<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 2000
REGISTRATION NO. ___-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________
CITIZENS & NORTHERN CORPORATION
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 6022 23-2451943
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code No.)
organization)
______________________
90-92 MAIN STREET, P.O. BOX 58, WELLSBORO, PENNSYLVANIA 16901
(570) 724-3411
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
______________________
CRAIG G. LITCHFIELD, CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
90-92 MAIN STREET
P.O. BOX 58, WELLSBORO, PENNSYLVANIA 16901
(570) 724-3411
(Name, address, including zip code,
& telephone number, including
area code, of agent for service)
______________________
Copies to:
M. PATRICIA OLIVER, ESQ. NICHOLAS BYBEL, JR., ESQ.
Squire, Sanders & Dempsey L.L.P. Shumaker Williams, P.C.
4900 Key Tower 3425 Simpson Ferry Road
127 Public Square Camp Hill, Pennsylvania 17011
Cleveland, Ohio 44114-1304 (717) 763-1121
(216) 479-8500
<PAGE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE
SECURITIES TO THE PUBLIC:
As soon as practicable after the
effective date of this 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: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
______________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Title of Each Proposed Proposed
Class of Maximum Maximum Amount of
Securities To Amount To Be Offering Aggregate Registration
Be Registered Registered (1) Price Per Share Offering Price (2) Fee (3)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 990,640 N.A. $13,072,485.44 $3,451.14
$1.00 per share
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The number of common shares, with a par value of $1.00 each, of Citizens
& Northern Corporation, a Pennsylvania corporation, to be registered pursuant
to this Registration Statement is based upon the number of common shares,
with a par value of $0.50 each, of Peoples Ltd., a Pennsylvania corporation,
presently outstanding multiplied by the exchange ratio of 2.5 Citizens &
Northern common shares for each Peoples Ltd. common share.
(2) This amount is arrived at pursuant to Rule 457(f)(2) under the Securities
Act and solely for purpose of calculating the registration fee. The proposed
maximum aggregate offering price is equal to the book value of the Peoples
Ltd. shares of common stock to be canceled in the merger, which is calculated
as the product of (i) $32.99, the per share book value of Peoples Ltd. common
stock on August 18, 2000 and (ii) 396,256, the estimated maximum number of
shares that will be canceled in the merger.
(3) Calculated pursuant to Rule 457(f) under the Securities Act.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
PEOPLES LTD.
PROPOSED MERGER
OF CITIZENS & NORTHERN CORPORATION AND PEOPLES LTD.
YOUR VOTE IS VERY IMPORTANT
As you may know, the boards of directors of Citizens & Northern
Corporation and Peoples Ltd. have agreed to a merger of our two companies. On
June 22, 2000, Peoples and Citizens & Northern signed a merger agreement, the
details of which are described in this proxy statement/prospectus.
If the merger is completed, you will receive 2.5 shares of Citizens &
Northern common stock for each share of Peoples common stock you own. The
merger has been structured so that you will not recognize any gain or loss
for federal income tax purposes as a result of the merger, except for tax
payable because of cash you received instead of fractional shares of Citizens
& Northern common stock or exercise of your dissenters' rights.
Based on market prices on June 21, 2000, the last full trading day
before Citizens & Northern and Peoples announced their merger, the exchange
of shares would give you Citizens & Northern shares of common stock valued at
$57.50 for each Peoples share, which is a 58% premium over the price of
Peoples shares of common stock on that day. Based on market prices on
_____________, 2000, the exchange of shares would give you Citizens &
Northern shares of common stock valued at $_______ per share, which is a
_____% premium over the price of a Peoples common share on that day. FOR A
DISCUSSION OF RISKS IN CONNECTION WITH THE MERGER, SEE "RISK FACTORS"
BEGINNING ON PAGE ___.
Citizens & Northern common stock is traded on the OTC Bulletin Board
under the trading symbol "CZNC.OB2". On June 21, 2000, the last full trading
day before the announcement of the merger, the closing price of Citizens &
Northern's common stock was $23.00 per share. On ________, 2000 the closing
price of Citizens & Northern's common stock was $_____ per share.
Each of our boards of directors has determined that the terms of the
merger agreement and the merger are fair to and in the best interests of our
respective shareholders and has unanimously approved and adopted the merger
agreement. THEREFORE, THE PEOPLES BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT PEOPLES SHAREHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
Whether or not you plan to attend the special meeting of Peoples
shareholders, please take the time to vote by completing and mailing the
enclosed proxy card to us. If you need assistance in voting your shares,
please call Donald E. Abrey of Peoples Ltd. at (570) 746-1011.
The date, time and place of the special meeting of Peoples
shareholders is: ______, 2000 at _____a.m./p.m.
___________________
___________________
___________________
__________________________
DONALD E. ABREY, PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE SHARES OF CITIZENS & NORTHERN COMMON STOCK TO BE ISSUED IN THIS
MERGER ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR
SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND
OR ANY OTHER GOVERNMENTAL AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE COMMON STOCK TO BE
ISSUED IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This proxy statement/prospectus is dated , 2000 and is being
first mailed to shareholders on or about , 2000.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Citizens & Northern filed a registration statement on Form S-4 on
_____________, 2000 to register with the Securities and Exchange Commission
its shares of common stock to be issued to Peoples shareholders in the
merger. This proxy statement/prospectus is a part of that registration
statement and constitutes Citizens & Northern's prospectus in addition to
being Peoples' proxy statement for the Peoples special shareholders' meeting.
The registration statement, including the attached exhibits and schedules,
contains additional relevant information. As allowed by Securities and
Exchange Commission rules, this proxy statement/prospectus incorporates
important business and financial information about Citizens & Northern that
is not included in or delivered with this document.
Citizens & Northern files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information filed by
Citizens & Northern at the Securities and Exchange Commission's public
reference room at the following location:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, DC 20549
Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the operation of the public reference room.
Securities and Exchange Commission filings by Citizens & Northern are also
available to the public from commercial document retrieval services and at
the web site maintained by the Securities and Exchange Commission at
http://www.sec.gov.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus to decide how to vote on the
merger. Citizens & Northern and Peoples have not authorized anyone to provide
you with information that is different from or in addition to what is
contained in this proxy statement/prospectus. Therefore, if anyone gives you
information of this sort, you should not rely on it. If you live in a
jurisdiction where it is unlawful to offer to exchange or sell or to ask for
offers to exchange or buy the securities offered by this proxy
statement/prospectus or to ask for proxies, or if you are a person to whom it
is unlawful to direct those activities, then the offer presented in this
proxy statement/prospectus does not extend to you. The information contained
in this proxy statement/prospectus speaks only as of its date unless the
information specifically indicates that another date applies. This proxy
statement/prospectus is dated _______, 2000.
INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows Citizens & Northern to
"incorporate by reference" information into this proxy statement/prospectus,
which means that we can disclose important information to you by referring
you to other information that has been filed with the Securities and Exchange
Commission. The information incorporated by reference is considered to be
part of this proxy statement/prospectus, except for any information
superseded by information contained in subsequent incorporated filings or by
information in this proxy statement/prospectus.
i
<PAGE>
This proxy statement/prospectus incorporates by reference the Citizens
& Northern documents set forth below that Citizens & Northern previously
filed with the Securities and Exchange Commission. These documents contain
important information about Citizens & Northern. You should read this proxy
statement/prospectus together with the information incorporated by reference.
<TABLE>
<CAPTION>
CITIZENS & NORTHERN SEC FILINGS (FILE NO. 0-16084) PERIOD OR DATE FILED
<S> <C> <C>
ANNUAL REPORT ON FORM 10-K YEAR ENDED: - DECEMBER 31, 1999
QUARTERLY REPORT ON FORM 10-Q QUARTERS ENDED: - MARCH 31, 2000
- JUNE 30, 2000
CURRENT REPORT ON FORM 8-K FILED ON: - JANUARY 13, 2000
- JUNE 27, 2000
</TABLE>
Citizens & Northern is also incorporating by reference additional
documents that it files with the Securities and Exchange Commission between
the initial filing of this proxy statement/prospectus and the date of
effectiveness of this proxy statement/prospectus the date of the Peoples
special meeting. These documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy statements.
This proxy statement/prospectus is accompanied by a copy of Citizens &
Northern's Annual Report on Form 10-K for the year ended December 31, 1999
and a copy of Citizens & Northern's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000.
This proxy statement/prospectus incorporates by reference documents
that are not delivered with it. You may request a free copy of any or all of
these documents, including exhibits that are specifically incorporated by
reference into these documents, by writing to or calling the appropriate
party at the following address or telephone number:
Kathleen M. Osgood P. Dean Homer
Corporate Secretary Corporate Secretary
Citizens & Northern Corporation Peoples Ltd.
90-92 Main Street 201 Church Street
Wellsboro, Pa. 16901 P.O. Box 217
Telephone: (570) 724-0527 Wyalusing, Pa. 18853-0217
Email: [email protected] Telephone: (570) 746-1011
If you would like to request documents, please do so by __________,
2000 to receive the documents before the Peoples special meeting.
Peoples supplied all of the information contained or incorporated by
reference in this proxy statement/prospectus relating to Peoples.
ii
<PAGE>
THIS PROXY STATEMENT/PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE
CERTAIN STATEMENTS THAT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
FORWARD-LOOKING STATEMENTS INCLUDE THE INFORMATION CONCERNING POSSIBLE OR
ASSUMED FUTURE RESULTS OF OPERATIONS OF CITIZENS & NORTHERN AND ITS
SUBSIDIARIES, OR THE COMBINED BUSINESS OF CITIZENS & NORTHERN AND PEOPLES.
WHEN WE USE WORDS SUCH AS "BELIEVES," "EXPECTS," "ANTICIPATES" OR SIMILAR
EXPRESSIONS, WE ARE MAKING FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING
STATEMENTS ARE ALSO STATEMENTS THAT ARE NOT STATEMENTS OF HISTORICAL FACT.
THESE FORWARD LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. FACTORS
THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
THESE FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING
POSSIBILITIES:
- EXPECTED COST SAVINGS FROM THE MERGER CANNOT BE FULLY REALIZED;
- DEPOSIT ATTRITION, CUSTOMER LOSS OR REVENUE LOSS FOLLOWING THE
MERGER IS GREATER THAN EXPECTED;
- COMPETITIVE PRESSURE IN THE BANKING INDUSTRY INCREASES
SIGNIFICANTLY;
- COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF PEOPLES' AND
CITIZENS & NORTHERN'S BUSINESSES ARE GREATER THAN EXPECTED;
- CHANGES OCCUR IN THE INTEREST RATE ENVIRONMENT THAT REDUCE MARGINS;
AND
- GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR IN THE AREA
IN WHICH THE AFFILIATED COMPANIES WILL BE DOING BUSINESS, ARE
LESS FAVORABLE THAN EXPECTED.
IF ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCURS OR IF THE
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS IN 2000 AND BEYOND COULD DIFFER MATERIALLY FROM THOSE EXPRESSED
IN, OR IMPLIED BY, THE FORWARD-LOOKING STATEMENTS.
FURTHER INFORMATION ON OTHER FACTORS THAT COULD AFFECT THE FINANCIAL
RESULTS OF CITIZENS & NORTHERN AFTER THE MERGER IS INCLUDED IN THE SECURITIES
AND EXCHANGE COMMISSION FILINGS INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS.
FOR A DISCUSSION OF CERTAIN RISKS RELATED TO THE MERGER, SEE "RISK
FACTORS" BEGINNING ON PAGE 14.
iii
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION.................................. i
INCORPORATION BY REFERENCE .......................................... i
QUESTIONS AND ANSWERS ABOUT THE
CITIZENS & NORTHERN/PEOPLES MERGER................................... 1
SUMMARY.............................................................. 3
The Merger.................................................. 3
The Companies............................................... 7
Our Reasons for the Merger.................................. 8
Board of Directors Recommendation to Shareholders........... 8
The Peoples Special Meeting................................. 8
Comparative Market Value Data............................... 9
Comparison of Certain Unaudited Per Share Data.............. 10
Selected Historical Financial Data of Citizens & Northern... 11
Selected Historical Financial Data of Peoples............... 12
Citizens & Northern and Peoples
Pro Forma Combined Selected Financial Data.............. 13
RISK FACTORS......................................................... 14
INFORMATION WITH RESPECT TO CITIZENS & NORTHERN...................... 16
INFORMATION WITH RESPECT TO PEOPLES.................................. 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 19
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF PEOPLES................................... 36
THE PEOPLES SPECIAL MEETING.......................................... 38
Date, Time and Place........................................ 38
Purpose of the Peoples Special Meeting...................... 38
Record Date; Voting Rights; Proxies......................... 38
Solicitation of Proxies..................................... 39
Adjournment................................................. 39
Quorum...................................................... 39
Required Vote............................................... 40
iv
<PAGE>
THE PROPOSED MERGER.................................................. 41
Background of the Merger.................................... 41
Peoples' Reasons for the Merger; Recommendation
of the Peoples Board of Directors........................ 43
Fairness Opinion of Ryan, Beck & Co.,
Peoples' Financial Advisor............................... 44
Citizens & Northern's Reasons for the Merger................ 53
Board of Directors and Management of Citizens & Northern
Following the Merger................................... 54
Board of Directors and Management of Citizens & Northern
Bank Following the Subsidiary Merger................... 55
Interests of Peoples' Directors and Executive Officers
in the Merger.......................................... 55
Material Federal Income Tax Consequences.................... 57
Accounting Treatment........................................ 59
Effect of the Merger on Employee Benefit Plans.............. 59
Expenses of the Merger...................................... 61
Regulatory Approvals........................................ 61
Resale of Citizens & Northern Common Stock.................. 61
Stock Exchange Listing...................................... 62
Dividends................................................... 62
Dissenters' Rights.......................................... 62
THE MERGER AGREEMENT................................................. 64
The Merger.................................................. 64
Effective Date.............................................. 65
Conversion of Peoples Common Stock.......................... 65
Surrender of Certificates................................... 65
Conditions to Completion of the Merger...................... 66
Representations and Warranties.............................. 68
Conduct of Business Pending the Merger...................... 70
Other Acquisition Proposals................................. 73
Termination; Fees and Expenses.............................. 74
Amendment; Waiver........................................... 74
Stock Option Agreement...................................... 74
DESCRIPTION OF CITIZENS & NORTHERN CAPITAL STOCK..................... 76
MATERIAL DIFFERENCES BETWEEN THE RIGHTS OF CITIZENS & NORTHERN
AND PEOPLES SHAREHOLDERS.................................... 77
Introduction................................................ 77
Authorized Shares........................................... 77
Special Meetings of Shareholders............................ 77
Number of Directors......................................... 78
Voting Rights............................................... 78
v
<PAGE>
Shareholder Vote Required for Certain Transactions.......... 78
Amendment of By-Laws........................................ 79
Composition of Board........................................ 79
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS.............................................. 79
EXPERTS.............................................................. 87
LEGAL MATTERS........................................................ 87
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES........................................... 87
SHAREHOLDER PROPOSALS................................................ 88
INDEPENDENT AUDITORS' REPORT......................................... 89
PEOPLES CONSOLIDATED FINANCIAL STATEMENTS............................ 90
PEOPLES AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.... 98
ANNEX A - Agreement and Plan of Merger............................... A
ANNEX B - Stock Option Agreement..................................... B
ANNEX C - Fairness Opinion of Ryan, Beck & Co........................ C
ANNEX D - Subchapter D of Chapter 15 of the Pennsylvania Business
Corporation Law............................................ D
</TABLE>
vi
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE
CITIZENS & NORTHERN/PEOPLES MERGER
Q: WHY ARE CITIZENS & NORTHERN AND PEOPLES PROPOSING TO MERGE?
