved in
any other activity with the prior approval of the Board of Directors
of Corporation and Bank. The Executive shall not engage in any
business or commercial activities, duties or pursuits which compete
with the business or commercial activities of Corporation or Bank, nor
may the Executive serve as a director or officer or in any other
capacity in a company which competes with Corporation or Bank.
3. Term of Agreement.
-----------------
(a) This Agreement shall be for a three (3) year period (the "Employment
Period") beginning on the Effective Date as set forth in Section 11.2
of the Reorganization Agreement, and if not previously terminated
pursuant to the terms of this Agreement, the Employment Period shall
end three (3) years later. The Employment Period shall be
automatically extended on the third anniversary date of the Effective
Date as set forth in Section 11.2 of the Reorganization Agreement (the
"Annual Renewal Date") and on the same date of each subsequent year
for a period ending one (1) year from each Annual Renewal Date, unless
written notice of nonrenewal is given at least ninety (90) days prior
to an Annual Renewal Date, in which event this Agreement shall
terminate at the end of the then existing Employment Period.
(b) Notwithstanding the provisions of Section 3(a) of this Agreement, this
Agreement shall terminate automatically for Cause (as defined herein)
upon written notice from the Board of Directors of each of Corporation
and Bank to Executive. As used in this Agreement, "Cause" shall mean
any of the following:
(i) Executive's conviction of or plea of guilty or nolo contendere
to a felony, a crime of falsehood or a crime involving moral
turpitude, or the actual incarceration of Executive for a
period of forty-five (45) consecutive days or more;
(ii) Executive's willful failure to follow the good faith lawful
instructions of the Board of Directors of Corporation or Bank
with respect to its operations, after written notice from
Corporation or Bank and a failure to cure such violation
within ten (10) days of said written notice, unless it is
apparent under the circumstances that Executive is unable to
cure such violation; or
(iii) Executive's willful failure to substantially perform
Executive's duties to Corporation or Bank, other than a
failure resulting from Executive's incapacity because of
physical or mental illness, as provided in subsection (d) of
this Section 3, after written notice from Corporation or Bank
and
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a failure to cure such violation within ten (10) days of said
written notice, unless it is apparent under the circumstances
that Executive is unable to cure such violation, which failure
results in injury to Corporation or Bank, monetarily or
otherwise.
(iv) Executive's willful violation of the provisions of this
Agreement, after written notice from Corporation or Bank and a
failure to cure such violation within ten (10) days of said
written notice, unless it is apparent under the circumstances
that Executive is unable to cure such violation;
(v) dishonesty of the Executive in the performance of his duties;
(vi) Executive's removal or prohibition from being an
institutional-affiliated party by a final order of an
appropriate federal banking agency pursuant to Section 8(e) of
the Federal Deposit Insurance Act or by the Office of the
Comptroller of the Currency pursuant to national law;
(vii) conduct on the part of the Executive which brings public
discredit to Corporation or Bank; or
(viii) Executive's breach of fiduciary duty involving personal
profit.
If this Agreement is terminated for Cause, all of Executive's
rights under this Agreement shall cease as of the effective date of
such termination.
(c) Notwithstanding the provisions of Section 3(a) of this Agreement,
this Agreement shall terminate automatically upon Executive's
voluntary termination of employment (other than in accordance with
Section 5 of this Agreement) for Good Reason. The term "Good
Reason" shall mean (i) the assignment of duties and
responsibilities inconsistent with Executive's status as President
and Chief Executive Officer of Corporation and Bank, (ii) a
reassignment which requires Executive to move his principal
residence more than fifty (50) miles from the Corporation's and
Bank's principal executive office immediately prior to this
Agreement, (iii) any removal of the Executive from office or any
adverse change in the terms and conditions of the Executive's
employment, except for any termination of the Executive's
employment under the provisions of Section 3(b) hereof, (iv) any
reduction in the Executive's Annual Base Salary as in effect on the
date hereof or as the same may be increased from time to time,
except in cases of a national financial depression or national or
bank emergency when such reduction has been implemented by the
Board of Directors for the Corporation and Bank's senior
management, or (v) any failure of Corporation and Bank to provide
the Executive with benefits at least as favorable as those enjoyed
by the Executive under any of the pension, life insurance, medical,
health and accident, disability or other employee plans of
Corporation and Bank, or the taking of any
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action that would materially reduce any of such benefits unless
such reduction is part of a reduction applicable to all employees.
If such termination occurs for Good Reason, then Corporation or
Bank shall pay Executive an amount equal to the greater of the
remaining balance of the Agreed Compensation otherwise due to the
Executive for the remainder of the then existing Employment Period
or 2.99 times the Executive's Agreed Compensation as defined in
subsection (f) of this Section 3, which amount shall be payable in
thirty-six (36) equal monthly installments and shall be subject to
federal, state and local tax withholdings. In addition, for a
period of three (3) years from the date of termination of
employment, or until Executive secures substantially similar
benefits through other employment, whichever shall first occur,
Executive shall receive a continuation of all life, disability,
medical insurance and other normal health and welfare benefits in
effect with respect to Executive during the two (2) years prior to
his termination of employment, or, if Corporation and Bank cannot
provide such benefits because Executive is no longer an employee,
a dollar amount equal to the cost to Executive of obtaining such
benefits (or substantially similar benefits). If permitted under
the terms of the plan, Executive shall receive the additional
retirement benefits to which he would have been entitled had his
employment continued through the then remaining term of the
Agreement. However, in the event the payment described herein,
when added to all other amounts or benefits provided to or on
behalf of the Executive in connection with his termination of
employment, would result in the imposition of an excise tax under
Code Section 4999, such payments shall be retroactively (if
necessary) reduced to the extent necessary to avoid such excise
tax imposition. Upon written notice to Executive, together with
calculations of Corporation's independent auditors, Executive
shall remit to Corporation the amount of the reduction plus such
interest as may be necessary to avoid the imposition of such
excise tax. Notwithstanding the foregoing or any other provision
of this contract to the contrary, if any portion of the amount
herein payable to the Executive is determined to be non-deductible
pursuant to the regulations promulgated under Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"), the
Corporation shall be required only to pay to Executive the amount
determined to be deductible under Section 280G.
At the option of the Executive, exercisable by the Executive
within ninety (90) days after the occurrence of the event
constituting "Good Reason," the Executive may resign from
employment under this Agreement by a notice in writing (the
"Notice of Termination") delivered to Corporation and Bank and the
provisions of this Section 3(c) hereof shall thereupon apply.
(d) Notwithstanding the provisions of Section 3(a) of this Agreement,
this Agreement shall terminate automatically upon Executive's
Disability and Executive's rights under this Agreement shall cease
as of the date of such termination; provided, however, that
Executive shall nevertheless be entitled to
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receive an amount equal to and no greater than 70% of the
Executive's Agreed Compensation as defined in subsection (f) of
this Section 3, less amounts payable under any disability plan of
Corporation and Bank, until the earliest of (i) Executive's return
to employment, (ii) his attainment of age 65, (iii) his death, or
(iv) the end of the then existing Employment Period. In addition,
Executive shall receive for such period a continuation of all
life, disability, medical insurance and other normal health and
welfare benefits in effect with respect to Executive during the
two (2) years prior to his disability, or, if Corporation and Bank
cannot provide such benefits because Executive is no longer an
employee, a dollar amount equal to the cost to Executive of
obtaining such benefits (or substantially similar benefits). For
purposes of this Agreement, the Executive shall have a Disability
if, as a result of physical or mental injury or impairment,
Executive is unable to perform all of the essential job functions
of his position on a full time basis with or without a reasonable
accommodation and without posting a direct threat to himself and
others, for a period of one hundred eighty (180) days.
(e) Executive agrees that in the event his employment under this
Agreement is terminated, Executive shall resign as a director of
Corporation and Bank, or any affiliate or subsidiary thereof, if
he is then serving as a director of any of such entities.
(f) The term "Agreed Compensation" shall equal the sum of (A) the
Executive's highest Annual Base Salary under the Agreement, and
(B) the average of the Executive's annual bonuses with respect to
the three (3) calendar years immediately preceding the Executive's
termination.
(g) Notwithstanding the provisions of Section 3(a) of this Agreement,
this Agreement shall terminate automatically upon Executive's
death and Executive's rights under this Agreement shall cease as
of the date of such termination.
4. Employment Period Compensation.
------------------------------
(a) Annual Base Salary. For services performed by Executive under this
------------------
Agreement, Corporation or Bank shall pay Executive an Annual Base
Salary during the Employment Period at the rate of $143,688 per
year, minus applicable withholdings and deductions, payable at the
same times as salaries are payable to other executive employees of
Corporation or Bank. Corporation or Bank may, from time to time,
increase Executive's Annual Base Salary, and any and all such
increases shall be deemed to constitute amendments to this Section
4(a) to reflect the increased amounts, effective as of the date
established for such increases by the Board of Directors of
Corporation or Bank or any committee of such Board in the
resolutions authorizing such increases.
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(b) Bonus. For services performed by Executive under this Agreement,
-----
Corporation or Bank may, from time to time, pay a bonus or bonuses
to Executive as Corporation or Bank, in its sole discretion, deems
appropriate. The payment of any such bonuses shall not reduce or
otherwise affect any other obligation of Corporation or Bank to
Executive provided for in this Agreement.
(c) Vacations. During the term of this Agreement, Executive shall be
---------
entitled to paid annual vacation in accordance with the policies as
established from time to time by the Boards of Directors of
Corporation and Bank. However, Executive shall not be entitled to
receive any additional compensation from Corporation and Bank for
failure to take a vacation unless an emergency work situation
arises where Executive is required to work in lieu of a vacation in
order to meet the Corporation's or Bank's needs. Executive shall
not be able to accumulate unused vacation time from one year to the
next, except to the extent authorized by the Boards of Directors of
Corporation and Bank.
(d) Automobile. During the term of this Agreement, Corporation or Bank
----------
shall provide Executive with exclusive use of an automobile
mutually agreed upon by Corporation and Bank. Corporation or Bank
shall be responsible and shall pay for all costs of insurance
coverage, repairs, maintenance and other operating and incidental
expenses, including license, fuel and oil. Corporation or Bank
shall provide Executive with a replacement automobile at
approximately the time Executive's automobile reaches two (2) years
of age or 30,000 miles, whichever is first, and approximately every
two (2) years or 30,000 miles thereafter, upon the same terms and
conditions.
(e) Employee Benefit Plans. During the term of this Agreement,
----------------------
Executive shall be entitled to participate in or receive the
benefits of any employee benefit plan currently in effect at
Corporation and Bank, subject to the terms of said plan, until such
time that the Boards of Directors of Corporation and Bank authorize
a change in such benefits. Corporation and Bank shall not make any
changes in such plans or benefits which would adversely affect
Executive's rights or benefits thereunder, unless such change
occurs pursuant to a program applicable to all executive officers
of Corporation and Bank and does not result in a proportionately
greater adverse change in the rights of or benefits to Executive as
compared with any other executive officer of Corporation and Bank.
Nothing paid to Executive under any plan or arrangement presently
in effect or made available in the future shall be deemed to be in
lieu of the salary payable to Executive pursuant to Section 4(a)
hereof.
(f) Business Expenses. During the term of this Agreement, Executive
-----------------
shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by him, which are properly accounted
for, in accordance with the policies and
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procedures established by the Boards of Directors of Corporation
and Bank for their executive officers.
5. Termination of Employment Following Change in Control.
-----------------------------------------------------
(a) If a Change in Control (as defined in Section 5(b) of this
Agreement) shall occur after the effective date of the merger or if
thereafter at any time during the term of this Agreement there
shall be:
(i) any involuntary termination of Executive's employment (other
than for the reasons set forth in Section 3(b), 3(d), and 3(e)
of this Agreement);
(ii) any reduction in Executive's title, responsibilities,
including reporting responsibilities, or authority, including
such title, responsibilities or authority as such may be
increased from time to time during the term of this Agreement;
(iii) the assignment to Executive of duties inconsistent with
Executive's office on the date of the Change in Control or as
the same may be increased from time to time after the Change
in Control;
(iv) any reassignment of Executive to a location greater than fifty
(50) miles from the location of Executive's office on the date
of the Change in Control;
(v) any reduction in Executive's Annual Base Salary in effect on
the date of the Change in Control or as the same may be
increased from time to time after the Change in Control;
(vi) any failure to provide Executive with benefits at least as
favorable as those enjoyed by Executive under any of
Corporation or Bank's retirement or pension, life insurance,
medical, health and accident, disability or other employee
plans in which Executive participated at the time of the
Change in Control, or the taking of any action that would
materially reduce any of such benefits in effect at the time
of the Change in Control;
(vii) any requirement that Executive travel in performance of his
duties on behalf of Corporation or Bank for a significantly
greater period of time during any year than was required of
Executive during the year preceding the year in which the
Change in Control occurred; or
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(viii) any sustained pattern of interruption or disruption of
Executive for matters substantially unrelated to Executive's
discharge of Executive's duties on behalf of Corporation and
Bank;
then, at the option of Executive, exercisable by Executive within
one hundred twenty (120) days of the Change in Control or
occurrence of any of the foregoing events, Executive may resign
from employment with Corporation and Bank (or, if involuntarily
terminated, give notice of intention to collect benefits under this
Agreement) by delivering a notice in writing (the "Notice of
Termination") to Corporation and Bank and the provisions of Section
6 of this Agreement shall apply.
(b) As used in this Agreement, "Change in Control" shall mean the
occurrence of any of the following:
(i) (A) a merger, consolidation or division involving Corporation
or Bank, (B) a sale, exchange, transfer or other disposition
of substantially all of the assets of Corporation or Bank, or
(C) a purchase by Corporation or Bank of substantially all of
the assets of another entity, unless (y) such merger,
consolidation, division, sale, exchange, transfer, purchase or
disposition is approved in advance by seventy percent (70%) or
more of the members of the Board of Directors of Corporation
or Bank who are not interested in the transaction and (z) a
majority of the members of the Board of Directors of the legal
entity resulting from or existing after any such transaction
and of the Board of Directors of such entity's parent
corporation, if any, are former members of the Board of
Directors of Corporation or Bank; or
(ii) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "Exchange Act")),
other than Corporation or Bank or any "person" who on the date
hereof is a director or officer of Corporation or Bank is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of
Corporation or Bank representing twenty-five (25%) percent or
more of the combined voting power of Corporation or Bank's
then outstanding securities, or
(iii) during any period of two (2) consecutive years during the
term of Executive's employment under this Agreement,
individuals who at the beginning of such period constitute the
Board of Directors of Corporation or Bank cease for any reason
to constitute at least a majority thereof, unless the election
of each director who was not a director at the beginning of
such period has been approved in advance by directors
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representing at least two-thirds of the directors then in
office who were directors at the beginning of the period; or
(iv) any other change in control of Corporation and Bank similar in
effect to any of the foregoing.
6. Rights in Event of Termination of Employment Following Change in Control.
------------------------------------------------------------------------
(a) In the event that Executive delivers a Notice of Termination (as
defined in Section 5(a) of this Agreement) to Corporation and Bank,
Executive shall be entitled to receive the compensation and
benefits set forth below:
If, at the time of termination of Executive's employment, a "Change
in Control" (as defined in Section 5(b) of this Agreement) has also
occurred, Corporation and Bank shall pay Executive a lump sum
amount equal to and no greater than 2.99 times the Executive's
Agreed Compensation as defined in subsection (f) of Section 3,
minus applicable taxes and withholdings. In addition, for a period
of three (3) years from the date of termination of employment, or
until Executive secures substantially similar benefits through
other employment, whichever shall first occur, Executive shall
receive a continuation of all life, disability, medical insurance
and other normal health and welfare benefits in effect with respect
to Executive during the two (2) years prior to his termination of
employment, or, if Corporation and Bank cannot provide such
benefits because Executive is no longer an employee, a dollar
amount equal to the cost to Executive of obtaining such benefits
(or substantially similar benefits). If permitted under the terms
of the plan, Executive shall receive additional retirement benefits
to which he would have been entitled had his employment continued
through the then remaining term of the Agreement. However, in the
event the payment described herein, when added to all other amounts
or benefits provided to or on behalf of the Executive in connection
with his termination of employment, would result in the imposition
of an excise tax under Code Section 4999, such payments shall be
retroactively (if necessary) reduced to the extent necessary to
avoid such excise tax imposition. Upon written notice to Executive,
together with calculations of Corporation's independent auditors,
Executive shall remit to Corporation the amount of the reduction
plus such interest as may be necessary to avoid the imposition of
such excise tax. Notwithstanding the foregoing or any other
provision of this contract to the contrary, if any portion of the
amount herein payable to the Executive is determined to be
non-deductible pursuant to the regulations promulgated under
Section 280G of the Code, the Corporation shall be required only to
pay to Executive the amount determined to be deductible under
Section 280G.
(b) Executive shall not be required to mitigate the amount of any
payment provided for in this Section 6 by seeking other employment
or otherwise. Unless otherwise
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agreed to in writing, the amount of payment or the benefit provided
for in this Section 6 shall not be reduced by any compensation
earned by Executive as the result of employment by another employer
or by reason of Executive's receipt of or right to receive any
retirement or other benefits after the date of termination of
employment or otherwise.
7. Rights in Event of Termination of Employment Absent Change in Control.
---------------------------------------------------------------------
(a) In the event that Executive's employment is involuntarily
terminated by Corporation and/or Bank without Cause and no Change
in Control shall have occurred at the date of such termination,
Corporation and Bank shall pay Executive an amount equal to and no
greater than 2.99 times the Executive's Agreed Compensation as
defined in subsection (f) of Section 3, and shall be payable in
thirty-six (36) equal monthly installments and shall be subject to
federal, state and local tax withholdings. In addition, for a
period of three (3) years from the date of termination of
employment, or until Executive secures substantially similar
benefits through other employment, whichever shall first occur,
Executive shall receive a continuation of all life, disability,
medical insurance and other normal health and welfare benefits in
effect with respect to Executive during the two (2) years prior to
his termination of employment, or, if Corporation and Bank cannot
provide such benefits because Executive is no longer an employee, a
dollar amount equal to the cost to Executive of obtaining such
benefits (or substantially similar benefits). In addition, if
permitted pursuant to the terms of the plan, Executive shall
receive additional retirement benefits to which he would have been
entitled had his employment continued through the then remaining
term of the Agreement. However, in the event the payment described
herein, when added to all other amounts or benefits provided to or
on behalf of the Executive in connection with his termination of
employment, would result in the imposition of an excise tax under
Code Section 4999, such payments shall be retroactively (if
necessary) reduced to the extent necessary to avoid such excise tax
imposition. Upon written notice to Executive, together with
calculations of Corporation's independent auditors, Executive shall
remit to Corporation the amount of the reduction plus such interest
as may be necessary to avoid the imposition of such excise tax.
Notwithstanding the foregoing or any other provision of this
contract to the contrary, if any portion of the amount herein
payable to the Executive is determined to be non-deductible
pursuant to the regulations promulgated under Section 280G of the
Code, the Corporation shall be required only to pay to Executive
the amount determined to be deductible under Section 280G.
(b) Executive shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment
or otherwise. Unless otherwise agreed to in writing, the amount of
payment or the benefit provided for in this Section 7 shall not be
reduced by any compensation earned by Executive as the
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result of employment by another employer or by reason of
Executive's receipt of or right to receive any retirement or other
benefits after the date of termination of employment or otherwise.
8. Covenant Not to Compete.
-----------------------
(a) Executive hereby acknowledges and recognizes the highly competitive
nature of the business of Corporation and Bank and accordingly
agrees that, during and for the applicable period set forth in
Section 8(c) hereof, Executive shall not:
(i) be engaged, directly or indirectly, either for his own account
or as agent, consultant, employee, partner, officer, director,
proprietor, investor (except as an investor owning less than
5% of the stock of a publicly owned company) or otherwise of
any person, firm, corporation or enterprise engaged in (1) the
banking (including bank holding company) or financial services
industry, or (2) any other activity in which Corporation or
Bank or any of their subsidiaries are engaged during the
Employment Period, in any county in which, at any time during
the Employment Period or at the date of termination of the
Executive's employment, a branch, office or other facility of
Corporation or Bank or any of their subsidiaries is located,
or in any county contiguous to such a county, including
contiguous counties located outside of the Commonwealth of
Pennsylvania (the "Non-Competition Area"); or
(ii) provide financial or other assistance to any person, firm,
corporation, or enterprise engaged in (1) the banking
(including bank holding company) or financial services
industry, or (2) any other activity in which Corporation or
Bank or any of their subsidiaries are engaged during the
Employment Period, in the Non-Competition Area; or
(iii) solicit current and former customers of Corporation, Bank or
any Corporation subsidiary in the Non-Competition Area; or
(iv) solicit current or former employees of Corporation, Bank or
any Corporation subsidiary.
(b) It is expressly understood and agreed that, although Executive and
Corporation and Bank consider the restrictions contained in Section
8(a) hereof reasonable for the purpose of preserving for
Corporation and Bank and their subsidiaries their good will and
other proprietary rights, if a final judicial determination is made
by a court having jurisdiction that the time or territory or any
other restriction contained in Section 8(a) hereof is an
unreasonable or otherwise unenforceable restriction against
Executive, the provisions of Section 8(a) hereof shall not be
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rendered void but shall be deemed amended to apply as to such
maximum time and territory and to such other extent as such court
may judicially determine or indicate to be reasonable.
(c) The provisions of this Section 8 shall be applicable commencing on
the effective date of the merger and ending on one of the following
dates, as applicable:
(i) if Executive's employment terminates in accordance with the
provisions of Section 3 (other than Section 3(b) relating to
termination for Cause), the first anniversary date of the
effective date of termination of employment; or
(ii) if Executive's employment terminates in accordance with the
provisions of Section 3(b) of this Agreement (relating to
termination for Cause), the second anniversary date of the
effective date of termination of employment; or
(iii) if the Executive voluntarily terminates his employment in
accordance with the provisions of Section 5 hereof, the first
anniversary date of the effective date of termination of
employment; or
(iv) if the Executive's employment is involuntarily terminated in
accordance with the provisions of Section 7 hereof, the second
anniversary date of the effective date of termination of
employment.
9. Unauthorized Disclosure. During the term of his employment hereunder, or
-----------------------
at any later time, the Executive shall not, without the written consent
of the Boards of Directors of Corporation and Bank or a person
authorized thereby, knowingly disclose to any person, other than an
employee of Corporation or Bank or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance
by the Executive of his duties as an executive of Corporation and Bank,
any material confidential information obtained by him while in the
employ of Corporation and Bank with respect to any of Corporation and
Bank's services, products, improvements, formulas, designs or styles,
processes, customers, methods of business or any business practices the
disclosure of which could be or will be damaging to Corporation or Bank;
provided, however, that confidential information shall not include any
information known generally to the public (other than as a result of
unauthorized disclosure by the Executive or any person with the
assistance, consent or direction of the Executive) or any information of
a type not otherwise considered confidential by persons engaged in the
same business of a business similar to that conducted by Corporation and
Bank or any information that must be disclosed as required by law.
10. Liability Insurance. Corporation and Bank shall use their best efforts
-------------------
to obtain insurance coverage for the Executive under an insurance policy
covering officers and
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directors of Corporation and Bank against lawsuits, arbitrations or other
legal or regulatory proceedings; however, nothing herein shall be construed
to require Corporation and/or Bank to obtain such insurance, if the Board
of Directors of the Corporation and/or Bank determine that such coverage
cannot be obtained at a reasonable price.
11. Notices. Except as otherwise provided in this Agreement, any notice
-------
required or permitted to be given under this Agreement shall be deemed
properly given if in writing and if mailed by registered or certified mail,
postage prepaid with return receipt requested, to Executive's residence, in
the case of notices to Executive, and to the principal executive offices of
Corporation and Bank, in the case of notices to Corporation and Bank.