A: We believe that the merger of Peoples with Citizens & Northern will
benefit you as a shareholder of Peoples. The merger will provide enhanced
liquidity, access to additional capital and the ability to offer a wider
array of banking and financial products and services. The merger will
also strengthen our competitive position, generate cost savings and
enhance acquisition and other opportunities. The combined organization
will be able to conduct its banking business through banking centers
located in the Pennsylvania counties of Bradford, Tioga, Sullivan and
Lycoming.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information in this proxy
statement/prospectus, mail your signed and dated proxy card in the
enclosed return envelope as soon as possible, so that your shares may be
represented at the Peoples special meeting to vote on the merger. The
Peoples shareholders' meeting will take place on _________, 2000.
Peoples' board of directors unanimously recommends that you vote for the
merger. If you sign and send in your proxy and do not indicate how you
want to vote, we will count your proxy as a vote in favor of adoption or
approval of the merger agreement. If you abstain from voting or do not
vote, it will count as a vote against the adoption or approval of the
merger agreement.
Q: WHAT PERCENTAGE OF PEOPLES SHAREHOLDERS IS REQUIRED TO APPROVE THE
MERGER?
A: Approval of the merger requires the affirmative vote of 75% of the
outstanding shares of common stock by the Peoples shareholders entitled
to vote at the special meeting.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. Just send in a later-dated, signed proxy card before the meeting or
attend the meeting in person and vote. You may send a new proxy card to
the following address:
Peoples Ltd.
Attn: P. Dean Homer
Corporate Secretary
201 Church Street
P.O. Box 217
Wyalusing, Pa. 18853-0217
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker may vote your shares only if you provide instructions on how
to vote. Please tell your broker how you would like him or her to vote
your shares. If you do not tell your broker how to vote, your shares will
not be voted by your broker.
1
<PAGE>
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, Citizens & Northern will send you
written instructions for exchanging your stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible. We hope to
complete it on or about _______, 2000, assuming all shareholder and
applicable governmental approvals have been received by that date.
Q: WHAT IF I HAVE QUESTIONS?
A: If you have questions, please call Donald E. Abrey, President and Chief
Executive Officer of Peoples Ltd., at (570) 746-1011.
2
<PAGE>
SUMMARY
Because this is a summary, it does not contain all the information
that may be important to you. You should carefully read this entire proxy
statement/prospectus and its annexes and the documents to which this document
refers before you decide how to vote. See "Where You Can Find More
Information" on page i.
THE MERGER
THE MERGER AGREEMENT IS ATTACHED AS ANNEX A TO THIS PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THIS AGREEMENT BECAUSE IT IS
THE PRINCIPAL LEGAL DOCUMENT THAT GOVERNS THE MERGER.
WHAT YOU WILL RECEIVE IN THE MERGER (SEE PAGE 65)
You will receive 2.5 shares of Citizens & Northern common stock in
exchange for each share of Peoples common stock you own. Citizens & Northern
will not issue fractional shares. You will receive a cash payment for any
fractional shares based on the average bid and ask price of Citizens &
Northern shares of common stock over the 20 day trading period immediately
preceding the fifth trading day prior to the effective date of the merger.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 9)
The following table presents the last reported sale price for shares
of Citizens & Northern common stock on June 21, 2000 and ___________, 2000.
June 21, 2000 was the last full trading day prior to our announcement of the
signing of the merger agreement. __________, 2000 was the last trading day
for which information was practicably available prior to the date of this
proxy statement/prospectus. Peoples' shares are not listed for trading on a
securities exchange or an automated dealer quotation system, and no
comparative market price data is available. We have calculated the equivalent
per share price of the Peoples shares of common stock by multiplying the last
reported sale price of Citizens & Northern common stock on the
dates indicated by the exchange ratio of 2.5. to 1. You should read the
information presented below together with "Comparative Market Value Data" on
page 9.
<TABLE>
<CAPTION>
Citizens &
Northern Peoples
common stock Equivalent
------------ ----------
(dollars per (dollars
share) per share)
<S> <C> <C>
June 21, 2000 $23.00 $57.50
_______, 2000 $_____ $____
</TABLE>
TAX FREE TRANSACTION (SEE PAGE 57)
The merger has been structured so that you will not recognize any gain
or loss for federal income tax purposes in the merger, except for tax payable
because of cash you received instead of fractional shares or through exercise
of your dissenters rights.
DIVIDEND POLICY (SEE PAGE 62)
Until the merger is completed, Peoples may continue to declare
quarterly cash dividends in an amount not to exceed 40% of annual net income
consistent with past practice. Following completion of the merger, you, as a
Citizen & Northern
3
<PAGE>
shareholder, will receive dividends, if any, declared by Citizens & Northern.
FAIRNESS OPINION OF FINANCIAL ADVISOR (SEE PAGE 44)
In deciding to approve the merger, the Peoples board of directors
considered the opinion from its financial advisor as to the fairness from a
financial point of view of the exchange ratio under the merger agreement.
Peoples received an opinion from its financial advisor, Ryan, Beck &
Co., that, as of the date of that opinion, the exchange ratio contemplated by
the merger agreement was fair from a financial point of view to the
shareholders of Peoples. For its financial advisory services, Ryan, Beck &
Co. will be paid a fee of approximately $240,000.
The full text of the opinion dated as of ______, 2000, which sets
forth the assumptions made, matters considered and qualifications and
limitations on the reviews undertaken, is attached as Annex C to this proxy
statement/prospectus. We encourage you to read this opinion in its entirety.
WHAT WILL HAPPEN TO CITIZENS & NORTHERN AND PEOPLES AT THE TIME OF THE
MERGER? (SEE PAGE 64)
At the time of the merger, Citizens & Northern will issue Citizens &
Northern shares of common stock to you in exchange for your Peoples shares of
common stock and Peoples will be merged with and into Citizens & Northern.
Immediately thereafter, assuming receipt of all necessary regulatory
approvals, Peoples State Bank of Wyalusing, Pa. will merge with and into
Citizens & Northern Bank, a banking subsidiary of Citizens & Northern.
BOARD OF DIRECTORS AND MANAGEMENT OF CITIZENS & NORTHERN FOLLOWING THE MERGER
(SEE PAGE 54)
If the merger is completed, Kenneth Taylor, currently the Chairman and
a Director of Peoples, and Donald Abrey, currently the President, Chief
Executive Officer, Treasurer and a Director of Peoples, will be appointed to
fill vacancies on the Citizens & Northern board of directors for terms of
office expiring in 2003. Upon the expiration of their initial terms, Citizens
& Northern will submit their names for consideration as director nominees for
an additional three year term. Citizens & Northern's current executive
management will continue in their positions following the merger.
BOARD OF DIRECTORS AND MANAGEMENT OF CITIZENS & NORTHERN BANK FOLLOWING THE
SUBSIDIARY MERGER (SEE PAGE 55)
Peoples State Bank of Wyalusing, Pa. will merge with Citizens &
Northern Bank immediately after the merger of Citizens & Northern and
Peoples, assuming that all necessary regulatory approvals have been received.
At the first Citizens & Northern Bank board of directors meeting following
the subsidiary merger, Donald Abrey and Kenneth Taylor will be appointed to
fill vacancies on the Citizens & Northern Bank board of directors for terms
of office expiring in 2003. Upon the expiration of their initial terms,
Citizens & Northern Bank will submit their names to its executive committee
for consideration as director nominees for an additional three year term.
Citizens & Northern Bank's current executive management will continue in
their positions following the merger. Following the merger of Citizens &
Northern Bank and Peoples State Bank of Wyalusing, Pa., members of
4
<PAGE>
the Peoples' Board of Directors who did not become members of the Citizens &
Northern's or Citizens & Northern Bank's Board of Directors shall be given
the opportunity to serve on an Advisory Board of Directors for the Wyalusing,
Pennsylvania area.
CONDITIONS TO THE MERGER (SEE PAGE 66)
The completion of the merger depends upon meeting a number of
conditions, including the following, any of which may be waived:
- the approval and adoption of the merger agreement by Peoples
shareholders;
- receipt by Citizens & Northern and Peoples of letters from Parente
Randolph dated the date of or shortly prior to the mailing of this
proxy statement/prospectus and the effective date of the merger,
stating its opinion that the merger qualifies for "pooling of
interests" accounting treatment under generally accepted
accounting principles;
- the accuracy of the representations and warranties made in the
merger agreement;
- the performance of obligations by Citizens & Northern and Peoples
under the merger agreement;
- the receipt of required governmental approvals and expiration or
termination of all applicable statutory waiting periods relating
to the merger;
- the absence of any injunction or other order by any court or other
governmental entity which would prohibit or prevent the merger;
and
- the receipt of all required approvals and other authorizations
under state securities laws necessary to complete the transactions
contemplated by the merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 74)
The parties can mutually agree to terminate the merger agreement at
any time prior to completing the merger.
In addition, either party acting alone can terminate the merger
agreement under the circumstances described on page 74.
STOCK OPTION AGREEMENT (SEE PAGE 74)
When the merger agreement was signed, Peoples granted Citizens &
Northern an option to purchase up to 19.9% of the outstanding shares of
Peoples at a per share price of $47. Citizens & Northern may only exercise
its option upon specified "purchase events." Peoples granted this option to
Citizens & Northern in order to increase the likelihood that the merger will
be completed. The stock option agreement could discourage other companies
from trying or proposing to combine with Peoples before the merger is
completed.
The stock option agreement is attached as Annex B to this proxy
statement/prospectus. We encourage you to read this agreement in its entirety.
5
<PAGE>
REGULATORY MATTERS (SEE PAGE 61)
Citizens & Northern will file an application to obtain approval for
the merger from the Federal Deposit Insurance Corporation and will be making
the necessary filings with the Federal Reserve Board and the Pennsylvania
Department of Banking. Prior to completing the merger, the waiting periods
required by each of these governmental entities must have expired.
POOLING OF INTERESTS ACCOUNTING TREATMENT (SEE PAGE 59)
We expect the merger to qualify as a pooling of interests, which means
that we will treat our companies as if they had always been one company for
accounting and financial reporting purposes.
DISSENTERS' RIGHTS (SEE PAGE 62)
Peoples' shareholders are entitled to assert dissenters' rights under
Subchapter 15D of the Pennsylvania Business Corporation Law of 1988 in
connection with the proposed merger. These dissenters' rights may give you
the opportunity to receive the fair value of your shares of Peoples common
stock in cash instead of having your shares converted in the merger into a
combination of Citizens & Northern common stock and the right to receive
cash. In order to perfect your dissenters' rights, specific procedures under
Subchapter D of Chapter 15 of the Pennsylvania Business Corporation Law must
be strictly followed. 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. Please refer to pages __ through __ for
more information and Annex D to this proxy statement/prospectus.
VOTES REQUIRED (SEE PAGE 40)
Holders of 75% of the outstanding shares of common stock entitled to
vote at the Peoples special meeting must vote to approve the merger agreement
in order for it to be adopted. A majority of the issued and outstanding
Peoples shares must be present in person or by proxy for any
vote to be valid.
The Peoples directors have agreed to vote all shares of Peoples common
stock that they own for approval of the merger agreement. On the record date
for the Peoples special meeting, Peoples' directors owned approximately
______ shares of Peoples common stock or approximately ___% of the then
outstanding shares of Peoples' common stock.
INTERESTS OF PEOPLES' EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER (SEE
PAGE 55)
When considering the recommendation of the Peoples' Board, Peoples
shareholders should be aware that some officers and directors of Peoples have
interests in the merger in addition to their interest as shareholders.
Donald E. Abrey has a two year employment agreement with Peoples and
Peoples State Bank of Wyalusing, Pa. where Mr. Abrey's position is President
and Chief Executive Officer. Pursuant to an amendment to Mr. Abrey's
employment agreement, at the effective time of the merger, Mr. Abrey's
position shall be Senior Vice President of Citizens & Northern Bank and
Senior Vice President and Chief
6
<PAGE>
Executive Officer of Citizens & Northern Financial Services Corporation.
Also, following the merger, Citizens & Northern will provide
directors' and officers' insurance for the directors and officers of Peoples
and will indemnify the directors and officers of Peoples for claims occurring
before the effective time of the merger. Please refer to pages 55 through
57 for more information about these interests.
TRADING MARKET FOR CITIZENS & NORTHERN SHARES OF COMMON STOCK (SEE PAGE 62)
Citizens & Northern will list the shares of Citizens & Northern common
stock to be issued in the merger on the OTC Bulletin Board under the trading
symbol "CZNC.OB."
MATERIAL DIFFERENCES BETWEEN THE RIGHTS OF CITIZENS & NORTHERN AND PEOPLES
SHAREHOLDERS (SEE PAGE 77)
The rights of Citizens & Northern shareholders are currently governed
by Pennsylvania law and by Citizens & Northern's articles of incorporation
and by-laws. The rights of Peoples shareholders are currently governed by
Pennsylvania law and Peoples' articles of incorporation and by-laws. When the
merger is completed, Peoples shareholders will become Citizens & Northern
shareholders.
See page 77 for a comparison of the rights of Citizens & Northern
shareholders and the rights of Peoples' shareholders.
THE COMPANIES
CITIZENS & NORTHERN CORPORATION
90-92 Main Street
Wellsboro, PA 16901
Telephone No. (570) 724-3411
Citizens & Northern is a single-bank holding company headquartered in
Wellsboro, Pennsylvania. Citizens & Northern's banking subsidiary is Citizens
& Northern Bank, Wellsboro, Pennsylvania.
Citizens & Northern's financial services affiliates are:
- Citizens & Northern Investment Corporation
Wilmington, DE
- Bucktail Life Insurance Company
Phoenix, AZ
- Citizens & Northern Financial Services Corporation
Wellsboro, PA
At June 30, 2000, Citizens & Northern had total consolidated assets of
approximately $700,262,000 and total shareholders' equity of approximately
$77,472,000. For the six months ended June 30, 2000, Citizens & Northern's
return on average total assets was 1.24% and return on average common
shareholders' equity was 11.08%.
PEOPLES LTD.
201 Church Street, P.O. Box 217
Wyalusing, PA 18853
Telephone No. (570) 746-1011
Peoples is a single-bank holding company headquartered in Wyalusing,
Pennsylvania. Peoples' banking subsidiary is Peoples State Bank of Wyalusing
Pa. Peoples State Bank has 6
7
<PAGE>
offices located in Bradford County and Sullivan County, Pennsylvania.