12. Waiver. No provision of this Agreement may be modified, waived or
------
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Executive and an executive officer specifically
designated by the Boards of Directors of Corporation and Bank. No waiver by
either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to similar
or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Assignment. This Agreement shall not be assignable by any party, except by
----------
Corporation and Bank to any successor in interest to their respective
businesses.
14. Entire Agreement. This Agreement supersedes any and all agreements, either
----------------
oral or in writing, between the parties with respect to the employment of
the Executive by the Bank and Corporation and this Agreement contains all
the covenants and agreements between the parties with respect to the
employment. This Agreement shall supersede and replace the Employment
Agreement dated January 1, 1999, between Penn Laurel Financial Corp., CSB
Bank and Larry W. Brubaker.
15. Successors; Binding Agreement.
-----------------------------
(a) Corporation and Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all
or substantially all of the businesses and/or assets of Corporation
and Bank to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that Corporation and Bank
would be required to perform it if no such succession had taken
place. Failure by Corporation and Bank to obtain such assumption
and agreement prior to the effectiveness of any such succession
shall constitute a breach of this Agreement and the provisions of
Section 3 of this Agreement shall apply. As used in this Agreement,
"Corporation" and "Bank" shall mean Corporation and Bank, as
defined previously and any successor to their
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respective businesses and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors,
administrators, heirs, distributees, devisees and legatees. If
Executive should die after a Notice of Termination is delivered by
Executive, or following termination of Executive's employment
without Cause, and any amounts would be payable to Executive under
this Agreement if Executive had continued to live, all such amounts
shall be paid in accordance with the terms of this Agreement to
Executive's devisee, legatee, or other designee, or, if there is no
such designee, to Executive's estate.
16. Arbitration. Corporation, Bank and Executive recognize that in the event
-----------
a dispute should arise between them concerning the interpretation or
implementation of this Agreement, lengthy and expensive litigation will
not afford a practical resolution of the issues within a reasonable
period of time. Consequently, each party agrees that all disputes,
disagreements and questions of interpretation concerning this Agreement
are to be submitted for resolution, in Pittsburgh, Pennsylvania, to the
American Arbitration Association (the "Association") in accordance with
the Association's National Rules for the Resolution of Employment
Disputes or other applicable rules then in effect ("Rules").
Corporation, Bank or Executive may initiate an arbitration proceeding at
any time by giving notice to the other in accordance with the Rules.
Corporation and Bank and Executive may, as a matter or right, mutually
agree on the appointment of a particular arbitrator from the
Association's pool. The arbitrator shall not be bound by the rules of
evidence and procedure of the courts of the Commonwealth of Pennsylvania
but shall be bound by the substantive law applicable to this Agreement.
The decision of the arbitrator, absent fraud, duress, incompetence or
gross and obvious error of fact, shall be final and binding upon the
parties and shall be enforceable in courts of proper jurisdiction.
Following written notice of a request for arbitration, Corporation, Bank
and Executive shall be entitled to an injunction restraining all further
proceedings in any pending or subsequently filed litigation concerning
this Agreement, except as otherwise provided herein.
17. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
18. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the domestic, internal laws of the Commonwealth of
Pennsylvania, without regard to its conflicts of laws principles.
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19. Headings. The section headings of this Agreement are for convenience only
--------
and shall not control or affect the meaning or construction or limit the
scope or intent of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST: PENN LAUREL FINANCIAL CORP.
/s/ Janice E. Kephart By /s/ Wesley M. Weymers
- ------------------------------- -------------------------------
Janice E. Kephart, Secretary "Corporation"
PENN LAUREL BANK & TRUST
COMPANY
/s/ Janice E. Kephart By /s/ Wesley M. Weymers
- ------------------------------- -------------------------------
"Bank"
WITNESS:
/s/ Janice E. Kephart By /s/ Larry W. Brubaker
- ------------------------------- -------------------------------
"Executive"
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EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of the 22nd day of July 1999, among PENN LAUREL
FINANCIAL CORP., ("Corporation") a Pennsylvania business corporation having a
place of business at 11 North Second Street, Clearfield, Pennsylvania 16830,
PENN LAUREL BANK & TRUST COMPANY ("Bank") a state chartered bank and trust
company having a place of business at 11 North Second Street, Clearfield,
Pennsylvania 16830, and WILLIAM E. WOOD ("Executive"), an individual residing at
138 Treasure Lake, DuBois, Pennsylvania 15801.
WITNESSETH:
-----------
WHEREAS, Corporation is a registered bank holding company;
WHEREAS, Corporation, CSB Bank and Clearfield Bank & Trust Company have
entered into an Agreement and Plan of Reorganization dated December 31, 1998
(the "Reorganization Agreement");
WHEREAS, pursuant to the Reorganization Agreement, Bank will be a
wholly-owned subsidiary of Corporation on the Effective Date as set forth in
Section 11.2 of the Reorganization Agreement;
WHEREAS, Corporation and Bank desire to employ Executive to serve in the
capacity of Executive Vice President of the Corporation and Bank under the terms
and conditions set forth herein;
WHEREAS, Executive desires to accept employment with Corporation and Bank
on the terms and conditions set forth herein.
AGREEMENT:
----------
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
1. Employment. Corporation and Bank hereby employ Executive and Executive
----------
hereby accepts employment with Corporation and Bank, under the terms and
conditions set forth in this Agreement.
2. Duties of Employee. Executive shall perform and discharge well and
------------------
faithfully such duties as an executive officer of Corporation and Bank as
may be assigned to Executive from time to time by the Board of Directors of
Corporation and Bank. Executive shall be employed as Executive Vice
President of Corporation and Bank, and shall hold such other titles as may
be given to him from time to time by the Board of Directors of Corporation
and Bank. Executive shall devote his full time, attention and energies to
the business of Corporation and Bank during the Employment Period (as
defined in Section 3 of this Agreement); provided, however, that this
Section 2 shall not be construed as preventing Executive from (a) engaging
in activities incident or necessary to personal investments so long as it
does not exceed 5% of the outstanding shares of any publicly held company,
(b) acting as a member of the Board of Directors of any other corporation
or as a member of the Board of Trustees
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--------------
of any other organization, with the prior approval of the Board of
Directors of Corporation and Bank, or (c) being involved in any other
activity with the prior approval of the Board of Directors of Corporation
and Bank. The Executive shall not engage in any business or commercial
activities, duties or pursuits which compete with the business or
commercial activities of Corporation or Bank, nor may the Executive serve
as a director or officer or in any other capacity in a company which
competes with Corporation or Bank.
3. Term of Agreement.
-----------------
(a) This Agreement shall be for a three (3) year period (the "Employment
Period") beginning on the Effective Date as set forth in Section 11.2
of the Reorganization Agreement, and if not previously terminated
pursuant to the terms of this Agreement, the Employment Period shall
end three (3) years later.
(b) Notwithstanding the provisions of Section 3(a) of this Agreement, this
Agreement shall terminate automatically for Cause (as defined herein)
upon written notice from the Board of Directors of each of Corporation
and Bank to Executive. As used in this Agreement, "Cause" shall mean
any of the following:
(i) Executive's conviction of or plea of guilty or nolo contendere
to a felony, a crime of falsehood or a crime involving moral
turpitude, or the actual incarceration of Executive for a
period of thirty (30) consecutive days or more;
(ii) Executive's failure to follow the good faith lawful
instructions of the Board of Directors of Corporation or Bank
with respect to their operations following written notice of
such instructions; or
(iii) Executive's failure to substantially perform Executive's duties
to Corporation or Bank, other than a failure resulting from
Executive's incapacity because of physical or mental illness, as
provided in subsection (d) of this Section 3, which failure
results in injury to Corporation or Bank, monetarily or
otherwise.
(iv) Executive's intentional violation of the provisions of this
Agreement;
(v) dishonesty or gross negligence of the Executive in the
performance of his duties;
(vi) conduct on the part of the Executive which brings public
discredit to Corporation or Bank;
(vii) Executive's breach of fiduciary duty involving personal profit;
or
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--------------
(viii) Executive's violation of any law, rule or regulation governing
banks or bank officers or any final cease and desist order
issued by a bank regulatory authority.
If this Agreement is terminated for Cause, all of Executive's rights
under this Agreement shall cease as of the effective date of such
termination.
(c) Notwithstanding the provisions of Section 3(a) of this Agreement, this
Agreement shall terminate automatically upon Executive's voluntary
termination of employment (other than in accordance with Section 5 of
this Agreement) for Good Reason. The term "Good Reason" shall mean (i)
the assignment of duties and responsibilities inconsistent with
Executive's status as Executive Vice President of Corporation and
Bank, (ii) a reduction in salary or significant reduction in benefits,
except in cases of a national financial depression or emergency when
such reduction has been implemented by the Board of Directors for
Corporation and Bank's senior management, or (iii) a reassignment
which requires Executive to move his principal residence more than one
hundred (100) miles from Corporation and Bank's principal executive
office immediately prior to this Agreement. If such termination occurs
for Good Reason, then Bank shall pay Executive an amount equal to the
greater of the remaining balance of the Agreed Compensation otherwise
due to the Executive for the remainder of the then existing Employment
Period or 1.0 times the Executive's Agreed Compensation as defined in
subsection (g) of Section 3, which amount shall be payable in twelve
(12) equal monthly installments and shall be subject to federal, state
and local tax withholdings. In addition, for a period of one (1) year
from the date of termination of employment, or until Executive secures
substantially similar benefits through other employment, whichever
shall first occur, Executive shall receive a continuation of all life,
disability, medical insurance and other normal health and welfare
benefits in effect with respect to Executive during the two (2) years
prior to his termination of employment, or, if Bank cannot provide
such benefits because Executive is no longer an employee, a dollar
amount equal to the cost to Executive of obtaining such benefits (or
substantially similar benefits). If permitted under the terms of the
plan, Executive shall receive the additional retirement benefits to
which he would have been entitled had his employment continued through
the then remaining term of the Agreement. However, in the event the
payment described herein, when added to all other amounts or benefits
provided to or on behalf of the Executive in connection with his
termination of employment, would result in the imposition of an excise
tax under Code Section 4999, such payments shall be retroactively (if
necessary) reduced to the extent necessary to avoid such excise tax
imposition. Upon written notice to Executive, together with
calculations of Corporation's independent auditors, Executive shall
remit to Corporation the amount of the reduction plus such interest as
may be necessary to avoid the imposition of such excise tax.
Notwithstanding the foregoing or any other provision of this contract
to the contrary, if any portion of the amount herein payable to the
Executive is determined to be non-deductible pursuant to the
regulations promulgated under Section 280G of the Internal Revenue
Code of 1986, as amended
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--------------
(the "Code"), then Corporation shall be required only to pay to
Executive the amount determined to be deductible under Section 280G.
At the option of the Executive, exercisable by the Executive within
ninety (90) days after the occurrence of the event constituting "Good
Reason," the Executive may resign from employment under this Agreement
by a notice in writing (the "Notice of Termination") delivered to
Corporation and Bank and the provisions of this Section 3(c) hereof
shall thereupon apply.
(d) Notwithstanding the provisions of Section 3(a) of this Agreement, this
Agreement shall terminate automatically upon Executive's Disability
and Executive's rights under this Agreement shall cease as of the date
of such termination; provided, however, that Executive shall
nevertheless be entitled to receive an amount equal to and no greater
than 70% of the Executive's Agreed Compensation as defined in
subsection (g) of this Section 3, less amounts payable under any
disability plan of Corporation and Bank, until the earliest of (i)
Executive's return to employment, (ii) his attainment of age 65, (iii)
his death, or (iv) the end of the then existing Employment Period.
Executive's Disability rights under this Agreement are not intended to
preclude Executive from securing benefits under any other disability
plan in effect from time to time. However, the obligation of
Corporation and Bank under this Agreement can be satisfied through the
receipt of disability benefits by Executive under any other disability
plan that may be in effect from time to time. In addition, Executive
shall receive for such period a continuation of all life, disability,
medical insurance and other normal health and welfare benefits in
effect with respect to Executive during the two (2) years prior to his
disability, or, if Corporation and Bank cannot provide such benefits
because Executive is no longer an employee, a dollar amount equal to
the cost to Executive of obtaining such benefits (or substantially
similar benefits). For purposes of this Agreement, the Executive shall
have a Disability if, as a result of physical or mental injury or
impairment, Executive is unable to perform all of the essential job
functions of his position on a full time basis with or without a
reasonable accommodation and without posting a direct threat to
himself and others, for a period of ninety (90) days.
(e) Notwithstanding the provisions of Section 3(a) of this Agreement, this
Agreement shall terminate automatically upon Executive's death and
Executive's rights under this Agreement shall cease as of the date of
such termination.
(f) Executive agrees that in the event his employment under this Agreement
is terminated, Executive shall resign as a director of Corporation and
Bank, or any affiliate or subsidiary thereof, if he is then serving as
a director of any of such entities.
(g) The term "Agreed Compensation" shall equal the Executive's highest
Annual Base Salary under the Agreement.
4. Employment Period Compensation.
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(a) Annual Base Salary. For services performed by Executive under this
------------------
Agreement, Corporation or Bank shall pay Executive an Annual Base
Salary during the Employment Period at the rate of $101,004 per year,
minus applicable withholdings and deductions, payable at the same
times as salaries are payable to other executive employees of
Corporation or Bank. In no event will the total annual compensation to
Executive be less than the total annual compensation received by
Executive for the 12 month period prior to the effective date of this
Agreement. Corporation or Bank may, from time to time, increase
Executive's Annual Base Salary, and any and all such increases shall
be deemed to constitute amendments to this Section 4(a) to reflect the
increased amounts, effective as of the date established for such
increases by the Board of Directors of Corporation or Bank or any
committee of such Board in the resolutions authorizing such increases.
(b) Bonus. For services performed by Executive under this Agreement,
-----
Corporation or Bank may, from time to time, pay a bonus or bonuses to
Executive as Corporation or Bank, in their sole discretion, deem
appropriate. The payment of any such bonuses shall not reduce or
otherwise affect any other obligation of Corporation or Bank to
Executive provided for in this Agreement.
(c) Vacations. During the term of this Agreement, Executive shall be
---------
entitled to paid annual vacation in accordance with the policies as
established from time to time by the Boards of Directors of
Corporation and Bank. However, Executive shall not be entitled to
receive any additional compensation from Corporation and Bank for
failure to take a vacation unless an emergency work situation arises
where Executive is required to work in lieu of a vacation in order to
meet the Corporation's or Bank's needs. Executive shall not be able to
accumulate unused vacation time from one year to the next, except to
the extent authorized by the Boards of Directors of Corporation and
Bank.
(d) Employee Benefit Plans. During the term of this Agreement, Executive
----------------------
shall be entitled to participate in or receive the benefits of any
employee benefit plan currently in effect at Corporation or Bank,
subject to the terms of said plan, until such time that the Boards of
Directors of Corporation and Bank authorize a change in such benefits.
(e) Business Expenses. During the term of this Agreement, Executive shall
-----------------
be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him, which are properly accounted for, in
accordance with the policies and procedures established by the Boards
of Directors of Corporation and Bank for their executive officers.
5. Termination of Employment Following Change in Control.
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(a) If a Change in Control (as defined in Section 5(b) of this Agreement) shall
occur after the effective date of the merger, and if thereafter at any time
during the term of this Agreement there shall be:
(i) any involuntary termination of Executive's employment (other than for
the reasons set forth in Section 3(b), 3(d), or 3(e) of this
Agreement);
(ii) any reduction in Executive's title, responsibilities, including
reporting responsibilities, or authority, including such title,
responsibilities or authority as such may be increased from time to
time during the term of this Agreement;
(iii) the assignment to Executive of duties inconsistent with Executive's
office on the date of the Change in Control or as the same may be
increased from time to time after the Change in Control;
(iv) any reassignment of Executive to a location greater than one hundred
(100) miles from the location of Executive's office on the date of the
Change in Control;
(v) any reduction in Executive's Annual Base Salary in effect on the date
of the Change in Control or as the same may be increased from time to
time after the Change in Control;
(vi) any failure to provide Executive with benefits at least as favorable
as those enjoyed by Executive under any of Corporation or Bank's
retirement or pension, life insurance, medical, health and accident,
disability or other employee plans in which Executive participated at
the time of the Change in Control, or the taking of any action that
would materially reduce any of such benefits in effect at the time of
the Change in Control;
(vii) any requirement that Executive travel in performance of his duties on
behalf of Corporation or Bank for a significantly greater period of
time during any year than was required of Executive during the year
preceding the year in which the Change in Control occurred; or
(viii) any sustained pattern of interruption or disruption of Executive for
matters substantially unrelated to Executive's discharge of
Executive's duties on behalf of Corporation and Bank.
then, at the option of Executive, exercisable by Executive within one
hundred twenty (120) days of the occurrence of any of the foregoing events,
Executive may resign from employment with Bank (or, if involuntarily
terminated, give notice of intention to collect benefits under this
Agreement) by delivering a notice in writing (the "Notice of Termination")
to Corporation and Bank and the provisions of Section 6 of this Agreement
shall apply.
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(b) As used in this Agreement, "Change in Control" shall mean the
occurrence of any of the following:
(i) (A) a merger, consolidation or division involving Corporation,
(B) a sale, exchange, transfer or other disposition of
substantially all of the assets of Corporation, or (C) a purchase
by Corporation of substantially all of the assets of another
entity, unless (y) such merger, consolidation, division, sale,
exchange, transfer, purchase or disposition is approved in
advance by seventy percent (70%) or more of the members of the
Board of Directors of Corporation who are not interested in the
transaction and (z) a majority of the members of the Board of
Directors of the legal entity resulting from or existing after
any such transaction and of the Board of Directors of such
entity's parent corporation, if any, are former members of the
Board of Directors of Corporation; or
(ii) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act")), other
than Corporation or Bank or any "person" who on the date hereof
is a director or officer of Corporation or Bank is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of Corporation or
Bank representing twenty-five (25%) percent or more of the
combined voting power of Corporation or Bank's then outstanding
securities, or
(iii) during any period of two (2) consecutive years during the term
of Executive's employment under this Agreement, individuals who
at the beginning of such period constitute the Board of Directors
of Corporation or Bank cease for any reason to constitute at
least a majority thereof, unless the election of each director
who was not a director at the beginning of such period has been
approved in advance by directors representing at least two-thirds
of the directors then in office who were directors at the
beginning of the period; or
(iv) any other change in control of Corporation similar in effect to
any of the foregoing.
6. Rights in Event of Termination of Employment Following Change in Control.
-------------------------------------------------------------------------
(a) In the event that Executive delivers a Notice of Termination (as
defined in Section 5(a) of this Agreement) to Corporation and Bank,
Executive shall be absolutely entitled to receive the compensation and
benefits set forth below:
If, at the time of termination of Executive's employment, a "Change in
Control" (as defined in Section 5(b) of this Agreement) has also
occurred, Bank shall pay Executive an amount equal to and no greater
than 2.99 times the Executive's Agreed Compensation as defined in
subsection (g) of Section 3, minus applicable taxes and withholdings,
which shall be payable in thirty-six (36) equal monthly installments.
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In addition, for a period of three (3) years from the date of
termination of employment, or until Executive secures substantially
similar benefits through other employment, whichever shall first
occur, Executive shall receive a continuation of all life, disability,
medical insurance and other normal health and welfare benefits in
effect with respect to Executive during the two (2) years prior to his
termination of employment, or, if Bank cannot provide such benefits
because Executive is no longer an employee, a dollar amount equal to
the cost to Executive of obtaining such benefits (or substantially
similar benefits). If permitted under the terms of the plan, Executive
shall receive additional retirement benefits to which he would have
been entitled had his employment continued through the then remaining
term of the Agreement. However, in the event the payment described
herein, when added to all other amounts or benefits provided to or on
behalf of the Executive in connection with his termination of
employment, would result in the imposition of an excise tax under Code
Section 4999, such payments shall be retroactively (if necessary)
reduced to the extent necessary to avoid such excise tax imposition.
Upon written notice to Executive, together with calculations of
Corporation's independent auditors, Executive shall remit to
Corporation the amount of the reduction plus such interest as may be
necessary to avoid the imposition of such excise tax. Notwithstanding
the foregoing or any other provision of this contract to the contrary,
if any portion of the amount herein payable to the Executive is
determined to be non-deductible pursuant to the regulations
promulgated under Section 280G of the Code, then Corporation shall be
required only to pay to Executive the amount determined to be
deductible under Section 280G.
(b) Executive shall not be required to mitigate the amount of any payment
provided for in this Section 6 by seeking other employment or
otherwise. Unless otherwise agreed to in writing, the amount of
payment or the benefit provided for in this Section 6 shall not be
reduced by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's receipt of
or right to receive any retirement or other benefits after the date of
termination of employment or otherwise.
7. Rights in Event of Termination of Employment Absent Change in Control.
----------------------------------------------------------------------
(a) If Executive's employment is involuntarily terminated by Bank without
Cause and no Change in Control shall have occurred at the date of such
termination, then Bank shall pay Executive an amount equal to the
greater of the remaining balance of the Agreed Compensation otherwise
due to the Executive for the remainder of the then existing Employment
Period or 1.0 times the Executive's Agreed Compensation as defined in
subsection (g) of Section 3, which amount shall be payable in twelve
(12) equal monthly installments and shall be subject to federal, state
and local tax withholdings. In addition, for a period of one (1) year
from the date of termination of employment, or until Executive secures
substantially similar benefits through other employment, whichever
shall first occur, Executive shall receive a continuation of all life,
disability, medical insurance and other normal health and welfare
benefits in effect with respect to Executive during the two (2) years
prior to his termination
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of employment, or, if Bank cannot provide such benefits because
Executive is no longer an employee, a dollar amount equal to the cost
to Executive of obtaining such benefits (or substantially similar
benefits). In addition, if permitted pursuant to the terms of the
plan, Executive shall receive additional retirement benefits to which
he would have been entitled had his employment continued through the
then remaining term of the Agreement. However, in the event the
payment described herein, when added to all other amounts or benefits
provided to or on behalf of the Executive in connection with his
termination of employment, would result in the imposition of an excise
tax under Code Section 4999, such payments shall be retroactively (if
necessary) reduced to the extent necessary to avoid such excise tax
imposition. Upon written notice to Executive, together with
calculations of Corporation's independent auditors, Executive shall
remit to Corporation the amount of the reduction plus such interest as
may be necessary to avoid the imposition of such excise tax.
Notwithstanding the foregoing or any other provision of this contract
to the contrary, if any portion of the amount herein payable to the
Executive is determined to be non-deductible pursuant to the
regulations promulgated under Section 280G of the Code, then Bank
shall be required only to pay to Executive the amount determined to be
deductible under Section 280G.
(b) Executive shall not be required to mitigate the amount of any payment
provided for in this Section 7 by seeking other employment or
otherwise. Unless otherwise agreed to in writing, the amount of
payment or the benefit provided for in this Section 7 shall not be
reduced by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's receipt of
or right to receive any retirement or other benefits after the date of
termination of employment or otherwise.
8. Covenant Not to Compete.
------------------------
(a) Executive hereby acknowledges and recognizes the highly competitive
nature of the business of Corporation and Bank and accordingly agrees
that, during and for the applicable period set forth in Section 8(c)
hereof, Executive shall not:
(i) be engaged, directly or indirectly, either for his own account or
as agent, consultant, employee, partner, officer, director,
proprietor, investor (except as an investor owning less than 5%
of the stock of a publicly owned company) or otherwise of any
person, firm, corporation or enterprise engaged in (1) the
banking (including bank holding company) or financial services
industry, or (2) any other activity in which Corporation or Bank
or any of their subsidiaries are engaged during the Employment
Period, in any county in which, at any time during the Employment
Period or at the date of termination of the Executive's
employment, a branch, office or other facility of Corporation or
Bank or any of their subsidiaries is located, or in any county
contiguous to such a county, including contiguous counties
located outside of the Commonwealth of Pennsylvania (the
"Non-Competition Area"); or
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(ii) provide financial or other assistance to any person, firm,
corporation, or enterprise engaged in (1) the banking (including
bank holding company) or financial services industry, or (2) any
other activity in which Corporation or Bank or any of their
subsidiaries are engaged during the Employment Period, in the
Non-Competition Area;
(iii) solicit current and former customers of Corporation, Bank or any
Corporation subsidiary in the Non-Competition Area; or
(iv) solicit current or former employees of Corporation, Bank or any
Corporation subsidiary.