At June 30, 2000, Peoples had total consolidated assets of
approximately $120,399,000 and total shareholders' equity of approximately
$13,367,000. For the six months ended June 30, 2000, Peoples' return on
average total assets was 0.69% and return on average common shareholders'
equity was 6.20%.
OUR REASONS FOR THE MERGER
As previously mentioned, we believe that our merger with Citizens &
Northern will benefit you by providing enhanced liquidity, access to
additional capital, and the ability to offer a wider array of banking and
financial services and products. If our merger with Citizens & Northern is
approved, you will become a shareholder of a $820,255,000 financial services
organization that will be able to serve its customers through 23 banking
centers located in the Pennsylvania counties of Bradford, Tioga, Sullivan and
Lycoming. To review our reasons for this proposed merger in detail, as well
as how we came to agree on the merger, see pages 43 through 44.
BOARD OF DIRECTORS RECOMMENDATION TO SHAREHOLDERS
Our board of directors believes that the merger with Citizens &
Northern is in your best interests and unanimously recommends that you vote
FOR the proposal to approve and adopt the merger agreement.
THE PEOPLES SPECIAL MEETING
You are entitled to vote at the special meeting if you owned shares of
Peoples common stock as of the close of business on __________, 2000. As of
____________, 2000, a total of ______ votes were eligible to be cast at the
Peoples special meeting. At this special meeting, the shareholders will
consider and vote upon a proposal to approve and adopt the merger agreement.
8
<PAGE>
COMPARATIVE MARKET VALUE DATA
Citizens & Northern common stock is traded on the OTC Bulletin Board
under the symbol "CZNC.OB." Peoples common stock is not listed for trading on
a securities exchange or an automated dealer quotation system, and no
comparative market price data is available. The information presented in the
following table reflects the last reported sale prices for Citizens &
Northern on June 21, 2000, the last trading day preceding our public
announcement of the merger and on ______________, 2000, the last practicable
trading day for which information was available prior to the date of this
proxy statement/prospectus. We cannot assure you as to what the market price
of Citizens & Northern common stock will be if and when the merger is
consummated. We have calculated the equivalent per share basis by multiplying
the last reported sale price of Citizens & Northern common stock on the dates
indicated by the exchange ratio of 2.5 to 1.
CITIZENS & NORTHERN CORPORATION AND PEOPLES
COMPARATIVE MARKET VALUE
------------
<TABLE>
<CAPTION>
PEOPLES
EQUIVALENT
PER SHARE
CITIZENS & NORTHERN BASIS
------------------- -----------
<S> <C> <C>
June 21, 2000 $23.00 $57.50
______, 2000 $_______ $________
</TABLE>
9
<PAGE>
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following table presents historical and pro forma per share data
of Citizens & Northern and Peoples. The equivalent pro forma information was
obtained by multiplying the related pro forma combined amounts for Citizens &
Northern by the exchange ratio of 2.5. You should read this information
together with Citizens & Northern's historical and pro forma financial
statements incorporated by reference or included in this document. The
comparative per share data does not include any expenses that we expect to
incur in connection with completing the merger and integrating the operations
of Citizens & Northern and Peoples. We expect that the merger will provide
Citizens & Northern with financial benefits, including an increase in
non-interest income. While the pro forma information is helpful in showing
the financial characteristics of Citizens & Northern after the merger under
one set of assumptions, it does not attempt to predict or suggest future
results.
The information regarding Citizens & Northern in the following table
is based on the historical financial information that it has presented in the
reports and other information that it has filed with the Securities and
Exchange Commission. We have incorporated this material into this document by
reference. See "Where You Can Find More Information" on page i. The
information regarding Peoples is based on its audited and unaudited financial
statements. Peoples audited financial statements for the years ended December
31, 1999 and 1998 begin on page 90.
CITIZENS & NORTHERN CORPORATION
PEOPLES LTD.
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX AS OF AND FOR THE YEAR ENDED
MONTHS ENDED JUNE 30, DECEMBER 31,
1999 2000 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net Income Per Common Share:
Historical
Citizens & Northern
Basic $ 1.05 $ 0.84 $ 1.94 $ 2.13 $ 2.21
Diluted $ 1.05 $ 0.84 $ 1.94 $ 2.12 $ 2.20
Peoples
Basic $ 1.68 $ 1.01 $ 3.27 $ 3.20 $ 3.45
Diluted $ 1.68 $ 1.01 $ 3.27 $ 3.20 $ 3.45
Pro Forma Combined
Basic $ 0.99 $ 0.77 $ 1.84 $ 2.00 $ 2.08
Diluted $ 0.99 $ 0.77 $ 1.84 $ 1.99 $ 2.08
Equivalent amount of Peoples(A)
Basic $ 2.48 $ 1.93 $ 4.60 $ 5.00 $ 5.20
Diluted $ 2.48 $ 1.93 $ 4.60 $ 4.98 $ 5.20
DIVIDENDS PER COMMON SHARE
Historical
Citizens & Northern $ 0.44 $ 0.48 $ 0.72 $ 0.80 $ 0.89
Peoples $ 0.62 $ 0.70 $ 1.29 $ 1.35 $ 1.46
Pro Forma - Combined $ 0.41 $ 0.45 $ 0.69 $ 0.76 $ 0.84
Equivalent amount of Peoples (A) $ 1.10 $ 1.20 $ 1.80 $ 2.00 $ 2.23
BOOK VALUE PER COMMON SHARE
Historical
Citizens & Northern $16.29 $14.88 $16.40 $17.40 $14.72
Peoples $31.66 $32.57 $29.80 $31.86 $31.99
Pro Forma combined $15.86 $14.60 $15.70 $16.67 $14.43
Equivalent amount of Peoples (A) $39.65 $36.49 $39.25 $41.68 $36.08
</TABLE>
(A) The equivalent pro forma per share data for Peoples is computed by
multiplying pro forma combined information, or Citizens & Northern for
dividends per common share, by the 2.5 exchange ratio.
10
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF CITIZENS & NORTHERN
The following table sets forth selected historical financial data of
Citizens & Northern and has been derived from its financial statements. The
information is only a summary and you should read it together with our
historical financial statements and related notes contained in the annual
reports and other information that Citizens & Northern has filed with the
Securities and Exchange Commission. See "Where You Can Find More Information"
on page i.
<TABLE>
<CAPTION>
As of or for the six
months ended
June 30, As of or for the year ended December 31,
1999 2000 1995 1996 1997 1998 1999
(In thousands except per share (Unaudited) (Unaudited)
and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest Income $ 23,166 $ 25,806 $ 43,114 $ 45,589 $ 45,642 $ 45,459 $ 48,415
Interest expense 11,305 14,541 24,477 23,451 23,312 22,693 24,571
Net Interest Income 11,861 11,265 18,637 22,138 22,330 22,766 23,844
Provision for credit losses 450 376 737 701 797 763 760
Net Interest income after
provision 11,411 10,889 17,900 21,437 21,533 22,003 23,084
Other Income 4,247 2,745 6,538 5,655 6,835 9,084 9,487
Other expenses 8,654 8,325 14,079 14,686 15,095 16,483 17,732
Income before income taxes 7,004 5,309 10,359 12,406 13,273 14,604 14,839
Income taxes 1,540 947 2,493 3,151 3,166 3,527 3,354
Net income
5,464 4,362 7,866 9,255 10,107 11,077 11,485
Net income available to common
shareholders 5,464 4,362 7,866 9,255 10,107 11,077 11,485
Per Share Data:
Basic net income 1.05 0.84 1.51 1.77 1.94 2.13 2.21
Diluted net income 1.05 0.84 1.51 1.76 1.94 2.12 2.20
Cash dividend declared 0.44 0.48 0.62 0.66 0.72 0.80 0.89
Book value at period end $ 16.29 $ 14.88 $ 12.84 $ 13.73 $ 16.40 $ 17.40 $ 14.72
Weighted average shares
outstanding basic 5,205,044 5,205,403 5,215,636 5,215,740 5,215,775 5,209,640 5,205,140
Weighted average shares
outstanding diluted 5,211,580 5,207,130 5,215,636 5,216,837 5,220,625 5,219,444 5,210,949
Balance Sheet Data (Period End)
Total assets $ 686,517 $ 700,262 $ 585,987 $ 610,192 $ 615,353 $ 646,298 $ 705,898
Securities available for sale 357,585 348,388 299,591 307,853 306,587 329,275 358,929
Securities held to maturity 1,946 1,941 1,507 1,569 1,597 1,908 1,880
Loans, net of unearned income 302,673 319,224 264,182 278,597 285,426 291,003 310,892
Allowance for loan losses 5,094 5,232 4,579 4,776 4,913 4,820 5,131
Deposits 481,788 498,951 429,552 430,311 442,256 476,518 500,474
Total shareholders' equity 84,806 77,472 66,977 71,593 85,535 90,567 76,623
Significant Ratios:
Return on average assets 1.66% 1.24% 1.39% 1.53% 1.66% 1.77% 1.69%
Return on average shareholders'
equity 12.30% 11.08% 14.64% 13.92% 13.30% 12.59% 13.18%
Average shareholders' equity to
average assets 13.50% 11.19% 9.49% 11.00% 12.50% 14.05% 12.80%
Average loans as a percentage of
average deposits 61.56% 62.83% 62.45% 63.31% 64.98% 63.59% 62.33%
Shareholders' equity as a percent
of period-end assets 12.35% 11.06% 11.43% 11.73% 13.90% 14.01% 10.85%
Allowance for loan losses as a
percentage of loans 1.68% 1.64% 1.73% 1.71% 1.72% 1.66% 1.65%
Net charge offs as a percentage of
average loans 0.06% 0.09% 0.15% 0.19% 0.23% 0.30% 0.15%
Dividends declared as a percent of
net income 41.90% 57.14% 41.06% 37.29% 37.11% 37.56% 40.27%
Net interest income, fully taxable
equivalent 12,520 12,351 22,037 25,963 26,773 27,621 26,026
Nonperfoming loans to total loans 0.56% 0.61% 0.11% 0.31% 0.49% 0.39% 0.63%
Allowance for loan losses to
nonperforming loans 301.78% 267.48% 1641.22% 552.78% 347.95% 424.67% 262.32%
</TABLE>
11
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF PEOPLES
The following table sets forth selected historical financial data of
Peoples and has been derived from our financial statements. The information
is only a summary and you should read it together with the historical
financial statements and related notes. Peoples audited Financial Statements
as of and for the years ended December 31, 1999 and 1998 begin on page 90.
<TABLE>
<CAPTION>
As of or for the six
months ended
June 30, As of or for the year ended December 31,
1999 2000 1995 1996 1997 1998 1999
(In thousands except per share (Unaudited) (Unaudited)
and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income $ 4,216 $ 4,410 $ 5,960 $ 6,874 $ 7,695 $ 8,364 $ 8,575
Interest expense 1,836 2,143 2,731 3,011 3,507 3,846 3,748
Net Interest Income 2,380 2,267 3,229 3,863 4,188 4,518 4,827
Provision for credit losses 66 78 115 146 134 164 133
Net Interest income after
provision 2,314 2,189 3,114 3,717 4,054 4,354 4,694
Other Income 344 450 401 459 526 672 758
Other expenses 1,710 2,039 2,270 2,436 2,576 3,248 3,642
Income before income taxes 948 600 1,245 1,740 2,004 1,778 1,810
Income taxes 257 186 345 530 625 465 396
Net income 691 414 900 1,210 1,379 1,313 1,414
Net income available to common
shareholders 691 414 900 1,210 1,379 1,313 1,414
Per Share Data:
Basic net income 1.68 1.01 2.13 2.86 3.27 3.20 3.45
Diluted net income 1.68 1.01 2.13 2.86 3.27 3.20 3.45
Cash dividend declared 0.62 0.70 0.70 1.00 1.29 1.35 1.46
Book value at period end $ 31.86 $ 32.57 $ 26.13 $ 27.86 $ 29.80 $ 31.86 $ 31.99
Weighted average shares
outstanding basic 410,342 410,395 422,625 422,625 421,378 $410,325 $410,360
Weighted average shares
outstanding diluted 410,342 410,395 422,625 422,625 421,378 410,325 410,360
Balance Sheet Data (Period End)
Total assets $115,526 $120,399 $ 79,260 $ 91,864 $ 99,826 $113,216 $119,227
Securities available for sale 31,305 29,697 21,005 24,639 26,939 26,148 31,018
Securities held to maturity - - - - - - -
Loans, net of unearned income 74,290 79,571 52,685 61,066 66,042 73,686 79,001
Allowance for loan losses 918 962 531 636 711 801 911
Deposits 100,949 93,817 66,064 75,256 80,189 98,531 93,078
Total shareholders' equity 12,993 13,367 11,043 11,773 12,229 13,071 13,127
Significant Ratios:
Return on average assets 1.20% 0.69% 1.20% 1.44% 1.47% 1.21% 1.22%
Return on average shareholders'
equity 10.42% 6.20% 8.48% 10.69% 11.38% 10.38% 10.68%
Average shareholders' equity to
average assets 11.52% 11.16% 14.16% 13.46% 12.88% 11.61% 11.41%
Average loans as a percentage of
average deposits 73.44% 85.43% 77.22% 75.56% 79.88% 74.36% 76.04%
Shareholders' equity as a percent
of period-end assets 11.25% 11.10% 13.93% 12.82% 12.25% 11.55% 11.01%
Allowance for loan losses as a
percentage of loans 1.24% 1.21% 1.01% 1.04% 1.08% 1.09% 1.15%
Net charge offs as a percentage
of average loans -0.07% 0.03% 0.16% 0.08% 0.09% 0.11% 0.03%
Dividends declared as a percent
of net income 36.82% 68.56% 32.86% 34.91% 39.40% 42.19% 42.32%
Net interest income, fully
taxable equivalent 2,561 2,475 3,361 3,977 4,300 4,753 5,214
Nonperforming loans to total loans 0.55% n/a n/a 0.20% 0.22% 0.36% 0.52%
Allowance for loan losses to
nonperforming loans 224.45% n/a n/a 507.79% 499.18% 305.05% 221.64%
n/a - There were no nonperforming loans as of the applicable dates.
</TABLE>
12
<PAGE>
CITIZENS & NORTHERN AND PEOPLES UNAUDITED PRO FORMA
COMBINED SELECTED FINANCIAL DATA
The following table sets forth selected unaudited pro forma condensed
combined financial data of Citizens & Northern and Peoples. We expect to be
accounted for as a pooling of interests. You should read this selected
unaudited pro forma financial data together with the "Unaudited Pro Forma
Condensed Combined Financial Statements" on pages 79 through 86. The pro forma
information is not necessarily indicative of the actual financial condition
that would have existed or the results that would have been achieved had the
merger been closed on the dates indicated or that may be achieved in the
future.
<TABLE>
<CAPTION>
As of or for the six
months ended
June 30, As of or for the year ended December 31,
1999 2000 1995 1996 1997 1998 1999
(In thousands, except per share (Unaudited) (Unaudited)
and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Interest Income $27,372 $30,206 $49,074 $52,463 $53,323 $53,805 $56,970
Interest Expense 13,141 16,684 27,208 26,462 26,819 26,539 28,319
Net Interest Income 14,231 13,522 21,866 26,001 26,504 27,266 28,651
Provision for credit losses 516 454 852 847 931 927 893
Net Interest Income after provision 13,715 13,068 21,014 25,154 25,573 26,339 27,758
Other Income 4,591 3,195 6,939 6,114 7,361 9,756 10,245
Other expenses 10,364 10,364 16,349 17,122 17,671 19,731 21,374
Income before income taxes 7,942 5,899 11,604 14,146 15,263 16,364 16,629
Income taxes 1,797 1,133 2,838 3,681 3,791 3,992 3,750
Net income 6,145 4,766 8,766 10,465 11,472 12,372 12,879
Net income available to common
shareholders 6,145 4,766 8,766 10,465 11,472 12,372 12,879
Per Share Data:
Basic net income 0.99 0.77 1.41 1.68 1.84 2.00 2.08
Diluted net income 0.99 0.77 1.41 1.68 1.84 1.99 2.08
Cash dividend declared 0.41 0.45 0.56 0.62 0.69 0.76 0.84
Book value at period end $ 15.86 $ 14.60 $ 12.51 $ 13.37 $ 15.70 $ 16.67 $ 14.43
Weighted average shares outstanding
basic 6,195,551 6,196,043 6,236,851 6,238,955 6,233,873 6,200,105 6,195,693
Weighted average shares outstanding
diluted 6,202,087 6,197,770 6,237,067 6,238,052 6,238,723 6,209,909 6,201,502
Balance Sheet Data (Period End)
Total assets $801,696 $820,255 $665,154 $701,944 $714,852 $759,166 $824,778
Securities available for sale 388,543 377,571 320,503 332,380 333,199 355,075 389,600
Securities held to maturity 1,946 1,941 1,507 1,569 1,597 1,908 1,880
Loans, net of unearned income 376,963 398,795 316,868 339,663 351,468 364,689 389,893
Allowance for loan losses 6,012 6,194 5,110 5,412 5,624 5,621 6,042
Deposits 582,740 592,768 495,616 505,567 522,445 575,049 593,552
Total shareholders' equity 97,452 90,433 77,927 83,254 97,437 103,290 89,403
Significant Ratios:
Return on average assets 1.59% 1.16% 1.37% 1.52% 1.63% 1.68% 1.62%
Return on average shareholders' equity 12.03% 10.35% 13.62% 13.45% 13.02% 12.29% 12.83%
Average shareholders' equity to
average assets 13.21% 11.19% 10.04% 11.30% 12.55% 13.69% 12.60%
Average loans as a percentage of
average deposits 63.62% 66.38% 64.42% 65.07% 67.25% 65.45% 64.65%
Shareholders' equity as a percent of
period-end assets 12.16% 11.02% 11.72% 11.86% 13.63% 13.61% 10.84%
Allowance for loan losses as a
percentage of loans 1.59% 1.55% 1.61% 1.59% 1.60% 1.54% 1.55%
Net charge offs as a percentage of
average loans 0.03% 0.08% 0.15% 0.17% 0.21% 0.26% 0.13%
Dividends declared as a percent of net
income 40.90% 58.26% 40.01% 36.95% 37.37% 38.18% 40.52%
Net interest income, fully tax
equivalent 15,081 14,826 25,398 29,940 31,073 32,374 31,240
Nonperfoming loans to total loans 0.56% 0.49% 0.09% 0.29% 0.44% 0.31% 0.61%
Allowance for loan losses to
nonperforming loans 286.70% 316.67% 1831.54% 547.22% 361.67% 495.24% 255.26%
</TABLE>
13
<PAGE>
RISK FACTORS
In addition to other information included and incorporated by
reference in this proxy statement/prospectus, you should consider carefully
the following factors before making a decision on the merger.
BECAUSE THE MARKET PRICE OF CITIZENS & NORTHERN COMMON STOCK WILL VARY, WE
CANNOT ASSURE YOU OF THE MARKET VALUE OF THE CITIZENS & NORTHERN SHARES OF
COMMON STOCK YOU WILL RECEIVE IN THE MERGER.
At the time we complete the merger, each share of Peoples common stock
will be converted into the right to receive 2.5 shares of Citizens & Northern
common stock. We will not adjust this exchange ratio in the event of any
increase or decrease in the price of the Citizens & Northern common stock. As
a result, the value of the Citizens & Northern common stock received by
Peoples shareholders in the merger will vary with fluctuations in the value
of the Citizens & Northern common stock. On June 21, 2000, the last full
trading day before we announced the merger, the closing price of Citizens &
Northern's common stock was $23.00 per share. On __________, 2000, the
closing price of Citizens & Northern's common stock was $_____ per share.
In addition, the stock market has recently experienced significant
price and volume fluctuations. These fluctuations have particularly affected
the market prices of securities of many bank holding companies. These broad
market fluctuations could adversely affect the market price of Citizens &
Northern's common stock. If the market price of Citizens & Northern's common
stock decreases, the value of the Citizens & Northern common stock you
receive will decrease.
CITIZENS & NORTHERN MAY NOT BE ABLE TO ACHIEVE THE EXPECTED INTEGRATION AND
COST SAVINGS FROM THIS MERGER WHICH COULD ADVERSELY AFFECT EARNINGS AND
FINANCIAL CONDITION.
Citizens & Northern and Peoples expect to achieve cost savings
following the merger. Difficulties may arise, however, in the integration of
the business and operation of the combined entity. As a result, Citizens &
Northern may not be able to achieve the cost savings and synergies that it
expects will result from the merger. Additional operational savings are
dependent upon the integration of the banking businesses of Citizens &
Northern and Peoples, the conversion of data systems and the standardization
of business practices. Actual savings may be materially less than expected if
the merger is delayed, the integration of operations is delayed beyond what
is anticipated or the conversion to a single data system is not accomplished
on a timely basis.
CHANGES IN INTEREST RATES COULD ADVERSELY AFFECT CITIZENS & NORTHERN'S
EARNINGS AND FINANCIAL CONDITION.
Citizens & Northern's earnings and financial condition depend to a
large degree upon net interest income, which is the difference between
interest earned from loans and securities and
14
<PAGE>
interest paid on deposits and borrowings. In the early 1990s, many banking
organizations experienced historically high spreads between the interest
rates earned on loans and investments and the interest rates paid on deposits
and borrowings. More recently, however, interest rate spreads have generally
narrowed due to changing market conditions and competitive pricing pressures,
and we can not predict whether these rate spreads will narrow even further.
This narrowing of interest rate spreads could adversely affect Citizens &
Northern's earnings and financial condition.
In addition, we can not predict whether interest rates will continue
to remain at present levels. Any increases in prevailing interest rates could
adversely affect Citizens & Northern's mortgage banking business because
higher interest rates could cause customers to request fewer mortgage
refinancings and purchase money mortgage originations.
THE STOCK OPTION AGREEMENT MAY DISCOURAGE OTHER COMPANIES FROM TRYING TO
ACQUIRE PEOPLES.
The merger agreement provides for a stock option agreement in favor of
Citizens & Northern that could discourage other companies from trying to or
proposing to acquire Peoples in an alternative transaction before we complete
this merger. Such an alternative transaction involving Peoples may be more
advantageous to you than this merger.
If Citizens & Northern exercised the stock option, Peoples could, by
satisfying the option, experience a material negative impact on its earnings
per share and future dividends per share. This might discourage other
companies from trying to or proposing to combine with Peoples. If the option
became exercisable, the option also might prevent a third party from
completing a pooling of interests transaction with Peoples. This also could
discourage other companies from trying to combine with Peoples.
CITIZENS & NORTHERN'S ARTICLES OF INCORPORATION AND BY-LAWS CONTAIN
PROVISIONS THAT MAY HAVE THE EFFECT OF DISCOURAGING A THIRD PARTY FROM MAKING
AN ACQUISITION OF CITIZENS & NORTHERN BY MEANS OF A TENDER OFFER, PROXY
CONTEST OR OTHERWISE.
The articles of incorporation and by-laws of Citizens & Northern,
among other things:
- divide the Citizens & Northern board of directors into three
classes with directors of each class serving for a staggered
three-year period;
- permit the Citizens & Northern board of directors to fill
vacancies on the Citizens & Northern board of directors;
- restrict the ability of shareholders to call special meetings; and
- require the affirmative vote of holders of common stock of
Citizens & Northern entitled to cast 75% of the votes that all
15
<PAGE>
shareholders are entitled to cast in order to amend Citizens &
Northern's by-laws, absent the approval of the Citizens & Northern
board of directors.
These provisions could make the removal of incumbent directors more difficult
and time-consuming and may have the effect of discouraging a tender offer or
other takeover attempt not previously approved by the Citizens & Northern
board of directors. See "Material Differences Between the Rights of Citizens
& Northern and Peoples Shareholders" on page 77.
OFFICERS AND DIRECTORS OF PEOPLES MAY HAVE INTERESTS IN THE MERGER THAT
DIFFER FROM THE INTERESTS OF SHAREHOLDERS AND THAT MAY CREATE POTENTIAL
CONFLICTS OF INTEREST.
When considering the recommendations of the Peoples board of
directors, you should be aware that some executive officers and directors of
Peoples may have interests in the merger that are somewhat different from
your interests. These interests exist because of rights created by an
employment agreement, executive indexed retirement agreements, split dollar
agreements, the directors' rights to continue as directors or advisory board
members, and rights to certain director' and officers' liability insurance
coverages. These interests may create potential conflicts of interest. See
"The Proposed Merger - Interests of Peoples' Executive Officers and Directors
in the Merger" on page 55.
INFORMATION WITH RESPECT TO CITIZENS & NORTHERN
Citizens & Northern, headquartered in Wellsboro, Pennsylvania, is a
single-bank holding company whose banking subsidiary is Citizens & Northern
Bank.
Citizens & Northern Bank is a Pennsylvania banking institution that
was formed by the consolidation of Northern National Bank of Wellsboro and
Citizens National Bank of Towanda on October 1, 1971. In May of 1972,
Citizens & Northern Bank merged with the First National Bank of Ralston, and
on October 1, 1977, it merged with the Sullivan County National Bank.
Citizens & Northern Bank merged with the Farmers National Bank of Athens on
January 1, 1984 and with The First National Bank of East Smithfield on May 1,
1990. Citizens & Northern Bank has had its current name since May 6, 1975, at
which time it changed its charter from a national bank to a Pennsylvania bank.
Citizens & Northern Bank's principal office is located in Wellsboro,
Pennsylvania. On June 30, 2000 Citizens & Northern Bank had total
consolidated assets of approximately $685,427,000.
Citizens & Northern Bank provides an extensive range of banking
services, including interactive internet banking, checking accounts, savings
accounts, certificates of deposit, money market accounts, personal,
commercial and installment loans and such types of deposits and other loans
that are common to a full service bank of its size and structure. Citizens &
Northern Bank also maintains a trust division that provides a full range of
financial fiduciary services. Also, in January 2000 Citizens & Northern Bank
formed Citizens & Northern Financial Services Corporation. The new subsidiary
of Citizens & Northern Bank is licensed as an insurance agency and has begun
to sell a variety of insurance products.
16
<PAGE>
Citizens & Northern also has two non-bank subsidiaries. Bucktail Life
Insurance Company provides credit life and accident and health insurance on
behalf of Citizens & Northern Bank. Citizens & Northern Investment
Corporation was formed to hold equity investments. The total assets and
income generated by Bucktail Life Insurance Company and Citizens Northern
Investment Corporation is insignificant in relation to the total business of
Citizens & Northern.
The main office of Citizens & Northern Bank is located at 90-92 Main
Street, Wellsboro, Pennsylvania. Citizens & Northern Bank has banking offices
located in Pennsylvania counties of Bradford, Lycoming, Sullivan and Tioga.
Citizens & Northern Bank owns all of its properties. There are no
encumbrances against any of Citizens & Northern Bank's properties.
As of June 30, 2000, Citizens & Northern Bank had a total of 219
full-time equivalent employees. Citizens & Northern Bank provides a variety
of employee benefits and considers its relationship with its employees to be
good.
All phases of Citizens & Northern Bank's business are competitive.
Citizens & Northern Bank primarily competes in the market area composed of
Tioga and Bradford counties and portions of Lycoming and Sullivan counties.
Citizens & Northern Bank competes with approximately 15 commercial banks,
including local commercial banks headquartered in that market area as well as
other commercial banks with branches. Some of the banks that have branches in
Citizens & Northern Bank's market area are larger in overall size than
Citizens & Northern Bank. Citizens & Northern Bank, along with other
commercial banks, competes in its lending activities, as well as in
attracting demand and savings deposits, with savings banks, savings and loan
associations, insurance companies, regulated small loan companies and credit
unions. Citizens & Northern Bank also competes with insurance companies,
investment counseling firms, mutual funds and other business firms and
individuals in corporate trust and investment management services.
Citizens & Northern Bank believes it is generally competitive with
all financial institutions in its service area with respect to interest rates
paid on time and savings deposits, service charges on deposit accounts and
interest rates charged on loans.
INFORMATION WITH RESPECT TO PEOPLES
Peoples Ltd. was established in 1987 as a Pennsylvania business
corporation and registered bank holding company. Peoples State Bank of
Wyalusing, Pa. is Peoples' wholly-owned sole subsidiary. Peoples' principal
executive office is located at Peoples State Bank of Wyalusing, Pa., 201
Church Street, Wyalusing, Pennsylvania 18853. Peoples functions primarily as
the holder of all the outstanding common stock of Peoples State Bank of
Wyalusing, Pa.
Peoples State Bank of Wyalusing, Pa. is a Pennsylvania banking
institution that was chartered in 1914. On November 4, 1985, the National
Bank of Wyalusing was merged with Peoples State Bank. In 1988, a new main
office building was constructed around the Peoples
17
<PAGE>
State Bank Church Street office. The bank has five branches located in Eagles
Mere, New Albany, Ulster and Wysox, Pennsylvania. The bank has 41 full-time
and 14 part-time employees. The bank engages in a full service commercial and
consumer business, including such services as accepting deposits in the form
of time, demand and savings accounts. In addition to accepting deposits, the
bank makes both secured and unsecured commercial and consumer loans, finances
commercial transactions and makes construction and mortgage loans, including
home equity loans and business loans. The bank also offers life insurance,
annuities and brokerage services as a licensed agent.
Peoples is registered as a bank holding company and is subject to
supervision and regulation by the Board of Governors of the Federal Reserve
System under the Bank Holding Company Act of 1956. As a bank holding company,
Peoples' activities and those of its bank subsidiary are limited to the
business of banking and activities closely related or incidental to banking.
Bank holding companies are required to file periodic reports with, and are
subject to examination by, the Federal Reserve Board. The Federal Reserve
Board has issued regulations that require a bank holding company to serve as
a source of financial and managerial strength to its subsidiary banks. As a
result, the Federal Reserve Board regulations may require Peoples to stand
ready to use its resources to provide adequate capital funds to its bank
subsidiary during periods of financial stress or adversity.