(b) It is expressly understood and agreed that, although Executive and
Corporation and Bank consider the restrictions contained in Section
8(a) hereof reasonable for the purpose of preserving for Corporation
and Bank and their subsidiaries their good will and other proprietary
rights, if a final judicial determination is made by a court having
jurisdiction that the time or territory or any other restriction
contained in Section 8(a) hereof is an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of Section
8(a) hereof shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such other extent
as such court may judicially determine or indicate to be reasonable.
(c) The provisions of this Section 8 shall be applicable commencing on the
effective date of the merger and ending on one of the following dates,
as applicable:
(i) if Executive's employment terminates in accordance with the
provisions of Section 3 (other than Section 3(b) relating to
termination for Cause), the first anniversary date of the
effective date of termination of employment; or
(ii) if Executive's employment terminates in accordance with the
provisions of Section 3(b) of this Agreement (relating to
termination for Cause), the second anniversary date of the
effective date of termination of employment; or
(iii) if the Executive voluntarily terminates his employment in
accordance with the provisions of Section 5 hereof, the third
anniversary date of the effective date of termination of
employment; or
(iv) if the Executive's employment is involuntarily terminated in
accordance with the provisions of Section 7 hereof, the first
anniversary date of the effective date of termination of
employment.
9. Unauthorized Disclosure. During the term of his employment hereunder, or at
------------------------
any later time, the Executive shall not, without the written consent of the
Boards of Directors of Corporation and Bank or a person authorized thereby,
knowingly disclose to any person, other than an employee of Corporation or
Bank or a person to whom disclosure is reasonably necessary or appropriate
in connection with the performance by the Executive of his duties
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as an executive of Corporation and Bank, any material confidential
information obtained by him while in the employ of Corporation and Bank
with respect to any of Corporation and Bank's services, products,
improvements, formulas, designs or styles, processes, customers, methods of
business or any business practices the disclosure of which could be or will
be damaging to Corporation or Bank; provided, however, that confidential
information shall not include any information known generally to the public
(other than as a result of unauthorized disclosure by the Executive or any
person with the assistance, consent or direction of the Executive) or any
information of a type not other considered confidential by persons engaged
in the same business or a business similar to that conducted by Corporation
and Bank or any information that must be disclosed as required by law.
10. Liability Insurance. Corporation and Bank shall use their best efforts to
-------------------
obtain insurance coverage for the Executive under an insurance policy
covering officers and directors of Corporation and Bank against lawsuits,
arbitrations or other legal or regulatory proceedings; however, nothing
herein shall be construed to require Corporation and/or Bank to obtain such
insurance, if the Board of Directors of the Corporation and/or Bank
determine that such coverage cannot be obtained at a reasonable price.
11. Notices. Except as otherwise provided in this Agreement, any notice
-------
required or permitted to be given under this Agreement shall be deemed
properly given if in writing and if mailed by registered or certified mail,
postage prepaid with return receipt requested, to Executive's residence, in
the case of notices to Executive, and to the principal executive offices of
Corporation and Bank, in the case of notices to Corporation and Bank.
12. Waiver. No provision of this Agreement may be modified, waived or
------
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Executive and an executive officer specifically
designated by the Boards of Directors of Corporation and Bank. No waiver by
either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to similar
or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Assignment. This Agreement shall not be assignable by any party, except by
----------
Corporation and Bank to any successor in interest to their respective
businesses.
14. Entire Agreement. This Agreement contains the entire agreement of the
----------------
parties relating to the subject matter of this Agreement.
15. Successors; Binding Agreement.
-----------------------------
(a) Corporation and Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the businesses and/or assets of Corporation and
Bank to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that Corporation and Bank would be
required to perform it if no such succession had taken place. Failure
by Corporation and Bank to obtain such assumption and agreement prior
to the effectiveness of any such succession shall constitute a breach
of this Agreement
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and the provisions of Section 3 of this Agreement shall apply. As used
in this Agreement, "Corporation" and "Bank" shall mean Corporation and
Bank, as defined previously and any successor to their respective
businesses and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors,
administrators, heirs, distributees, devisees and legatees. If
Executive should die after a Notice of Termination is delivered by
Executive, or following termination of Executive's employment without
Cause, and any amounts would be payable to Executive under this
Agreement if Executive had continued to live, all such amounts shall
be paid in accordance with the terms of this Agreement to Executive's
devisee, legatee, or other designee, or, if there is no such designee,
to Executive's estate.
16. Arbitration. Corporation, Bank and Executive recognize that in the event a
-----------
dispute should arise between them concerning the interpretation or
implementation of this Agreement, lengthy and expensive litigation will not
afford a practical resolution of the issues within a reasonable period of
time. Consequently, each party agrees that all disputes, disagreements and
questions of interpretation concerning this Agreement are to be submitted
for resolution, in Pittsburgh, Pennsylvania, to the American Arbitration
Association (the "Association") in accordance with the Association's
National Rules for the Resolution of Employment Disputes or other
applicable rules then in effect ("Rules"). Corporation, Bank or Executive
may initiate an arbitration proceeding at any time by giving notice to the
other in accordance with the Rules. Corporation and Bank and Executive may,
as a matter or right, mutually agree on the appointment of a particular
arbitrator from the Association's pool. The arbitrator shall not be bound
by the rules of evidence and procedure of the courts of the Commonwealth of
Pennsylvania but shall be bound by the substantive law applicable to this
Agreement. The decision of the arbitrator, absent fraud, duress,
incompetence or gross and obvious error of fact, shall be final and binding
upon the parties and shall be enforceable in courts of proper jurisdiction.
Following written notice of a request for arbitration, Corporation, Bank
and Executive shall be entitled to an injunction restraining all further
proceedings in any pending or subsequently filed litigation concerning this
Agreement, except as otherwise provided herein.
17. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
18. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the domestic, internal laws of the Commonwealth of
Pennsylvania, without regard to its conflicts of laws principles.
19. Headings. The section headings of this Agreement are for convenience only
--------
and shall not control or affect the meaning or construction or limit the
scope or intent of any of the provisions of this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST: PENN LAUREL FINANCIAL CORP.
/s/ Janice E. Kephart By /s/ Larry W. Brubaker
- --------------------- ---------------------
Janice E. Kephart, Secretary Larry W. Brubaker, President
PENN LAUREL BANK & TRUST COMPANY
/s/ Janice E. Kephart By /s/ Larry W. Brubaker
- --------------------- ---------------------
, Secretary Larry W. Brubaker, President
WITNESS:
/s/ Janice E. Kephart By /s/ William E. Wood
- --------------------- -------------------
William E. Wood
"Executive"
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EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of the 22nd day of July, 1999, among PENN LAUREL
FINANCIAL CORP., ("Corporation") a Pennsylvania business corporation having a
place of business at 11 North Second Street, Clearfield, Pennsylvania 16830,
PENN LAUREL BANK & TRUST COMPANY ("Bank") a state chartered bank and trust
company having a place of business at 11 North Second Street, Clearfield,
Pennsylvania 16830, and WESLEY M. WEYMERS ("Executive"), an individual residing
at 2528 Meadow Road, Clearfield, Pennsylvania 16830.
WITNESSETH:
-----------
WHEREAS, Corporation is a registered bank holding company;
WHEREAS, Corporation, CSB Bank and Clearfield Bank & Trust Company have
entered into an Agreement and Plan of Reorganization dated December 31, 1998
(the "Reorganization Agreement");
WHEREAS, pursuant to the Reorganization Agreement, Bank will be a
wholly-owned subsidiary of Corporation on the Effective Date as set forth in
Section 11.2 of the Reorganization Agreement;
WHEREAS, Corporation and Bank desire to employ Executive to serve in the
capacity of Executive Vice President of the Corporation and Bank under the terms
and conditions set forth herein;
WHEREAS, Executive desires to accept employment with Corporation and Bank
on the terms and conditions set forth herein.
AGREEMENT:
----------
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
1. Employment. Corporation and Bank hereby employ Executive and Executive
----------
hereby accepts employment with Corporation and Bank, under the terms and
conditions set forth in this Agreement.
2. Duties of Employee. Executive shall perform and discharge well and
------------------
faithfully such duties as an executive officer of Corporation and Bank as
may be assigned to Executive from time to time by the Board of Directors of
Corporation and Bank. Executive shall be employed as Executive Vice
President of Corporation and Bank, and shall hold such other titles as may
be given to him from time to time by the Board of Directors of Corporation
and Bank. Executive shall devote his full time, attention and energies to
the business of Corporation and Bank during the Employment Period (as
defined in Section 3 of this Agreement); provided, however, that this
Section 2 shall not be construed as preventing Executive from (a) engaging
in activities incident or necessary to personal investments so long as it
does not
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exceed 5% of the outstanding shares of any publicly held company, (b)
acting as a member of the Board of Directors of any other corporation or as
a member of the Board of Trustees of any other organization, with the prior
approval of the Board of Directors of Corporation and Bank, or (c) being
involved in any other activity with the prior approval of the Board of
Directors of Corporation and Bank. The Executive shall not engage in any
business or commercial activities, duties or pursuits which compete with
the business or commercial activities of Corporation or Bank, nor may the
Executive serve as a director or officer or in any other capacity in a
company which competes with Corporation or Bank.
3. Term of Agreement.
------------------
(a) This Agreement shall be for a three (3) year period (the "Employment
Period") beginning on the Effective Date as set forth in Section 11.2
of the Reorganization Agreement, and if not previously terminated
pursuant to the terms of this Agreement, the Employment Period shall
end three (3) years later.
(b) Notwithstanding the provisions of Section 3(a) of this Agreement, this
Agreement shall terminate automatically for Cause (as defined herein)
upon written notice from the Board of Directors of each of Corporation
and Bank to Executive. As used in this Agreement, "Cause" shall mean
any of the following:
(i) Executive's conviction of or plea of guilty or nolo contendere to
a felony, a crime of falsehood or a crime involving moral
turpitude, or the actual incarceration of Executive for a period
of thirty (30) consecutive days or more;
(ii) Executive's failure to follow the good faith lawful instructions
of the Board of Directors of Corporation or Bank with respect to
their operations following written notice of such instructions;
or
(iii) Executive's failure to substantially perform Executive's duties
to Corporation or Bank, other than a failure resulting from
Executive's incapacity because of physical or mental illness, as
provided in subsection (d) of this Section 3, which failure
results in injury to Corporation or Bank, monetarily or
otherwise.
(iv) Executive's intentional violation of the provisions of this
Agreement;
(v) dishonesty or gross negligence of the Executive in the
performance of his duties;
(vi) conduct on the part of the Executive which brings public
discredit to Corporation or Bank;
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(vii) Executive's breach of fiduciary duty involving personal profit;
or
(viii) Executive's violation of any law, rule or regulation governing
banks or bank officers or any final cease and desist order issued
by a bank regulatory authority.
If this Agreement is terminated for Cause, all of Executive's rights
under this Agreement shall cease as of the effective date of such
termination.