The Bank Holding Company Act prohibits Peoples from acquiring direct
or indirect control of more than 5% of the outstanding shares of any class of
voting stock, or substantially all the assets of, any bank, or from merging
or consolidating with another bank holding company without prior approval of
the Federal Reserve Board. In addition, the Bank Holding Company Act
prohibits Peoples from engaging in or acquiring ownership or control of 5% of
the outstanding shares of any class of voting stock of any company engaged in
a non-banking business, unless the Federal Reserve Board determines that the
business is so closely related to banking as to be a proper incident to the
business of banking.
As a Pennsylvania bank holding company, for purposes of the
Pennsylvania Banking Code, Peoples is also subject to regulations and
examination by the Pennsylvania Department of Banking.
Peoples State Bank of Wyalusing, Pa. is a Pennsylvania chartered
bank. Its deposits are insured up to applicable limits by the Federal Deposit
Insurance Corporation. It is subject to regulation and examination by the
Federal Deposit Insurance Corporation and, to a much lesser extent, the
Federal Reserve Board. It is also subject to requirements and restrictions
under federal and state law, including:
- requirements to maintain reserves against deposits;
restrictions on the types and amounts of loans that the bank
may grant and the interest that the bank may charge on those
loans; and
18
<PAGE>
- limitations on the types of investments that the bank may
make and the types of services that the bank may offer.
Consumer protection laws and regulations also affect the operation
of Peoples State Bank of Wyalusing, Pa. In addition to the impact of
regulation, commercial banks are affected significantly by the actions of the
Federal Reserve Board as it attempts to control the money supply and credit
availability in order to influence the economy.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On the following pages of this proxy statement/prospectus we present
management's analysis and discussion of Peoples' consolidated financial
condition and results of operations and its wholly-owned subsidiary, Peoples
State Bank of Wyalusing, Pa. Management's discussion and analysis discusses
the significant changes in Peoples results of operations, capital resources
and liquidity presented in its accompanying consolidated financial
statements. Peoples' consolidated financial conditions and results of
operations consist solely of Peoples State Bank's financial condition and
results of operations. Current performance does not guarantee, nor may it be
indicative of, similar performance in the future.
The following discussion focuses on and highlights certain
information regarding Peoples. We recommend that you read this discussion in
conjunction with Peoples' 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, as they reflect management's analysis only as of
the date of this proxy statement/prospectus. Peoples undertakes no obligation
to publicly revise or update these forward-looking statements to reflect
subsequent events or circumstances.
19
<PAGE>
SUMMARY OF RESULTS OF OPERATIONS & FINANCIAL CONDITION. At June 30,
2000, Peoples total assets amounted to $120.4 million as compared to $115.5
million at June 30, 1999. The $4.9 million or 4.2% increase was primarily due
to an increase in net loans.
Net income was $414,000 for the six months ended June 30, 2000, as compared
to $691,000 for the six months ended June 30, 1999. The $277,000 decrease in
net income resulted from a decrease in net interest income and an increase in
operating expenses primarily resulting from expenses associated with the
merger.
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) 6/30/00 6/30/99 1999 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Interest income $ 4,410 $ 4,216 $ 8,575 $ 8,364
Interest expense 2,143 1,836 3,748 3,846
Net interest income 2,267 2,380 4,827 4,518
Provision for loan losses 78 66 133 164
Net interest income after provision 2,189 2,314 4,694 4,354
Other income 450 344 758 672
Other expense 2,034 1,710 3,642 3,248
Income before income taxes 605 948 1,810 1,778
Income taxes 186 257 396 465
Net income $414 $691 $1,414 $1,313
Per Share:
Basic net income $1.01 $1.68 $3.45 $3.20
Cash dividend declared 0.70 0.62 1.46 1.35
Book value $32.57 $31.66 $31.99 $31.86
Weighted average shares outstanding -
Basic and diluted 410,395 410,342 410,360 410,325
</TABLE>
20
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
(Dollars in thousands) 6/30/00 6/30/99 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
AVERAGE BALANCE SHEET
Total assets $119,562 $115,132 $115,993 $108,937
Investments 31,336 29,853 30,676 28,925
Loans, net of unearned income 79,423 73,430 75,111 69,612
Deposits 92,970 99,991 98,777 93,618
Borrowings 12,931 1,046 3,270 1,649
Shareholders' equity 13,348 13,268 13,236 12,644
BALANCE SHEET OF PERIOD END
Total assets 120,399 115,526 119,227 113,216
Investments 29,697 31,305 31,018 26,148
Loans, net of unearned income 79,571 74,290 79,001 73,686
Deposits 93,817 100,949 93,078 98,531
Borrowings 12,547 1,000 12,451 1,000
Shareholders' equity 13,367 12,993 13,127 13,071
SELECTED OPERATING RATIOS
Return on average assets 0.69% 1.20% 1.22% 1.21%
Return on average shareholders' equity 6.20% 10.42% 10.68% 10.38%
Average shareholders' equity to average assets 11.16% 11.52% 11.41% 11.61%
Average loans as a percentage of average deposits 85.43% 73.44% 76.04% 74.36%
</TABLE>
21
<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
six months ended June 30, 2000, the most significant source of new funds was
Federal Home Loan Bank borrowings. The borrowings provide a source of funds
for loan growth and to replace Jumbo CD's that left the bank for higher
interest rates.
Distribution of Assets, Liabilities and Shareholders Equity, Interest Rates
and Interest Differential:
<TABLE>
<CAPTION>
Six Months Ended
----------------
6/30/00 6/30/99
------- -------
(DOLLARS IN THOUSANDS) Average Average
Balance Rate Interest Balance Rate Interest
------- ----- -------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Taxable investment $ 14,410 6.00% $ 431 $ 15,046 5.87% $ 438
Nontaxable investment (1) 16,926 6.47% 546 14,807 6.60% 484
-------- ------ -------- -----
Total investments 31,336 6.24% 977 29,853 6.18% 922
Loans (2) 79,423 9.05% 3,586 73,430 9.20% 3,349
Other interest earning assets 404 6.38% 13 2,770 4.64% 63
-------- ------ -------- -----
Total earning assets 111,163 8.25% 4,576 106,053 8.25% 4,334
Noninterest earning assets 8,399 0.00% 0 9,079 0.00% 0
-------- ------ -------- -----
Total assets $119,562 7.65% $4,576 $115,132 7.53% $4,334
======== ====== ======== =====
Liabilities and shareholders' equity Deposits:
Demand $ 14,711 2.32% $ 170 $ 14,578 2.06% $ 149
Savings 21,113 3.75% 395 21,170 3.47% 364
Time 44,185 5.38% 1,186 49,817 5.24% 1,294
-------- ------ -------- -----
Total 80,009 4.38% 1,751 85,565 4.22% 1,807
Borrowings 12,931 6.09% 392 1,046 5.75% 29
Noninterest bearing deposits 12,961 0.00% 0 14,426 0.00% 0
Other liabilities 313 0.00% 0 827 0.00% 0
-------- ------ -------- -----
Total liabilities 106,214 4.04% $2,143 101,864 3.61% $1,836
====== ======
Shareholders' equity 13,348 13,268
-------- --------
Total liabilities and shareholders' equity $119,562 $115,132
======== ========
Average effective rate on interest-earning liabilities $ 92,940 4.61% $ 86,611 4.24%
======== ========
</TABLE>
22
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
------- -------
(DOLLARS IN THOUSANDS) Average Average
Balance Rate Interest Balance Rate Interest
------- ----- -------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Taxable investment $14,758 5.89% $ 868 $ 19,675 5.96% $1,173
Nontaxable investment (1) 15,918 6.49% 1,033 9,250 6.76% 625
-------- ------ -------- ------
Total investments 30,676 6.20% 1,901 28,925 6.22% 1,798
Loans (2) 75,111 9.13% 6,854 69,612 9.35% 6,509
Other interest-earning assets 1,899 4.79% 91 3,069 5.69% 175
-------- ------ -------- ------
Total earning assets 107,686 8.21% 8,846 101,606 8.35% 8,482
Noninterest earning assets 8,307 0.00% 0 7,331 0.00% 0
-------- ------ -------- ------
Total assets $115,993 7.63% $8,846 $108,937 7.79% $8,482
======== ====== ======== ======
Liabilities and shareholders' equity Deposits:
Demand $14,749 2.11% $ 312 $13,196 2.29% $ 303
Savings 21,338 3.51% 750 20,551 3.77% 775
Time 48,403 5.18% 2,505 47,625 5.62% 2,679
-------- ------ -------- ------
Total 84,490 4.22% 3,567 81,372 4.62% 3,757
Borrowings 3,270 5.55% 182 1,649 5.35% 88
Noninterest bearing deposits 14,287 0.00% 0 12,246 0.00% 0
Other liabilities 710 0.00% 0 1,026 0.00% 0
-------- ------ -------- ------
Total liabilities 102,757 3.65% $3,749 96,293 3.99% $3,845
====== ======
Shareholders' equity 13,236 12,644
-------- --------
Total liabilities and shareholders' equity $115,993 $108,937
======== ========
Average effective rate on interest-earning liabilities $ 87,760 4.27% $83,021 4.63%
======== ========
</TABLE>
(1) The interest earned on nontaxable investment securities and loans is
shown on a tax equivalent basis.
(2) Interest income on loans does not include late charges or amortization of
deferred loan fees/costs.
23
<PAGE>
INVESTMENT SECURITIES. There are no significant concentrations of
securities (greater than 10% of shareholders' equity) in any individual security
issue other than U.S. Government securities. The maturity analysis of investment
securities available for sale, including the weighted average yield for each
category is as follows:
<TABLE>
<CAPTION>
June 30, 2000
-------------
Under Over
(DOLLARS IN THOUSANDS) 1 year 1-5 Years 5-10 Years 10-15 Years 15 Years
------ --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
U. S. Treasury securities
Amortized cost - $ 983 - - $980
Weighted average yield - 6.40% - - 5.38%
Obligations of U. S. government
Amortized cost $1,000 $7,500 $1,500 - -
Weighted average yield 5.56% 6.06% 6.04% - -
Obligations of states and municipalities
Amortized cost $2,315 $6,347 $6,377 $1,235 -
Weighted average yield 5.98% 6.02% 6.23% 6.54% -
Corporate securities
Amortized cost $ 726 - - $ 301 -
Weighted average yield 5.53% - - 6.46% -
Mortgage-backed securities
Amortized cost - - $ 9 - -
Weighted average yield - - 7.96% - -
Equity securities
Amortized cost $1,284 - - - -
Weighted average yield 6.75% - - - -
</TABLE>
24
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
June 30, 1999
-------------
Under Over
(DOLLARS IN THOUSANDS) 1 year 1-5 Years 5-10 Years 10-15 Years 15 Years
------ --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
U. S. Treasury securities
Amortized cost $1,502 $ 492 - - $980
Weighted average yield 6.44% 5.93% - - 5.37%
Obligations of U. S. government
Amortized cost - $8,000 $1,500 - -
Weighted average yield - 5.91% 6.04% - -
Obligations of states and municipalities
Amortized cost $ 340 $7,529 $5,785 $3,356 -
Weighted average yield 5.61% 6.09% 6.10% 6.42% -
Corporate securities
Amortized cost $ 968 $ 732 - $ 303 -
Weighted average yield 5.84% 5.56% - 6.51% -
Mortgage-backed securities
Amortized cost - - $ 12 - -
Weighted average yield - - 8.10% - -
Equity securities
Amortized cost $ 421 - - - -
Weighted average yield 6.00% - - - -
</TABLE>
25
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
December 31, 1999
-----------------
Under Over
(DOLLARS IN THOUSANDS) 1 year 1-5 Years 5-10 Years 10-15 Years 15 Years
------ --------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
U. S. Treasury securities
Amortized cost $1,000 $ 486 - - $980
Weighted average yield 6.41% 6.00% - - 5.37%
Obligations of U. S. government
Amortized cost - $8,000 $1,500 - -
Weighted average yield - 5.91% 6.04% - -
Obligations of states and municipalities
Amortized cost $1,740 $6,548 $5,761 $2,963 -
Weighted average yield 6.21% 6.02% 6.12% 6.43% -
Corporate securities
Amortized cost $1,430 - - $ 302 -
Weighted average yield 5.69% - - 6.52% -
Mortgage-backed securities
Amortized cost - - $ 9 - -
Weighted average yield - - 8.00% - -
Equity securities
Amortized cost $1,284 - - - -
Weighted average yield 6.00% - - - -
</TABLE>
26
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
December 31, 1998
-----------------
Under Over
(DOLLARS IN THOUSANDS) 1 year 1-5 Years 5-10 Years 10-15 Years 15 Years
------ --------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
U. S. Treasury securities
Amortized cost $1,001 $1,003 - - -
Weighted average yield 6.36% 6.44% - - -
Obligations of U. S. government
Amortized cost $ 650 $9,250 $1,000 - -
Weighted average yield 5.59% 6.02% 5.50% - -
Obligations of states and municipalities
Amortized cost $ 495 $6,363 $3,440 $1,186 -
Weighted average yield 5.76% 6.27% 6.28% 6.82% -
Corporate securities
Amortized cost $ 265 $ 508 $ 304 - -
Weighted average yield 5.86% 5.98% 6.51% - -
Mortgage-backed securities
Amortized cost $ 100 - $ 13 - -
Weighted average yield 5.00% - 8.12% - -
Equity securities
Amortized cost $ 401 - - - -
Weighted average yield 6.00% - - - -
</TABLE>
Weighted average yield is computed by dividing the annualized interest
income, including the accretion of discounts and the amortization of
premiums, by the amortized cost. Tax-exempt securities were adjusted to a
tax-equivalent basis and are based on the federal statutory tax rate of 34%.