(c) Notwithstanding the provisions of Section 3(a) of this Agreement, this
Agreement shall terminate automatically upon Executive's voluntary
termination of employment (other than in accordance with Section 5 of
this Agreement) for Good Reason. The term "Good Reason" shall mean (i)
the assignment of duties and responsibilities inconsistent with
Executive's status as Executive Vice President of Corporation and
Bank, (ii) a reduction in salary or significant reduction in benefits,
except in cases of a national financial depression or emergency when
such reduction has been implemented by the Board of Directors for
Corporation and Bank's senior management, or (iii) a reassignment
which requires Executive to move his principal residence more than one
hundred (100) miles from Corporation and Bank's principal executive
office immediately prior to this Agreement. If such termination occurs
for Good Reason, then Bank shall pay Executive an amount equal to the
greater of the remaining balance of the Agreed Compensation otherwise
due to the Executive for the remainder of the then existing Employment
Period or 1.0 times the Executive's Agreed Compensation as defined in
subsection (g) of Section 3, which amount shall be payable in twelve
(12) equal monthly installments and shall be subject to federal, state
and local tax withholdings. In addition, for a period of one (1) year
from the date of termination of employment, or until Executive secures
substantially similar benefits through other employment, whichever
shall first occur, Executive shall receive a continuation of all life,
disability, medical insurance and other normal health and welfare
benefits in effect with respect to Executive during the two (2) years
prior to his termination of employment, or, if Bank cannot provide
such benefits because Executive is no longer an employee, a dollar
amount equal to the cost to Executive of obtaining such benefits (or
substantially similar benefits). If permitted under the terms of the
plan, Executive shall receive the additional retirement benefits to
which he would have been entitled had his employment continued through
the then remaining term of the Agreement. However, in the event the
payment described herein, when added to all other amounts or benefits
provided to or on behalf of the Executive in connection with his
termination of employment, would result in the imposition of an excise
tax under Code Section 4999, such payments shall be retroactively (if
necessary) reduced to the extent necessary to avoid such excise tax
imposition. Upon written notice to Executive, together with
calculations of Corporation's independent auditors, Executive shall
remit to Corporation the amount of the reduction plus such interest as
may be necessary to
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avoid the imposition of such excise tax. Notwithstanding the foregoing
or any other provision of this contract to the contrary, if any
portion of the amount herein payable to the Executive is determined to
be non-deductible pursuant to the regulations promulgated under
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), then Corporation shall be required only to pay to Executive
the amount determined to be deductible under Section 280G.
At the option of the Executive, exercisable by the Executive within
ninety (90) days after the occurrence of the event constituting "Good
Reason," the Executive may resign from employment under this Agreement
by a notice in writing (the "Notice of Termination") delivered to
Corporation and Bank and the provisions of this Section 3(c) hereof
shall thereupon apply.
(d) Notwithstanding the provisions of Section 3(a) of this Agreement, this
Agreement shall terminate automatically upon Executive's Disability
and Executive's rights under this Agreement shall cease as of the date
of such termination; provided, however, that Executive shall
nevertheless be entitled to receive an amount equal to and no greater
than 70% of the Executive's Agreed Compensation as defined in
subsection (g) of this Section 3, less amounts payable under any
disability plan of Corporation and Bank, until the earliest of (i)
Executive's return to employment, (ii) his attainment of age 65, (iii)
his death, or (iv) the end of the then existing Employment Period.
Executive's Disability rights under this Agreement are not intended to
preclude Executive from securing benefits under any other disability
plan in effect from time to time. However, the obligation of
Corporation and Bank under this Agreement can be satisfied through the
receipt of disability benefits by Executive under any other disability
plan that may be in effect from time to time. In addition, Executive
shall receive for such period a continuation of all life, disability,
medical insurance and other normal health and welfare benefits in
effect with respect to Executive during the two (2) years prior to his
disability, or, if Corporation and Bank cannot provide such benefits
because Executive is no longer an employee, a dollar amount equal to
the cost to Executive of obtaining such benefits (or substantially
similar benefits). For purposes of this Agreement, the Executive shall
have a Disability if, as a result of physical or mental injury or
impairment, Executive is unable to perform all of the essential job
functions of his position on a full time basis with or without a
reasonable accommodation and without posting a direct threat to
himself and others, for a period of ninety (90) days.
(e) Notwithstanding the provisions of Section 3(a) of this Agreement, this
Agreement shall terminate automatically upon Executive's death and
Executive's rights under this Agreement shall cease as of the date of
such termination.
(f) Executive agrees that in the event his employment under this Agreement
is terminated, Executive shall resign as a director of Corporation and
Bank, or any
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affiliate or subsidiary thereof, if he is then serving as a director
of any of such entities.
(g) The term "Agreed Compensation" shall equal the Executive's highest
Annual Base Salary under the Agreement.
4. Employment Period Compensation.
-------------------------------
(a) Annual Base Salary. For services performed by Executive under this
------------------
Agreement, Corporation or Bank shall pay Executive an Annual Base
Salary during the Employment Period at the rate of $101,004 per year,
minus applicable withholdings and deductions, payable at the same
times as salaries are payable to other executive employees of
Corporation or Bank. In no event will the total annual compensation to
Executive be less than the total annual compensation received by
Executive for the 12 month period prior to the effective date of this
Agreement. Corporation or Bank may, from time to time, increase
Executive's Annual Base Salary, and any and all such increases shall
be deemed to constitute amendments to this Section 4(a) to reflect the
increased amounts, effective as of the date established for such
increases by the Board of Directors of Corporation or Bank or any
committee of such Board in the resolutions authorizing such increases.
(b) Bonus. For services performed by Executive under this Agreement,
-----
Corporation or Bank may, from time to time, pay a bonus or bonuses to
Executive as Corporation or Bank, in their sole discretion, deem
appropriate. The payment of any such bonuses shall not reduce or
otherwise affect any other obligation of Corporation or Bank to
Executive provided for in this Agreement.
(c) Vacations. During the term of this Agreement, Executive shall be
---------
entitled to paid annual vacation in accordance with the policies as
established from time to time by the Boards of Directors of
Corporation and Bank. However, Executive shall not be entitled to
receive any additional compensation from Corporation and Bank for
failure to take a vacation unless an emergency work situation arises
where Executive is required to work in lieu of a vacation in order to
meet the Corporation's or Bank's needs. Executive shall not be able to
accumulate unused vacation time from one year to the next, except to
the extent authorized by the Boards of Directors of Corporation and
Bank.
(d) Employee Benefit Plans. During the term of this Agreement, Executive
----------------------
shall be entitled to participate in or receive the benefits of any
employee benefit plan currently in effect at Corporation or Bank,
subject to the terms of said plan, until such time that the Boards of
Directors of Corporation and Bank authorize a change in such benefits.
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(e) Business Expenses. During the term of this Agreement, Executive shall
be entitled to receive prompt reimbursement for all reasonable
expenses incurred by him, which are properly accounted for, in
accordance with the policies and procedures established by the Boards
of Directors of Corporation and Bank for their executive officers.
5. Termination of Employment Following Change in Control.
------------------------------------------------------
(a) If a Change in Control (as defined in Section 5(b) of this Agreement)
shall occur after the effective date of the merger and if thereafter
at any time during the term of this Agreement there shall be:
(i) any involuntary termination of Executive's employment (other than
for the reasons set forth in Section 3(b), 3(d), or 3(e) of this
Agreement);
(ii) any reduction in Executive's title, responsibilities, including
reporting responsibilities, or authority, including such title,
responsibilities or authority as such may be increased from time
to time during the term of this Agreement;
(iii) the assignment to Executive of duties inconsistent with
Executive's office on the date of the Change in Control or as the
same may be increased from time to time after the Change in
Control;
(iv) any reassignment of Executive to a location greater than one
hundred (100) miles from the location of Executive's office on
the date of the Change in Control;
(v) any reduction in Executive's Annual Base Salary in effect on the
date of the Change in Control or as the same may be increased
from time to time after the Change in Control;
(vi) any failure to provide Executive with benefits at least as
favorable as those enjoyed by Executive under any of Corporation
or Bank's retirement or pension, life insurance, medical, health
and accident, disability or other employee plans in which
Executive participated at the time of the Change in Control, or
the taking of any action that would materially reduce any of such
benefits in effect at the time of the Change in Control;
(vii) any requirement that Executive travel in performance of his
duties on behalf of Corporation or Bank for a significantly
greater period of time during any year than was required of
Executive during the year preceding the year in which the Change
in Control occurred; or
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(viii) any sustained pattern of interruption or disruption of
Executive for matters substantially unrelated to Executive's
discharge of Executive's duties on behalf of Corporation and
Bank.
then, at the option of Executive, exercisable by Executive within one
hundred twenty (120) days of the occurrence of any of the foregoing
events, Executive may resign from employment with Bank (or, if
involuntarily terminated, give notice of intention to collect benefits
under this Agreement) by delivering a notice in writing (the "Notice
of Termination") to Corporation and Bank and the provisions of Section
6 of this Agreement shall apply.
(b) As used in this Agreement, "Change in Control" shall mean the
occurrence of any of the following:
(i) (A) a merger, consolidation or division involving Corporation,
(B) a sale, exchange, transfer or other disposition of
substantially all of the assets of Corporation, or (C) a purchase
by Corporation of substantially all of the assets of another
entity, unless (y) such merger, consolidation, division, sale,
exchange, transfer, purchase or disposition is approved in
advance by seventy percent (70%) or more of the members of the
Board of Directors of Corporation who are not interested in the
transaction and (z) a majority of the members of the Board of
Directors of the legal entity resulting from or existing after
any such transaction and of the Board of Directors of such
entity's parent corporation, if any, are former members of the
Board of Directors of Corporation; or
(ii) any Aperson@ (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act")), other
than Corporation or Bank or any "person" who on the date hereof
is a director or officer of Corporation or Bank is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of Corporation or
Bank representing twenty-five (25%) percent or more of the
combined voting power of Corporation or Bank's then outstanding
securities, or
(iii) during any period of two (2) consecutive years during the term
of Executive's employment under this Agreement, individuals who
at the beginning of such period constitute the Board of Directors
of Corporation or Bank cease for any reason to constitute at
least a majority thereof, unless the election of each director
who was not a director at the beginning of such period has been
approved in advance by directors representing at least two-thirds
of the directors then in office who were directors at the
beginning of the period; or
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(iv) any other change in control of Corporation similar in effect to
any of the foregoing.
6. Rights in Event of Termination of Employment Following Change in Control.
-------------------------------------------------------------------------
(a) In the event that Executive delivers a Notice of Termination (as
defined in Section 5(a) of this Agreement) to Corporation and Bank,
Executive shall be absolutely entitled to receive the compensation and
benefits set forth below:
If, at the time of termination of Executive's employment, a "Change in
Control" (as defined in Section 5(b) of this Agreement) has also
occurred, Bank shall pay Executive an amount equal to and no greater
than 2.99 times the Executive's Agreed Compensation as defined in
subsection (g) of Section 3, minus applicable taxes and withholdings,
which shall be payable in thirty-six (36) equal monthly installments.
In addition, for a period of three (3) years from the date of
termination of employment, or until Executive secures substantially
similar benefits through other employment, whichever shall first
occur, Executive shall receive a continuation of all life, disability,
medical insurance and other normal health and welfare benefits in
effect with respect to Executive during the two (2) years prior to his
termination of employment, or, if Bank cannot provide such benefits
because Executive is no longer an employee, a dollar amount equal to
the cost to Executive of obtaining such benefits (or substantially
similar benefits). If permitted under the terms of the plan, Executive
shall receive additional retirement benefits to which he would have
been entitled had his employment continued through the then remaining
term of the Agreement. However, in the event the payment described
herein, when added to all other amounts or benefits provided to or on
behalf of the Executive in connection with his termination of
employment, would result in the imposition of an excise tax under Code
Section 4999, such payments shall be retroactively (if necessary)
reduced to the extent necessary to avoid such excise tax imposition.
Upon written notice to Executive, together with calculations of
Corporation's independent auditors, Executive shall remit to
Corporation the amount of the reduction plus such interest as may be
necessary to avoid the imposition of such excise tax. Notwithstanding
the foregoing or any other provision of this contract to the contrary,
if any portion of the amount herein payable to the Executive is
determined to be non-deductible pursuant to the regulations
promulgated under Section 280G of the Code, then Corporation shall be
required only to pay to Executive the amount determined to be
deductible under Section 280G.
(b) Executive shall not be required to mitigate the amount of any payment
provided for in this Section 6 by seeking other employment or
otherwise. Unless otherwise agreed to in writing, the amount of
payment or the benefit provided for in this Section 6 shall not be
reduced by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's receipt of
or right to
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receive any retirement or other benefits after the date of termination
of employment or otherwise.
7. Rights in Event of Termination of Employment Absent Change in Control.
----------------------------------------------------------------------
(a) If Executive's employment is involuntarily terminated by Bank without
Cause and no Change in Control shall have occurred at the date of such
termination, then Bank shall pay Executive an amount equal to the
greater of the remaining balance of the Agreed Compensation otherwise
due to the Executive for the remainder of the then existing Employment
Period or 1.0 times the Executive's Agreed Compensation as defined in
subsection (g) of Section 3, which amount shall be payable in twelve
(12) equal monthly installments and shall be subject to federal, state
and local tax withholdings. In addition, for a period of one (1) year
from the date of termination of employment, or until Executive secures
substantially similar benefits through other employment, whichever
shall first occur, Executive shall receive a continuation of all life,
disability, medical insurance and other normal health and welfare
benefits in effect with respect to Executive during the two (2) years
prior to his termination of employment, or, if Bank cannot provide
such benefits because Executive is no longer an employee, a dollar
amount equal to the cost to Executive of obtaining such benefits (or
substantially similar benefits). In addition, if permitted pursuant to
the terms of the plan, Executive shall receive additional retirement
benefits to which he would have been entitled had his employment
continued through the then remaining term of the Agreement. However,
in the event the payment described herein, when added to all other
amounts or benefits provided to or on behalf of the Executive in
connection with his termination of employment, would result in the
imposition of an excise tax under Code Section 4999, such payments
shall be retroactively (if necessary) reduced to the extent necessary
to avoid such excise tax imposition. Upon written notice to Executive,
together with calculations of Corporation's independent auditors,
Executive shall remit to Corporation the amount of the reduction plus
such interest as may be necessary to avoid the imposition of such
excise tax. Notwithstanding the foregoing or any other provision of
this contract to the contrary, if any portion of the amount herein
payable to the Executive is determined to be non- deductible pursuant
to the regulations promulgated under Section 280G of the Code, then
Bank shall be required only to pay to Executive the amount determined
to be deductible under Section 280G.
(b) Executive shall not be required to mitigate the amount of any payment
provided for in this Section 7 by seeking other employment or
otherwise. Unless otherwise agreed to in writing, the amount of
payment or the benefit provided for in this Section 7 shall not be
reduced by any compensation earned by Executive as the result of
employment by another employer or by reason of Executive's receipt of
or right to receive any retirement or other benefits after the date of
termination of employment or otherwise.
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8. Covenant Not to Compete.
------------------------
(a) Executive hereby acknowledges and recognizes the highly competitive
nature of the business of Corporation and Bank and accordingly agrees
that, during and for the applicable period set forth in Section 8(c)
hereof, Executive shall not:
(i) be engaged, directly or indirectly, either for his own account or
as agent, consultant, employee, partner, officer, director,
proprietor, investor (except as an investor owning less than 5%
of the stock of a publicly owned company) or otherwise of any
person, firm, corporation or enterprise engaged in (1) the
banking (including bank holding company) or financial services
industry, or (2) any other activity in which Corporation or Bank
or any of their subsidiaries are engaged during the Employment
Period, in any county in which, at any time during the Employment
Period or at the date of termination of the Executive's
employment, a branch, office or other facility of Corporation or
Bank or any of their subsidiaries is located, or in any county
contiguous to such a county, including contiguous counties
located outside of the Commonwealth of Pennsylvania (the
"Non-Competition Area"); or
(ii) provide financial or other assistance to any person, firm,
corporation, or enterprise engaged in (1) the banking (including
bank holding company) or financial services industry, or (2) any
other activity in which Corporation or Bank or any of their
subsidiaries are engaged during the Employment Period, in the
Non-Competition Area;
(iii) solicit current and former customers of Corporation, Bank or any
Corporation subsidiary in the Non-Competition Area; or
(iv) solicit current or former employees of Corporation, Bank or any
Corporation subsidiary.
(b) It is expressly understood and agreed that, although Executive and
Corporation and Bank consider the restrictions contained in Section
8(a) hereof reasonable for the purpose of preserving for Corporation
and Bank and their subsidiaries their good will and other proprietary
rights, if a final judicial determination is made by a court having
jurisdiction that the time or territory or any other restriction
contained in Section 8(a) hereof is an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of Section
8(a) hereof shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such other extent
as such court may judicially determine or indicate to be reasonable.
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(c) The provisions of this Section 8 shall be applicable commencing on the
effective date of the merger and ending on one of the following dates,
as applicable:
(i) if Executive's employment terminates in accordance with the
provisions of Section 3 (other than Section 3(b) relating to
termination for Cause), the first anniversary date of the
effective date of termination of employment; or
(ii) if Executive's employment terminates in accordance with the
provisions of Section 3(b) of this Agreement (relating to
termination for Cause), the second anniversary date of the
effective date of termination of employment; or
(iii) if the Executive voluntarily terminates his employment in
accordance with the provisions of Section 5 hereof, the third
anniversary date of the effective date of termination of
employment; or
(iv) if the Executive's employment is involuntarily terminated in
accordance with the provisions of Section 7 hereof, the first
anniversary date of the effective date of termination of
employment.
9. Unauthorized Disclosure. During the term of his employment hereunder, or at
------------------------
any later time, the Executive shall not, without the written consent of the
Boards of Directors of Corporation and Bank or a person authorized thereby,
knowingly disclose to any person, other than an employee of Corporation or
Bank or a person to whom disclosure is reasonably necessary or appropriate
in connection with the performance by the Executive of his duties as an
executive of Corporation and Bank, any material confidential information
obtained by him while in the employ of Corporation and Bank with respect to
any of Corporation and Bank's services, products, improvements, formulas,
designs or styles, processes, customers, methods of business or any
business practices the disclosure of which could be or will be damaging to
Corporation or Bank; provided, however, that confidential information shall
not include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive or any person with the
assistance, consent or direction of the Executive) or any information of a
type not other considered confidential by persons engaged in the same
business or a business similar to that conducted by Corporation and Bank or
any information that must be disclosed as required by law.
10. Liability Insurance. Corporation and Bank shall use their best efforts to
--------------------
obtain insurance coverage for the Executive under an insurance policy
covering officers and directors of Corporation and Bank against lawsuits,
arbitrations or other legal or regulatory proceedings; however, nothing
herein shall be construed to require Corporation and/or Bank to obtain such
insurance, if the Board of Directors of the Corporation and/or Bank
determine that such coverage cannot be obtained at a reasonable price.
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11. Notices. Except as otherwise provided in this Agreement, any notice
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required or permitted to be given under this Agreement shall be deemed
properly given if in writing and if mailed by registered or certified mail,
postage prepaid with return receipt requested, to Executive's residence, in
the case of notices to Executive, and to the principal executive offices of
Corporation and Bank, in the case of notices to Corporation and Bank.
12. Waiver. No provision of this Agreement may be modified, waived or
------
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Executive and an executive officer specifically
designated by the Boards of Directors of Corporation and Bank. No waiver by
either party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to similar
or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Assignment. This Agreement shall not be assignable by any party, except by
----------
Corporation and Bank to any successor in interest to their respective
businesses.
14. Entire Agreement. This Agreement contains the entire agreement of the
----------------
parties relating to the subject matter of this Agreement. This Agreement
shall supersede and replace the Employment Agreement dated January 1, 1999,
between Penn Laurel Financial Corp., CSB Bank and Wesley M. Weymers.
15. Successors; Binding Agreement.
------------------------------
(a) Corporation and Bank will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the businesses and/or assets of Corporation and
Bank to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that Corporation and Bank would be
required to perform it if no such succession had taken place. Failure
by Corporation and Bank to obtain such assumption and agreement prior
to the effectiveness of any such succession shall constitute a breach
of this Agreement and the provisions of Section 3 of this Agreement
shall apply. As used in this Agreement, "Corporation" and "Bank" shall
mean Corporation and Bank, as defined previously and any successor to
their respective businesses and/or assets as aforesaid which assumes
and agrees to perform this Agreement by operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors,
administrators, heirs, distributees, devisees and legatees. If
Executive should die after a Notice of Termination is delivered by
Executive, or following termination of Executive's employment without
Cause, and any amounts would be payable to Executive under this
Agreement if Executive had continued to live, all such amounts shall
be paid in accordance with
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the terms of this Agreement to Executive's devisee, legatee, or other
designee, or, if there is no such designee, to Executive's estate.
16. Arbitration. Corporation, Bank and Executive recognize that in the event a
-----------
dispute should arise between them concerning the interpretation or
implementation of this Agreement, lengthy and expensive litigation will not
afford a practical resolution of the issues within a reasonable period of
time. Consequently, each party agrees that all disputes, disagreements and
questions of interpretation concerning this Agreement are to be submitted
for resolution, in Pittsburgh, Pennsylvania, to the American Arbitration
Association (the "Association") in accordance with the Association's
National Rules for the Resolution of Employment Disputes or other
applicable rules then in effect ("Rules"). Corporation, Bank or Executive
may initiate an arbitration proceeding at any time by giving notice to the
other in accordance with the Rules. Corporation and Bank and Executive may,
as a matter or right, mutually agree on the appointment of a particular
arbitrator from the Association's pool. The arbitrator shall not be bound
by the rules of evidence and procedure of the courts of the Commonwealth of
Pennsylvania but shall be bound by the substantive law applicable to this
Agreement. The decision of the arbitrator, absent fraud, duress,
incompetence or gross and obvious error of fact, shall be final and binding
upon the parties and shall be enforceable in courts of proper jurisdiction.
Following written notice of a request for arbitration, Corporation, Bank
and Executive shall be entitled to an injunction restraining all further
proceedings in any pending or subsequently filed litigation concerning this
Agreement, except as otherwise provided herein.
17. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
18. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the domestic, internal laws of the Commonwealth of
Pennsylvania, without regard to its conflicts of laws principles.
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19. Headings. The section headings of this Agreement are for convenience only
--------
and shall not control or affect the meaning or construction or limit the
scope or intent of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ATTEST: PENN LAUREL FINANCIAL CORP.
/s/ Janice E. Kephart By /s/ Larry W. Brubaker
- --------------------- ---------------------
Janice E. Kephart, Secretary Larry W. Brubaker, President
PENN LAUREL BANK & TRUST COMPANY
/s/ Janice E. Kephart By /s/ Larry W. Brubaker
- --------------------- ---------------------
, Secretary Larry W. Brubaker, President
WITNESS:
/s/ Janice E. Kephart By /s/ Wesley M. Weymers
- --------------------- ---------------------
Wesley M. Weymers
"Executive"
14
ENGAGEMENT AGREEMENT
--------------------
THIS AGREEMENT, is made as of the 27th day of May 1999, among PENN LAUREL
FINANCIAL CORP. ("CORPORATION"), a Pennsylvania business corporation having its
principal place of business at 434 State Street, Curwensville, Pennsylvania
16833; PENN LAUREL BANK & TRUST COMPANY ("BANK"), a state chartered bank and
trust company having its principal place of business at 11 North Second Street,
Clearfield, Pennsylvania 16830, and WILLIAM L. BERTRAM ("BERTRAM"), an
individual residing at 221 Charles Road, Clearfield, Pennsylvania 16830,
sometimes referred to collectively as the "Parties."
WHEREAS, CORPORATION is a registered bank holding company; and
WHEREAS, Clearfield Bank & Trust Company and CSB Bank have entered into an
Agreement of Merger and Plan of Reorganization dated December 31, 1998, (the
"Reorganization Agreement"), and
WHEREAS, pursuant to the Reorganization Agreement, BANK will be a
wholly-owned banking subsidiary of CORPORATION on the effective date as set
forth in Section 11.2 of the Reorganization Agreement; and
WHEREAS, the CORPORATION and the BANK desire that BERTRAM serve as Chairman
of the Board of Directors of each of the CORPORATION and BANK under the terms
and conditions set forth herein; and
WHEREAS, BERTRAM agrees to serve the CORPORATION and BANK in the aforesaid
capacity under the terms and conditions set forth in this Engagement Agreement
(the "Agreement");
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and intending to be legally bound hereby, the parties agree as
follows:
TERMS OF AGREEMENT
------------------
1. The CORPORATION and BANK hereby request that BERTRAM serve and BERTRAM
hereby agrees to serve as Chairman of the Board of Directors of the
CORPORATION and BANK for a term of two (2) years beginning on the
Effective Date as set forth in Section 11.2 of the Reorganization
Agreement and ending two (2) years later (the "TERM"), subject,
however, to prior termination of this Agreement as set forth below.