27
<PAGE>
The amortized cost and fair value of available-for-sale investment securities
are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) June 30, 2000
------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
---- ---- ---- -----
<S> <C> <C> <C> <C>
U. S. Treasury $ 1,963 $ 2 $ 100 $ 1,865
Obligations of U. S. government 10,000 302 9,698
Obligations of states and municipalities 16,274 5 444 15,835
Corporate securities 1,027 19 1,008
Other debt securities 9 2 7
------- ------- ------- -------
Total debt securities 29,273 7 867 28,413
Restricted equity securities 1,284 1,284
------- ------- ------- -------
Total $30,557 $ 7 $ 867 $29,697
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) June 30, 1999
------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
---- ---- ---- -----
<S> <C> <C> <C> <C>
U. S. Treasury $ 2,974 $ 13 $ 95 $ 2,892
Obligations of U. S. government 9,500 161 9,339
Obligations of state and municipalities 17,010 25 375 16,660
Corporate securities 2,003 22 1,981
Other debt securities 12 1 11
------- ------- ------- ------
Total debt securities 31,499 38 654 30,883
Restricted equity securities 421 421
------- ------- ------- ------
Total $31,920 $ 38 $ 654 $31,304
======= ======= ======= =======
</TABLE>
28
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) December 31, 1999
------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
---- ---- ---- -----
<S> <C> <C> <C> <C>
U. S. Treasury $ 2,466 - $160 $ 2,306
Obligations of U. S. government 9,500 - 305 9,195
Obligations of state and municipalities 17,012 $10 506 16,516
Corporate securities 1,732 1 24 1,709
Other debt securities 9 - 1 8
------ ----- ----- ------
Total debt securities 30,719 11 996 29,734
Restricted equity securities 1,284 - - 1,284
------ ----- ----- ------
Total $32,003 $11 $996 $31,018
======= ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) December 31, 1998
------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
---- ---- ---- -----
<S> <C> <C> <C> <C>
U. S. Treasury $ 2,004 $ 29 $ 2,033
Obligations of U. S. government 10,900 27 $11 10,916
Obligations of states and municipalities 11,484 141 17 11,608
Corporate securities 1,077 7 1,084
Other debt securities 113 7 106
------ ----- ----- ------
Total debt securities 25,578 204 35 25,747
Restricted equity securities 401 401
------ ----- ----- ------
Total $25,979 $204 $35 $26,148
======= ====== ===== =======
</TABLE>
29
<PAGE>
LOANS. Peoples grants real estate, commercial, industrial and consumer
loans to customers primarily in Bradford County, Pennsylvania and its contiguous
counties.
Total loans grew by $5,274,000 to $79,635,000 at June 30, 2000, from $74,361,000
at June 30, 1999. This growth was primarily composed of an increase in real
estate loans of $3,531,000 and consumer loans of $1,802,000.
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 6/30/00 6/30/99 12/31/99 12/31/98
------- ------- -------- --------
<S> <C> <C> <C> <C>
Real estate loans $32,973 $29,442 $32,084 $30,011
Commercial and industrial loans 24,205 24,264 25,122 22,164
Consumer loans 22,457 20,655 21,863 21,595
-------- -------- -------- --------
Total 79,635 74,361 79,069 73,770
Unamortized loan fees (64) (71) (68) (84)
Allowance for loan losses (962) (918) (911) (801)
-------- -------- -------- --------
Net loans $78,609 $73,372 $78,090 $72,885
======== ======= ======= =======
</TABLE>
Loans are placed on nonaccrual status when a loan is specifically determined
to be impaired or when principal or interest is delinquent for 90 days or
more. 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 and were delinquent 90 days or more and still accruing
interest.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 6/30/00 6/30/99 12/31/99 12/31/98
------- ------- -------- -------
<S> <C> <C> <C> <C>
Nonaccrual loans $ - $409 $ 411 $ 262
Delinquent loans 90 days + 793 248 600 976
------- ------- ------ ------
Total $793 $657 $1,011 $1,238
======= ======= ====== =======
</TABLE>
30
<PAGE>
A summary of the activity in the allowance for loan losses follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 6/30/00 6/30/99 12/31/99 12/31/98
------- ------- -------- --------
<S> <C> <C> <C> <C>
Average loans $79,423 $73,430 $75,111 $69,612
------- ------- ------- -------
Allowance beginning period 911 801 801 711
------- ------- ------- -------
Loans charged off:
Commercial and industrial
- - - 29
Industrial and other
16 61 94 76
Real estate 19 - 55 15
------- ------- ------- -------
Total loans charged off 35 61 149 120
------- ------- ------- -------
Recoveries:
Commercial and industrial - 100 100 -
Industrial and other 8 12 26 46
Real estate - - - -
------- ------- ------- -------
Total recoveries 8 112 126 46
------- ------- ------- -------
Net loans charged off 27 (51) 23 74
------- ------- ------- -------
Provision for loan losses 78 66 133 164
------- ------- ------- -------
Allowance, end of period $ 962 $ 918 $ 911 $ 801
======= ======= ======= =======
Ratio of net charge offs to
average loans outstanding 0.03% (0.07)% 0.03% 0.11%
======= ======= ======= =======
</TABLE>
The allowance for possible loan losses is based upon a credit review of the loan
portfolio, past loan loss experience and economic conditions. It is the opinion
of management that the allowance for possible loan losses is adequate to absorb
future loan losses.
The allowance for loan losses of $962,000 at June 30, 2000 was 1.21% of loans as
compared to 1.24% of loans at June 30, 1999. A recovery of $100,000 from a prior
year, contributed to recoveries for the six months ended June 30, 1999 being
higher than for the six months ended June 30, 2000.
The provision for loan losses for the six months ended June 30, 2000 was
$78,000, compared to $66,000 for the same period in 1999. As a result of the
growth in the loan portfolio, the provision was increased to maintain an
adequate loan loss allowance.
31
<PAGE>
DEPOSITS. The following table is a distribution of average balances and
average rates paid on the deposit categories:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
(DOLLARS IN THOUSANDS) Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
Noninterest bearing $12,961 0.00% $14,426 0.00%
Interest bearing checking accounts 9,337 1.60% 9,377 1.59%
Money market accounts 5,374 3.57% 5,201 2.91%
Savings 21,113 3.75% 21,170 3.47%
Time under $100,000 33,750 5.29% 35,942 5.18%
Time over $100,000 10,435 5.65% 13,875 5.38%
------- ------
Total $92,970 3.77% $99,991 3.64%
======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
(DOLLARS IN THOUSANDS) Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
Noninterest bearing $14,287 0.00% $12,246 0.00%
Interest-bearing checking accounts 9,381 1.59% 8,465 1.85%
Money market accounts 5,368 3.03% 4,731 3.11%
Savings 21,338 3.51% 20,551 3.77%
Time under $100,000 34,762 5.10% 35,748 5.56%
Time over $100,000 13,641 5.36% 11,877 5.82%
------ ------
Total $98,777 3.61% $93,618 4.01%
====== ======
</TABLE>
32
<PAGE>
A maturity distribution of certificates of deposit of $100,000 and over is as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 6/30/00 6/30/99 12/31/99 12/31/98
------- ------- -------- --------
<S> <C> <C> <C> <C>
Three months of less $ 3,004 $ 4,634 $ 6,141 $ 3,948
Over 3 months to 12 months 7,142 10,341 5,896 8,847
Over one year to three years 358 699 577 769
Over three years 407 0 0 0
------- ------- -------- --------
Total $10,911 $15,674 $12,614 $13,564
======= ======= ======= =======
</TABLE>
Total deposits decreased by 7.1% to $93,817,000 at June 30, 2000, as compared to
$100,949,000 at June 30, 1999. The decrease was in certificate of deposits with
a major reduction in Jumbo CD's.
Deposits are summarized as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 6/30/00 6/30/99 12/31/99 12/31/98
------- ------- -------- --------
<S> <C> <C> <C> <C>
Noninterest bearing $14,483 $ 14,259 $12,581 $14,688
Interest-bearing checking accounts 9,615 9,992 9,433 9,000
Money market accounts 6,288 5,469 5,015 4,805
Savings 21,298 21,388 20,628 20,537
Time under $100,000 31,222 34,167 32,807 35,937
Time over $100,000 10,911 15,674 12,614 13,564
------- -------- ------- -------
Total Deposits $93,817 $100,949 $93,078 $98,531
======= ======== ======= =======
</TABLE>
33
<PAGE>
CAPITAL. Quantitative measures established by regulation to ensure capital
adequacy require the bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Leverage Ratio. Management believes,
as of June 30, 2000, that Peoples meets all capital requirements to which it is
subject.
The minimum for Tier 1 ratio is 4.0%, and the total capital rate minimum is
8.0%. At June 30, 2000 Peoples tier 1 risk-adjusted capital ratio was 18.0% and
the total risk-adjusted capital ratio was 18.91%, both well above the regulatory
requirements.
CAPITAL RATIOS
<TABLE>
<CAPTION>
6/30/00 6/30/99 12/31/99 12/31/98
------- ------- -------- --------
<S> <C> <C> <C> <C>
Tier 1 18.00% 19.51% 18.20% 17.80%
Total 18.91% 20.85% 19.20% 19.00%
Leverage Ratio 11.12% 11.43% 11.10% 11.10%
</TABLE>
RESULTS OF OPERATIONS. Consolidated net income for the six months ended June
30, 2000 was $414,000, or 40% below the six months ended June 30, 1999. Basic
earnings per share for the six months ended June 30, 2000 and June 30, 1999 was
$1.01 and $1.68, respectively. The decrease in net income is a result of lower
net interest income and an increased noninterest expense.
NET INTEREST INCOME. Net interest income is the major component of Peoples'
income and represents the amount by which interest and fees generated by earning
assets exceeds the total cost of funds used to support the earning assets.
Interest expense for the six months ended June 30, 2000 was $2,143,000, an
increase of $307,000 over the amount reported for the six months ended June 30,
1999. The increase was due to increased cost of deposits and of additional
borrowings.
34
<PAGE>
For analytical purpose, the following table reflects tax-equivalent net interest
income in recognition of the income tax savings and tax-exempt item such as
interest on municipal securities and tax-exempt loans. Adjustments are made
using statutory federal tax rate of 34%.
<TABLE>
<CAPTION>
Six Months Ended Year Ended
------------------- --------------------
(DOLLARS IN THOUSANDS) 6/30/00 6/30/99 12/31/99 12/31/98
------- ------- -------- --------
<S> <C> <C> <C> <C>
Interest income $4,410 $4,216 $8,575 $8,364
Interest expense 2,143 1,836 3,748 3,846
------- ------- -------- --------
Net interest income 2,267 2,380 4,827 4,518
Tax equivalent adjustment 208 181 387 235
------- ------- -------- --------
Net interest income (fully taxable equivalent) $2,475 $2,561 $5,214 $4,753
======= ======= ======= ========
</TABLE>
OTHER OPERATING EXPENSES. Other operating expenses of $2,034,000 for the six
months ended June 30, 2000, was $324,000 higher than for the same period in
1999. The primary increase was the result of expenses associated with the
proposed merger.
INCOME TAXES. Income tax expense totaled $186,000 and $257,000 for the six
months ended June 30, 2000 and June 30, 1999, respectively. These amounts
represent effective tax rates of 31.0% and 27.1%, respectively. The principal
reason for the increase in the effective tax rate is an increase in
nondeductible expenses.
MARKET FOR PEOPLES COMMON STOCK.
Peoples common stock is not listed or traded on a recognized securities exchange
or Nasdaq. It trades infrequently. As of June 30, 2000, there were approximately
305 shareholders of record. The last known transactions of which management is
aware occurred on July 14, 2000 at a price of $40.00 per share. Peoples has
historically paid cash dividends quarterly.
35
<PAGE>
SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PEOPLES
The following table sets forth information with respect to persons or
groups who, to Peoples' knowledge, own more than five percent of Peoples' common
stock outstanding as of August 18, 2000:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE(1) PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERS OF SHARES
------------------- -------------------- ---------
<S> <C> <C>
Citizens & Northern Corporation 95,794(2) 19.47%
P.O. Box 217
Wellsboro, PA 16901
G. Henry Turrell
P.O. Box 277 25,389(3) 6.19%
Wyalusing, PA 18853
E. Vinette Alderson 24,179(4) 5.89%
Leraysville, PA 18829
Kenneth H. Taylor, Jr. 35,229(5) 8.58%
c/o Peoples State Bank of Wyalusing, PA
P.O. Box 217
Wyalusing, PA 18853
---------------------
</TABLE>
(1) The securities beneficially owned by an individual are determined in
accordance with the definition of "beneficial ownership" in the General Rules
and Regulations of the Securities and Exchange Commission and may include
securities owned by or for the individual's spouse and minor children and any
other relative who has the same home, as well as securities to which the
individual has or shares voting or investment power or has the right to
acquire beneficial ownership within 60 days after August 18, 2000. Beneficial
ownership may be disclaimed as to certain of the securities.
(2) Includes 14,139 shares held by Citizens & Northern in street name and
includes 81,655 shares of Peoples common stock which may be deemed to be
owned by Citizens & Northern as a result of the stock option agreement. Under
the stock option agreement, Citizens & Northern currently does not have the
right to acquire any shares of Peoples' common stock unless specific events
occur. Accordingly, Citizens & Northern does not currently have sole or shared
voting or dispositive power with respect to the Peoples' shares of common stock
subject to the stock option, and Citizens & Northern, therefore, disclaims
beneficial ownership of such shares of Peoples' common stock until the events
allowing exercise occur.
(3) Includes 4,914 shares held individually by Mr. Turrell and 20,475 shares
held individually by his spouse.
(4) Includes 14,004 shares held individually by Mr. Alderson and 10,175 shares
held jointly with his spouse.
(5) Includes 20,238 shares held individually by Mr. Taylor, 291 shares held
by Mr. Taylor as co-executor for the Estate of Kenneth H. Taylor, Sr. and
14,700 shares held by a relative of Mr. Taylor over which Mr. Taylor's spouse
shares voting or investment power.
36
<PAGE>
The following table and the notes set forth as of August 18, 2000 the
number of shares of Peoples' common stock owned beneficially by each director
and the executive officer of Peoples. The number of shares of Peoples' common
stock beneficially owned by all named directors and executive officers as a
group represents 13.24 % of the outstanding Peoples' shares of common stock.
Except as otherwise indicated, each individual named has sole investment and
voting power with respect to the securities shown.
<TABLE>
<CAPTION>
Amount and Nature Percentage of Stock
Name of Individual Of Beneficial Ownership(1) Beneficially Owned
------------------ -------------------------- ------------------
<S> <C> <C>
Steven W. Moore 1,065(2) .26%
P. Dean Homer 325 .01%
Donald L. Sherwood 9,312(3) 2.27%
Kenneth H. Taylor, Jr. 35,229(4) 8.58%
Donald E. Abrey 1,450(5) .35%
Howard W. Visscher 7,260 1.77%
----- -----
Total 54,641 13.24%
</TABLE>
--------------------------
(1) The securities beneficially owned by an individual are determined in
accordance with the definition of "beneficial ownership" in the General Rules
and Regulations of the Securities and Exchange Commission and may include
securities owned by or for the individual's spouse and minor children and any
other relative who has the same home, as well as securities to which the
individual has or shares voting or investment power or has the right to acquire
beneficial ownership within 60 days after August 18, 2000. Beneficial ownership
may be disclaimed as to certain of the securities.
(2) Includes 485 shares held jointly by Mr. Moore and his spouse.
(3) Includes 4,584 shares held by Mr. Sherwood as Co-Trustee for the Estate of
Walter A. Sherwood.
(4) Includes 20,238 shares held individually by Mr. Taylor, 291 shares held
by Mr. Taylor as co-executor for the Estate of Kenneth H. Taylor, Sr. and
14,700 shares held by a relative of Mr. Taylor over which Mr. Taylor's spouse
shares voting or investment power.
(5) Includes 825 shares held jointly by Mr. Abrey and his spouse.
37
<PAGE>
THE PEOPLES SPECIAL MEETING
DATE, TIME AND PLACE
We are providing this proxy statement/prospectus to holders of Peoples
common stock as part of the board of directors solicitation of proxies for the
Peoples special meeting of shareholders to be held on __________, 2000 at _____
.m., at ___________________________, including any adjournments or reschedulings
of that special meeting. This proxy statement/prospectus and the accompanying
proxy card are first being mailed to Peoples shareholders on or about
____________, 2000.
PURPOSE OF THE PEOPLES SPECIAL MEETING
At the Peoples special meeting, shareholders will consider and vote upon
a proposal to approve and adopt the merger agreement and the related
transactions. No other business will be transacted at the Peoples special
meeting.
We are including a form of proxy with each copy of this proxy
statement/prospectus mailed to Peoples shareholders for use at the Peoples
special meeting. This proxy statement/prospectus also serves as a prospectus
from Citizens & Northern in connection with the issuance of Citizens & Northern
shares of common stock in exchange for Peoples common stock in the merger.
The Peoples board of directors unanimously approved the merger agreement
and the related transactions and recommends a vote FOR approval and adoption of
the merger agreement.
RECORD DATE; VOTING RIGHTS; PROXIES
Only Peoples shareholders who are holders at the close of business on
___________, 2000, which is the Peoples record date, will be entitled to notice
of and to vote at the Peoples special meeting.
As of ____________, 2000, there were _______ shares of Peoples common
stock issued and outstanding, each of which entitles the holder to one vote.
Shareholders may vote either in person or by proxy.
All shares of Peoples common stock represented by properly executed
proxies will be voted in accordance with the instructions indicated on those
proxies, unless those proxies have been previously revoked. If your shares of
common stock are represented by more than one properly executed proxy, the proxy
bearing the most recent date will be voted at the Peoples special meeting. IF
YOUR PROXY CARD DOES NOT INDICATE HOW YOU WANT TO VOTE, YOUR SHARES OF PEOPLES
COMMON STOCK WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
RELATED TRANSACTIONS.
If you give the proxy we are soliciting, you may revoke it at any time
before it is exercised by giving written notice to the Secretary of Peoples, by
signing and returning a later-dated proxy or
38
<PAGE>
by voting in person by ballot at the special meeting. You should note that your
presence at the Peoples special meeting without voting in person will not revoke
an otherwise valid proxy.
The persons named as proxies by a Peoples shareholder may propose and
vote for one or more adjournments of the special meeting, including adjournments
to permit further proxy solicitations. No proxy voted against the proposal to
approve the merger agreement will be voted in favor of any adjournment or
postponement.
Peoples does not expect that any matter other than the proposal to adopt
and approve the merger agreement will be brought before the Peoples special
meeting. If, however, the Peoples board of directors properly presents other
matters, the persons named as proxies will vote in accordance with their
judgment.
SOLICITATION OF PROXIES
Peoples will bear its own cost of solicitation of proxies and Citizens &
Northern has agreed to pay all printing and mailing expenses in connection with
this proxy statement/prospectus. In addition to solicitation by mail, Peoples'
directors, officers and employees may solicit proxies personally or by
telephone, facsimile transmission or otherwise. These directors, officers and
employees will not be additionally compensated for their solicitation efforts
but may be reimbursed for out-of-pocket expenses incurred in connection with
these efforts. Peoples will reimburse brokerage firms, fiduciaries, nominees and
others for their out-of-pocket expenses incurred in forwarding proxy materials
to beneficial owners of shares of common stock held in their names.
PEOPLES SHAREHOLDERS SHOULD NOT MAIL THEIR COMMON STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
ADJOURNMENT
In the event that there are not sufficient votes to constitute a quorum
or approve the adoption of the agreement at the time of the special meeting, the
agreement could not be approved unless the meeting was adjourned in order to
permit further solicitation of proxies. In order to allow proxies that Peoples
has received, at the time of the special meeting to be voted for the
adjournment, if necessary. Peoples has submitted the question of adjournment
under these circumstances to its shareholders as a separate matter for their
consideration. Peoples' Board of Directors recommends that shareholders vote
their proxies in favor of the adjournment proposal. Properly executed proxies
will be voted in favor of the adjournment proposal, unless otherwise indicated
on the proxy. If it is necessary, to adjourn the meeting, no notice of the time
and place of the adjourned meeting is required to be given to shareholders other
than an announcement of the time and place at the meeting.
QUORUM
To have a quorum at the Peoples special meeting, the holders of at
least a majority of the issued and outstanding shares of Peoples common stock
entitled to vote must be present either in person or by properly executed
proxy. Proxies or ballots that are marked "abstain" will be counted as shares
of common stock present for the purposes of determining the presence of a
quorum.
39
<PAGE>
REQUIRED VOTE
Under Peoples' articles of incorporation, shareholder approval and
adoption of the merger agreement requires the affirmative vote of 75% of the
outstanding shares of common stock by the shareholders entitled to vote at the
special meeting. For any shareholder vote to be valid, a quorum must be present
at the special meeting. If fewer shares of Peoples common stock are present in
person or by proxy than are necessary to constitute a quorum, we expect to
adjourn or postpone the special meeting to allow additional time for obtaining
additional votes or proxies. At any subsequent reconvening of the special
meeting, all proxies obtained before the adjournment or postponement will be
voted in the same manner as they would have been voted at the original convening
of the special meeting. However, any proxies which have been properly revoked or
withdrawn will not be voted.
A properly executed proxy marked "abstain" will not be voted on the
approval and adoption of the merger agreement but will count toward determining
whether a quorum is present. Brokers who hold shares of Peoples common stock in
"street name" for the beneficial owners of these shares cannot vote these shares
without specific instructions from the beneficial owners. Therefore, if you are
the beneficial owner of shares of Peoples common stock held by a broker in
"street name," you should sign, date and return your proxy card to the broker in
the envelope provided by the broker. If a broker indicates on the proxy that it
does not have discretionary authority as to shares of common stock to vote on a
particular matter, those shares of common stock will be considered as present
but not entitled to vote with respect to that matter. Because approval and
adoption of the merger agreement requires the affirmative vote of the holders of
at least 75% of outstanding shares of Peoples common stock entitled to vote, an
abstention, or, if your shares are held in "street name," your failure to
instruct your broker how to vote, will have the same effect as a vote against
the merger agreement.
As of August 18, 2000, Peoples directors and executive officers and their
affiliates beneficially owned an aggregate of 54,641 shares of Peoples common
stock. This number amounts to approximately 13% of the voting power of all
outstanding shares on that date. These directors have agreed to vote their
shares in favor of the proposal to merge with Citizens & Northern.
THE MATTERS TO BE CONSIDERED AT THE PEOPLES SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO YOU. THEREFORE, WE URGE YOU TO READ AND CONSIDER CAREFULLY THE
INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS. WE ALSO URGE YOU TO COMPLETE,
DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD USING THE ENCLOSED
POSTAGE-PAID ENVELOPE.
40
<PAGE>
THE PROPOSED MERGER
The following is a discussion of the merger and the material terms of the
merger agreement. We urge all shareholders to read the merger agreement that is
attached as Annex A.
BACKGROUND OF THE MERGER
The Peoples board of directors has, for several years and as part of its
long-range planning practices, periodically reviewed and evaluated the various
strategic options and alternatives available to maximize economic benefits for
Peoples and its shareholders. During this review process, Peoples considered:
- acquisition of other community-based financial institutions;
- acquisition of other financial services providers, such as
insurance companies, insurance agencies, brokerage firms and
financial planning groups; and
- affiliation with or combination with other like-minded
similar-sized institutions.
The board of directors determined, after concluding this process, that it
was in the best interests of the shareholders and the constituencies served by
Peoples to consider an affiliation with a larger, like-minded community-based
financial institution.
On June 29, 1999, Peoples engaged Ryan, Beck & Co. to evaluate Peoples'
financial position and to assist its board of directors in further assessing
their strategic options. On various dates in 1999, Ryan, Beck met with the board
of directors and discussed, generally, the available options. On January 19,
2000, the board of directors authorized Ryan, Beck to engage in preliminary
discussions with a number of financial institutions regarding a potential
affiliation or combination to form a stronger community-based institution
headquartered in northeast Pennsylvania.
On January 19, 2000 Ryan, Beck presented a financial review to the board
of directors. Ryan, Beck discussed the options available and specifics of
potential business combinations with a number of prospective parties, on a
pro-forma basis. At the conclusion of this meeting, the board of directors
authorized Ryan, Beck to solicit non-binding indications of interest from each
of the respective parties. From January 20, 2000 to February 25, 2000, Ryan,
Beck, with Peoples' assistance, prepared informational booklets to distribute to
financial institutions. Three companies submitted non-binding indications of
interest during the appropriate time frame.
On April 11, 2000, the board of directors reviewed each of the
non-binding indications of interest. The board of directors looked at the
advantages and disadvantages associated with each proposal and with each
proposing company. The Citizens & Northern proposal contained financial terms
that were superior, in both quantity and quality, to those of the other bidders.
After prolonged discussion regarding the advantages and disadvantages of each of
the proposals and the attributes of each proposing company, the board of
directors authorized Ryan, Beck to contact Citizens & Northern to discuss the
specific terms of their proposal. Through further
41
<PAGE>
discussions with Ryan, Beck and with Citizens & Northern, the parties negotiated
terms of the offer. The Peoples board of directors met on April 11, 2000, with
Ryan, Beck and counsel, to review, in detail, the terms of the Citizens &
Northern proposal. The board of directors discussed the advantages and
disadvantages of the proposal, as well as the benefits of the proposal to the
relevant constituencies, including:
- Peoples' shareholders;
- Peoples' customers;
- the communities served by Peoples; and
- Peoples' employees.
The board of directors also requested further clarification of certain
terms of the proposal.
On April 16, 2000, counsel for Citizens & Northern submitted an initial
draft of the agreement and plan of merger. The board of directors met on April
18, 2000 to review the agreement. The board of directors outlined particular
issues to clarify and asked that counsel negotiate these. The board of directors
authorized counsel to negotiate the specifics of the transaction with the
assistance of Donald Abrey, Peoples' President. These negotiations continued
from the week of April 23, 2000 to June 20, 2000. During the first two weeks of
June, numerous discussions were held between representatives of Peoples and of
Citizens & Northern, including their respective counsel. The issues discussed
included:
- representation on the board of directors of Citizens & Northern
and of Citizens & Northern Bank; and
- representation on the Executive Committee of Citizens & Northern
and of Citizens & Northern Bank.
The board of directors considered:
- the consideration to be received by Peoples shareholders (Citizens
& Northern common stock);
- the quality of the consideration (common stock of Citizens &
Northern);
- representation on the Citizens & Northern board of directors;
- representation on the Executive Committees of Citizens & Northern
and Citizens & Northern Bank;
- the continued employment of Donald E. Abrey with the resulting
company;
42
<PAGE>
- the treatment, for accounting purposes, of the transaction as a
pooling of interest; and
- the transaction's tax-free status to Peoples' shareholders
as principal elements that will enhance the transaction's benefits to Peoples'
shareholders and other constituencies, including its customers, community and
employees.
PEOPLES' REASONS FOR THE MERGER; RECOMMENDATION OF THE PEOPLES BOARD OF
DIRECTORS
In the course of reaching its decision to approve the merger agreement,
Peoples' board of directors consulted with Ryan, Beck and its legal counsel.
Peoples' board of directors believes the merger is fair to, and in the
best interests of, Peoples and its shareholders. In reaching these conclusions,
Peoples' board of directors considered a number of factors, including the
following:
- Peoples' current condition and historical operating results, and
its prospective results of operations if Peoples were to remain
independent;
- the economic, business and competitive climate for banking and
financial institutions in the northeastern Pennsylvania area, and
the challenges that Peoples faces as an independent bank in a
highly competitive market;
- the business, operations, earnings and prospects of Citizens &
Northern, the enhanced opportunity for efficiencies, particularly
from the integration of operations and support functions, and
growth that the merger would make possible;
- the opinion of Ryan, Beck that the exchange ratio established for
the merger is fair to Peoples' shareholders from a financial point
of view;
- the additional competitive products and services, such as trust
powers, that Peoples does not currently provide and which Peoples
shareholders and customers could gain as a result of the merger;
- the experience of Citizens & Northern's senior management team;
- the benefits of a tax-free exchange to Peoples' shareholders;
- Citizens & Northern's community support as evidenced by its
participation in cultural events and activities; and
- Citizens & Northern's commitment to and treatment of its employees
and those of Peoples who may join the combined companies.
43
<PAGE>
The list of factors considered by the Peoples board of directors is not
exhaustive, but we have highlighted the important factors considered. Individual
directors may have given different weights to these factors in reaching their
decision; however, Peoples' board of directors did not assign specific weights
or priority to any one factor.
Accordingly, Peoples' board of directors unanimously recommends that
shareholders vote FOR approval of the merger agreement.
FAIRNESS OPINION OF RYAN, BECK & CO., PEOPLES' FINANCIAL ADVISOR
Peoples retained Ryan, Beck on June 29, 1999 to act as its exclusive
financial advisor in connection with an evaluation of the strategic alternations
available to it. Ryan, Beck agreed to assist Peoples in soliciting indications
of interest in a business combination transaction and in analyzing, structuring,
negotiating and effecting any transaction. Peoples selected Ryan, Beck because
it is a nationally-recognized investment banking firm with substantial
experience in transactions similar to the merger and is familiar with Peoples
and its business. As part of its investment banking business, Ryan, Beck is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions.
Ryan, Beck participated in the negotiations with respect to the pricing
and other terms and conditions of the merger. However, the board of directors of
Peoples ultimately made the final decision as to the pricing of the merger.
Ryan, Beck rendered a written opinion to Peoples' board of directors on June 22,
2000 that, based on and subject to the assumptions, factors, and limitations as
set forth in the opinion and as described below, the exchange ratio is "fair" to
Peoples' shareholders from a financial point of view. Ryan, Beck reissued their
opinion as of the date of this proxy statement/prospectus. No limitations were
imposed by Peoples' 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 RYAN, BECK'S OPINION, WHICH SETS FORTH ASSUMPTIONS MADE
AND MATTERS CONSIDERED, IS ATTACHED AS ANNEX C TO THIS PROXY
STATEMENT/PROSPECTUS. SHAREHOLDERS OF PEOPLES ARE URGED TO READ THE ATTACHED
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 SHAREHOLDER AS TO HOW TO VOTE AT THE PEOPLES SPECIAL
SHAREHOLDER MEETING. THE SUMMARY OF THE RYAN, BECK OPINION IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION. IN RENDERING ITS OPINION, RYAN, BECK DOES NOT ADMIT THAT IT IS
AN EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS USED WITHIN THE SECURITIES
ACT OF 1933 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 connection with its opinion, Ryan, Beck reviewed the following
documents:
- the merger agreement and related documents;
- this proxy statement/prospectus;
44
<PAGE>
- Citizens & Northern's Annual Report to Shareholders and Annual
Report on Form 10-K for the years ended December 31, 1999, 1998
and 1997 and Citizens & Northern's Quarterly Reports on Form 10-Q
for the periods ended June 30, 2000, March 31, 2000, September 30,
1999, June 30, 1999 and March 31, 1999;
- Peoples' Annual Reports to Shareholders for the years ended
December 31, 1999, 1998 and 1997 and Peoples' Quarterly Call
Reports for the periods ended March 31, 2000, September 30, 1999,
June 30, 1999 and March 31, 1999;
- Peoples' proxy statements dated April 2, 1999, April 3, 1998 and
April 3, 1997;
- certain operating and financial information provided to Ryan, Beck
by the management of Peoples and Citizens & Northern relating to
their respective businesses and prospects;
- the publicly available financial data of commercial banking
organizations which Ryan, Beck deemed generally comparable to
Peoples;
- the publicly available financial data of commercial banking
organizations which Ryan, Beck deemed generally comparable to
Citizens & Northern;
- the historical and current market data for Citizens & Northern's
common stock; and
- the terms of recent acquisitions of commercial banking
organizations which Ryan, Beck deemed generally comparable in
whole or in part to Citizens & Northern's acquisition of Peoples.