SERVICES
--------
2. BERTRAM shall perform and discharge well and faithfully such duties as
Chairman of the Board of Directors of the CORPORATION and BANK as may
<PAGE>
be assigned to him from time to time by the Board of Directors of the
CORPORATION and BANK.
COMPENSATION
------------
3. For all the services rendered by BERTRAM hereunder, the CORPORATION or
BANK shall pay BERTRAM an annual compensation of TWENTY THOUSAND FIVE
HUNDRED ($20,500.00) DOLLARS, at a rate of ONE THOUSAND SEVEN HUNDRED
EIGHT and 33/100 ($1,708.33) DOLLARS per month.
OTHER BENEFITS
--------------
4. BERTRAM shall be entitled to benefits of medical and hospitalization
insurance and life insurance made available to other Directors of the
CORPORATION or BANK. In addition, the CORPORATION or BANK shall
provide, or shall reimburse BERTRAM for, the actual cost to maintain a
membership for BERTRAM, at the Clearfield-Curwensville Country Club or
at another country club mutually acceptable to BERTRAM, CORPORATION
and BANK, and CORPORATION or BANK shall either pay for, or shall
reimburse BERTRAM for, the expenses in order for BERTRAM to attend the
ABA and PBA Conventions.
ENGAGEMENT IN OTHER EMPLOYMENT
------------------------------
5. BERTRAM shall not engage in any business or commercial activities,
duties or pursuits which compete with the business or commercial
activities of the CORPORATION or BANK or any subsidiary thereof, or
any parent corporation or affiliate thereof, nor may BERTRAM serve as
a director or officer or in any other capacity in a company which
competes with the CORPORATION or BANK for a period of three (3) years
beginning on the Effective Date as set forth in Section 11.2 of the
Reorganization Agreement and ending three (3) years later. In
consideration for this agreement by BERTRAM not to compete as
hereinafter set forth, CORPORATION and BANK agree to pay to BERTRAM
the sum of THIRTY-THREE THOUSAND FIVE HUNDRED ($33.500.00) DOLLARS,
per year, to be paid at the rate or TWO THOUSAND SEVEN HUNDRED NINETY-
ONE and 67/100 ($2,791.67) DOLLARS per month.
COVENANT NOT TO COMPETE
-----------------------
6. BERTRAM hereby acknowledges and recognizes the highly competitive
nature of the business of the CORPORATION and BANK and accordingly
agrees that, during and for the applicable period set forth in Section
6(c) hereof, BERTRAM shall not:
<PAGE>
(a)(i) be engaged, directly or indirectly, either for his own account
or as agent, consultant, employee, partner, officer, director
proprietor, investor (except as an investor owning less than 5% of the
stock of a publicly owned company) or otherwise of any person, firm,
corporation or enterprise engaged in (1) the banking (including bank
holding company) or financial services industry, or (2) any other
activity in which CORPORATION or BANK or any of their subsidiaries are
engaged during the term of this Agreement, in any county in which, at
any time during the term of this Agreement, a branch, office or other
facility of CORPORATION or BANK or any of their subsidiaries is
located, or in any county contiguous to such a county, including
contiguous counties located outside of the Commonwealth of
Pennsylvania (the "Non-Competition Area"); or
(ii) provide financial or other assistance to any person, firm,
corporation, or enterprise engaged in (1) the banking (including bank
holding company) or financial services industry, or (2) any other
activity in which CORPORATION or BANK or any of their subsidiaries are
engaged during the period of this agreement in the Non-Competition
Area; or
(iii) solicit current and former customers of CORPORATION, BANK or any
Corporation subsidiary in the Non-Competition Area; or
(iv) solicit current or former employees of CORPORATION, BANK or any
Corporation subsidiary.
(b) It is expressly understood and agreed that, although BERTRAM and
CORPORATION and BANK consider the restrictions contained in Section
6(a) hereof reasonable for the purpose of preserving for the
CORPORATION and BANK and their subsidiaries their good will and other
proprietary rights, if a final judicial determination is made by a
court having jurisdiction that the time or territory or any other
restriction contained in Section 6(a) hereof is an unreasonable or
otherwise unenforceable restriction against BERTRAM, the provisions of
Section 6(a) hereof shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such
other extent as such court may judicially determine or indicate to be
reasonable.
(c) The provisions of this Section 6 shall be applicable for a three
(3) year period commencing on the Effective Date as set forth in
Section 11.2 of the Reorganization Agreement.
LIABILITY INSURANCE
-------------------
7. The CORPORATION or BANK shall use its best efforts to obtain insurance
coverage for BERTRAM under an insurance policy covering officers and
directors of the CORPORATION or BANK against lawsuits, arbitrations or
other legal or regulatory proceedings; however, nothing herein shall
be construed
<PAGE>
to require the CORPORATION or BANK to obtain such insurance, if the
Board of Directors of the CORPORATION or BANK determine that such
coverage cannot be obtained at a reasonable price.
TERMINATION
-----------
8. (a) BERTRAM'S services hereunder shall terminate upon his death.
(b) If BERTRAM becomes disabled because of sickness, physical or
mental disability, or any other reason, the Board of Directors of
the CORPORATION or BANK shall have the option to terminate this
Agreement by giving written notice of termination to BERTRAM.
If the services of BERTRAM are terminated under Section 8(b) of this
Agreement, BERTRAM, having been elected as a member of the Board of
Directors, shall have the option of serving the balance of his term
and compensated as a member of such Board upon the expiration of the
payments required by this Agreement.
(c) The board of Directors of the CORPORATION or BANK may
terminate BERTRAM'S service hereunder for "Cause." As used in
this Agreement, "Cause" to terminate BERTRAM'S service hereunder
shall require:
(1) the willful failure by BERTRAM to substantially perform his duties
hereunder after notice from the Board of Directors of the CORPORATION
or BANK and a failure to cure such violation within thirty (30) days
of said notice;
(2) the willful engaging by BERTRAM in misconduct injurious to the
CORPORATION or BANK;
(3) the willful violation by BERTRAM of any provisions of this
Agreement, after notice from the Board of Directors of the CORPORATION
or BANK and a failure to cure such violation within thirty (30) days
of said notice, or if said violation cannot be cured within thirty
(30) days, within a reasonable time thereafter as long as BERTRAM is
diligently attempting to cure the violation;
(4) the dishonesty or gross negligence of BERTRAM in the performance
of his duties;
(5) the breach of BERTRAM'S fiduciary duty involving personal profit;
(6) the violation of any law, rule or regulation governing banks or
bank officers or any final cease and desist order issued by a bank or
insurance regulatory authority any of which materially jeopardizes the
business of the CORPORATION or BANK; or
(7) conduct on the part of BERTRAM which brings public discredit to
the CORPORATION or BANK.
<PAGE>
PAYMENTS UPON TERMINATION
-------------------------
9. In the event that this Agreement is terminated, other than for Cause
as defined in Section 8(c), BERTRAM shall be entitled to receive the
compensation pursuant to Section 3 and Section 5 for the remainder of
the term of this agreement as set forth in Section 1 and Section 6. In
the event BERTRAM is terminated for Cause, as defined in Section 8(c),
the CORPORATION shall pay BERTRAM his compensation pursuant to Section
3 and Section 5 for the remainder of the term of this Agreement as set
forth in Section 1 and Section 6.
In the event of BERTRAM'S death, any moneys that may be due him from the
CORPORATION or BANK under this Agreement shall be paid to the person designated
by him in writing for this purpose, or in the absence of any such designation,
to his estate.
DAMAGES FOR BREACH OF CONTRACT
------------------------------
10. In the event of breach of this Agreement by either the CORPORATION or
BANK or BERTRAM resulting in damages to another party to this
Agreement, that party may recover from the party breaching the
Agreement only those damages as set forth herein. In no event shall
any party be entitled to the recovery of attorney's fees or costs.
NOTICE
------
11. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when hand-delivered or mailed
by United States certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to BERTRAM: William L. Bertram
221 Charles Road
Clearfield, PA 16830
If to the CORPORATION: Penn Laurel Financial Corporation
Attn: Larry W. Brubaker, President
P.O. Box 29
Curwensville, PA 16833
If to the BANK: Penn Laurel Bank & Trust Company
Attn: Larry W. Brubaker, President
11 North Second Street
Clearfield, PA 16830
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
<PAGE>
SUCCESSORS
----------
12. This Agreement shall inure to the benefit of and be binding upon
BERTRAM, his personal representatives, heirs or assigns, and to the
CORPORATION or BANK and any successors or assigns of the CORPORATION
or BANK.
SEVERABILITY
------------
13. If any provisions of this Agreement is declared unenforceable for any
reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
AMENDMENT
---------
14. This Agreement may be amended or canceled only by mutual agreement of
the parties in writing.
LAW GOVERNING
-------------
15. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
ENTIRE AGREEMENT
----------------
16. This Agreement supersedes any and all agreements, either oral or in
writing, between the parties to this Agreement with respect to its
subject matter, and no other agreement, statement or promise relating
to the subject matter of this Agreement that is not contained in it
shall be valid or binding.
This Agreement shall supersede and replace the Agreement dated November 25,
1997, between Clearfield Bank & Trust Company and BERTRAM.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be duly executed in their respective names
and, in the case of the CORPORATION and BANK, by its authorized representatives,
the day and year first above written.
ATTEST: PENN LAUREL FINANCIAL CORP.
/s/ Janice E. Kephart By: /s/ Larry W. Brubaker
- --------------------- -------------------------
Larry W. Brubaker, President
"CORPORATION"
PENN LAUREL BANK & TRUST COMPANY
/s/ Janice E. Kephart By: /s/ Larry W. Brubaker
- --------------------- -------------------------
Larry W. Brubaker, President
"BANK"
WITNESS:
/s/ Sherwood C. Moody /s/ William L. Bertram
- --------------------- ----------------------
William L. Bertram
"BERTRAM"
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.
---------------------------------------
August 2, 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
-----------------------------
August 2, 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 August 2,
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.
/s/ Ryan, Beck & Co., Inc.
--------------------------
August 2, 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 August 2,
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.
/s/ Garland McPherson & Associates, Inc
----------------------------------------
August 2, 1999 Garland McPherson & Associates, Inc.
Baltimore, Maryland
Exhibit 99.1
PENN LAUREL FINANCIAL CORP.
PROXY
Special Meeting of Shareholders to be Held on September 8, 1999
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby constitutes and appoints Carolyn S. Rowles and
Flora M. Spinelli 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 Wednesday, September 8, 1999, commencing at
9:00 a.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:__________________________, 1999
Signature of Shareholder
Signature of Shareholder
Number of Shares Held of Record
on July 28, 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 99.2
[PENN LAUREL FINANCIAL CORP. LETTERHEAD]
August 2, 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
September 8, 1999, at 9:00 a.m., 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 559,505 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 September 8, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Penn
Laurel Financial Corp. will be held at 9:00 a.m., on Wednesday, September 8,
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 559,505 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 Wednesday, July 28, 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
August 2, 1999
Exhibit 99.4
CLEARFIELD BANK & TRUST COMPANY
PROXY
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON SEPTEMBER 8, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Richard W. Ogden and
William A. Shiner 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 The Knights of Columbus, 512
Arnold Avenue, Clearfield, Pennsylvania 16830 on Wednesday, September 8, 1999,
commencing at 1:00 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: , 1999
Signature of Shareholder
Signature of Shareholder
Number of Shares Held of Record
on July 28, 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]
August 2, 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
September 8, 1999, at The Knights of Columbus, 512 Arnold Avenue, 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 William E. Wood, 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,
William L. Bertram
Chairman of the Board of Directors
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 SEPTEMBER 8, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Clearfield Bank & Trust Company will be held at 1:00 p.m., on Wednesday,
September 8, 1999, at The Knights of Columbus, 512 Arnold Avenue, 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 Wednesday, July 28, 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,
William E. Wood
President and Chief Executive Officer
Clearfield, Pennsylvania
August 2, 1999