Additionally, Ryan, Beck:
- conducted or reviewed such other studies, analyses, inquiries and
examinations as it deemed appropriate;
- analyzed Citizens & Northern's ability to consummate the merger;
- considered Peoples' future prospects in the event it remained
independent; and
- met with members of senior management of Peoples and Citizens &
Northern to discuss their respective operations, historical
financial statements, strategic plans and future prospects.
In connection with its review, Ryan, Beck relied upon and assumed,
without independent verification, the accuracy and completeness of the financial
and other information regarding Citizens & Northern and its subsidiaries and
Peoples and its subsidiaries provided to Ryan, Beck
45
<PAGE>
by Citizens & Northern and its representatives and/or Peoples and its
representatives. Ryan, Beck is not an expert in evaluating loan and lease
portfolios for purposes of assessing the adequacy of the allowances for losses.
Therefore, Ryan, Beck has not assumed any responsibility for making an
independent evaluation of the adequacy for the allowance for loan losses set
forth in the respective balance sheets of Citizens & Northern and Peoples at
March 31, 2000, and Ryan, Beck assumed such allowances were adequate and
complied fully with applicable law, regulatory policy, sound banking practice
and policies of the Securities and Exchange Commission as of the date of such
financial statements. Ryan, Beck has reviewed certain historical financial
statement data provided by Citizens & Northern and Peoples. Ryan, Beck also
discussed future prospects and performance with the managements of Citizens &
Northern and Peoples. Ryan, Beck assumed that these discussions reflected the
best currently available estimates and judgments of management. In certain
instances, for the purposes of its analyses, Ryan, Beck made adjustments to such
forecasts and projections that, in Ryan, Beck's judgment, were appropriate under
the circumstances. Ryan, Beck was not retained to, nor did it, make any
independent evaluation or appraisal of the assets or liabilities of Citizens &
Northern or Peoples or their respective subsidiaries nor did Ryan, Beck review
any loan files of Citizens & Northern, Peoples, or their respective
subsidiaries. Ryan, Beck also assumed that the merger in all respects is, and
will be, undertaken and consummated in compliance with all laws and regulations
that are applicable to Citizens & Northern and Peoples.
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 such analyses and the factors
considered therein, or any one method of analysis, without considering all
factors and analyses, could create an incomplete view of the analyses and the
process underlying Ryan, Beck's opinion. No one method of analysis was assigned
a greater significance than any other.
The forecasts and projections discussed with Ryan, Beck were prepared by
the managements of Citizens & Northern and Peoples without input or guidance by
Ryan, Beck. Citizens & Northern and Peoples do not publicly disclose internal
management projections of the type discussed with Ryan, Beck in connection with
the review of the merger. Such projections were not prepared with a view toward
public disclosure. The public disclosure of such projections could be misleading
since the projections were based on numerous variables and assumptions that are
inherently uncertain, including, without limitation, factors related to general
economic and competitive conditions. Accordingly, actual results could vary
significantly from those set forth in such projections.
In its analyses, Ryan, Beck made numerous assumptions with respect to
industry performance, general business and economic conditions, and other
matters, many of which are beyond the control of Citizens & Northern or Peoples.
Any estimates contained in Ryan, Beck's analyses are not necessarily indicative
of future results or values, which may be significantly more or less favorable
than such estimates. Estimates of values of companies do not purport to
46
<PAGE>
be appraisals nor do they necessarily reflect the prices at which companies or
their securities may actually be sold.
The following is a brief summary of the material analyses and procedures
performed by Ryan, Beck in the course of arriving at its opinion. This summary
does not purport to be a complete description, but is a brief summary of the
material analyses and procedures performed by Ryan, Beck in the course of
arriving at its opinion.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES: Ryan, Beck compared the
financial data for Peoples as of or for the latest 12 months ended December 31,
1999 to a peer group of 29 selected commercial banking organizations. The
criteria for the bank peer group were commercial banking organizations located
in Pennsylvania with assets between $100 million and $150 million. Ryan, Beck
deemed this group to be generally comparable to Peoples. The following table
compares selected statistics of Peoples with the average ratios and median
ratios for the 29 selected banks comprising the peer group:
<TABLE>
<CAPTION>
Peoples State Bank Peer Group Peer Group
of Wyalusing(1) Average(1) Median(1)
--------------- ---------- ---------
Capitalization
-----------------------------------------------
<S> <C> <C> <C>
Total Equity / Assets 11.01 % 9.92 % 9.38 %
Tier I Capital / Risk-Adj. Assets 17.68 17.70 14.69
Total Capital / Risk-Adj. Assets 18.92 18.81 15.77
Leverage Ratio 11.09 10.19 8.75
Asset Quality
-----------------------------------------------
Non-Performing Loans / Total Loans 0.52 0.67 0.46
Non-Performing Assets / Total Assets 0.67 0.81 0.51
Loan Loss Reserve / Non-Performing Assets 171.24 547.31 174.52
Net Charge-Offs / Average Loans 0.03 0.17 0.06
Loan & Deposit Composition
-----------------------------------------------
Total Real Estate Loans / Gross Loans 74.60 73.48 75.49
Commercial Loans / Gross Loans 11.38 10.34 8.67
Consumer Loans / Gross Loans 12.98 13.71 10.87
Demand Deposits / Deposits 13.52 12.19 11.55
Transaction Accounts / Deposits 23.65 24.77 23.89
MMDA & Other Savings Accounts / Deposits 27.55 28.18 25.40
Time Deposits GREATER THAN OR EQUAL TO $100k / Deposits 13.55 8.44 7.74
Time Deposits < $100k / Deposits 35.25 38.60 40.35
Performance
-------------------------------------------------------------
Return on Average Assets 1.25 0.90 0.95
Return on Average Equity 11.05 8.94 9.77
Non Interest Income / Average Assets 0.57 0.52 0.49
Non Interest Expense / Average Assets 3.06 2.87 2.79
Efficiency Ratio 64.56 67.83 69.59
Net Interest Margin 4.50 3.93 3.95
</TABLE>
(1) AT OR FOR THE LATEST 12 MONTHS.
Ryan, Beck noted that the performance of the peer group as measured by
return on average assets and return on average equity was lower than that of
Peoples and concluded that
47
<PAGE>
the difference likely was a result of Peoples' higher net interest margin. Ryan,
Beck also noted that Peoples' efficiency ratio, which is the ratio between its
non interest expense and its net interest income plus non interest income, was
lower than that of its peers as was Peoples' level of non-performing loans.
However, Peoples' loan loss reserve when measured as a percentage of
non-performing assets was lower than that of its peers.
Ryan, Beck also compared the financial data for Citizens & Northern as of
or for the latest 12 months ended March 31, 2000 to a peer group of 16 selected
commercial banking organizations. The criteria for the bank peer group were
publicly traded commercial banking organizations located in the Mid-Atlantic
region of the United States with assets between $550 million and $850 million.
Ryan, Beck deemed this group to be generally comparable to Citizens & Northern.
The following table compares selected statistics of Citizens & Northern with the
average ratios and median ratios for the 16 selected banks comprising the peer
group:
<TABLE>
<CAPTION>
CITIZENS & PEER GROUP PEER GROUP
NORTHERN BANK(1) AVERAGE(1) MEDIAN(1)
---------------- ----------- ----------
<S> <C> <C> <C>
CAPITALIZATION
----------------------------------------------
Total Equity/Assets 10.97% 8.28% 7.87%
Tangible Equity/Tangible Assets 10.97 7.72 6.89
Total Capital/Risk-Adj Assets 23.66 15.29 13.58
Total Borrowings/Total Assets 17.72 13.29 10.90
ASSET QUALITY
----------------------------------------------
Non-Performing Loans/Loans 0.63 0.50 0.38
Non-Performing Loans + 90 Days Past Due/Loans 0.96 0.64 0.54
Loan Loss Reserves/NPLs 261.88 368.56 271.35
Loan Loss Reserves/NPLs + 90 Days Past Due 172.51 312.77 200.20
Loan Loss Reserves/Loans 1.65 1.26 1.17
Non-Performing Assets/Assets 0.33 0.40 0.33
Non-Performing Assets + 90 Days Past Due/Assets 0.48 0.49 0.51
Non-Performing Assets/Equity 3.05 6.42 3.90
LOAN & DEPOSIT COMPOSITION
----------------------------------------------
Total Loans/Total Assets 44.31 61.98 64.02
Total Loans/Deposits 62.79 82.26 83.47
1-4 Family Loans/Total Loans 59.50 39.36 39.43
5+ Family Loans/Total Loans 0.68 1.74 0.62
Construction & Developmental Loans/Total Loans 0.21 4.77 1.14
Other Real Estate Loans/Total Loans 19.47 27.66 25.73
Real Estate Loans/Total Loans 79.85 73.53 77.99
Consumer Loans/Total Loans 9.37 9.89 5.92
Commercial Loans/Total Loans 5.81 13.60 14.27
Transaction Accounts/Deposits 23.56 19.58 20.47
Time Deposits > $100,000/Total Deposits 7.73 11.39 8.91
Core Deposits/Total Deposits 92.27 88.61 91.09
PERFORMANCE
----------------------------------------------
Return on Average Assets 1.58 1.08 1.05
Return on Average Equity 13.11 11.91 13.28
Net Interest Margin 3.77 4.20 4.13
Yield on Interest Earning Assets 7.55 7.78 7.66
Cost of Interest Bearing Liabilities 4.86 4.32 4.51
Non Interest Income/Average Assets 0.91 0.69 0.69
Non Interest Expense/Avg Assets 2.56 2.83 2.87
Occupancy & Equipment Expense/Avg Assets 0.29 0.46 0.42
Efficiency Ratio 56.79 60.33 58.96
MARKET STATISTICS
----------------------------------------------
Price/LTM EPS 10.95x 12.53x 10.85x
Price/Book Value 154.99% 139.93% 142.25%
Price/Tangible Book Value 154.99 154.83 155.14
Market Capitalization ($M) $119.73 $ 76.28 $ 73.56
Dividend Yield 4.17% 3.64% 3.91%
</TABLE>
(1) FOR THE LATEST 12 MONTHS PERIOD.
48
<PAGE>
Ryan, Beck noted that the performance of the peer group as measured
by return on average assets and return on average equity was lower than that
of Citizens & Northern. Ryan, Beck also noted that Citizens & Northern's
efficiency ratio was lower than that of its peers. Citizens & Northern's
level of non-performing loans was higher than that of its peers.
Additionally, Citizens & Northern's loan loss reserve when measured as a
percentage of non-performing loans, was lower than that of its peers.
Citizens & Northern's loans to total assets ratio, as well as its loan to
deposit ratio, are well below that of its peers, which suggests an unusually
large investment portfolio compared to that of its peers. Ryan, Beck also
noted that Citizens & Northern's 1-4 family loans make up a larger percentage
of total loans than that of the peer group's. Ryan, Beck concluded that this
probably accounts for Citizens & Northern's yield on interest earning assets
being lower than its peers and its net interest margin being lower than that
of its peers. Ryan, Beck observed that Citizens & Northern common share price
as a multiple of latest 12 month earnings was less than the peer group
average and price to book value was greater than that of the peer group
median and average. Ryan, Beck noted that Citizens & Northern's earnings in
the year 2000 are likely to be less than those reported in 1999 because of
net interest margin compression.
ANALYSIS OF SELECTED TRANSACTIONS: Ryan, Beck compared Peoples'
financial data as of December 31, 1999 with that of a group of 24 selected
commercial banking organizations being acquired in transactions announced since
January 1, 1999 and for which pricing data pertaining to the transactions was
publicly available. Ryan, Beck deemed these transactions generally comparable to
Citizens & Northern's acquisition of Peoples. The criteria for the group were
commercial banks that had return on average equity of between 0% and 15% and
assets between $100 million and $150 million. The following table compares
selected statistics of Peoples with the median ratios and average ratios for the
24 commercial banking organizations in these transactions:
<TABLE>
<CAPTION>
SELLER'S SELLER'S
----------------------------------------- --------------------------------------------------------------
TANG LTM
TOTAL TOTAL EQTY/ YTD YTD NPAS/ OPER EXP/ EFFIC.
ASSETS DEPOSITS ASSETS ROAA ROAE ASSETS AVG ASSETS RATIO
($000) ($000) (%) (%) (%) (%) (%) (%)
------------------------------------------ --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average 126,591 106,063 9.67 0.98 9.70 0.62 3.47 66.56
Median 128,144 108,826 9.61 1.05 11.17 0.34 3.40 66.08
PEOPLES 119,227 93,082 10.46 1.25 11.05 0.45 3.06 64.62
</TABLE>
Assuming a transaction value of $58.59 per share, determined by
multiplying the exchange ratio by the average of the closing bid and asked
prices of Citizens & Northern shares of common stock on June 19, 2000, Ryan,
Beck calculated the transaction value as a multiple of Peoples' December 31,
1999 book value, tangible book value, latest 12 months diluted earnings and core
deposit premium over tangible equity as follows:
<TABLE>
<CAPTION>
<S> <C>
Percentage of Stated Book Value: 183.18%
Percentage of Tangible Book Value: 194.01%
Multiple of Earnings: 16.98x
Deposit Premium on Tangible Equity: 14.48%
</TABLE>
49
<PAGE>
The average and median pricing ratios for the comparable transactions are
illustrated in the chart below:
<TABLE>
<CAPTION>
CORE
PRICE/ DEPOSIT
PRICE/ TANGIBLE PRICE/ PREMIUM
PEER BOOK BOOK LTM ON TANGIBLE
GROUP VALUE VALUE EARNINGS EQUITY
------------ ------------ -------------- -------------- ----------------
<S> <C> <C> <C> <C>
AVERAGE 206.73 210.11 21.33 15.58
MEDIAN 208.96 209.26 20.59 16.05
</TABLE>
Ryan, Beck then adjusted the peer group statistics to reflect the change
in the Nasdaq Bank Stock Index from the date of announcement of each stock
transaction to the closing value of the index on June 19, 2000. The adjusted
average and median pricing ratios for the comparable bank transactions are
illustrated in the chart below:
<TABLE>
<CAPTION>
CORE
PRICE/ DEPOSIT
PRICE/ TANGIBLE PRICE/ PREMIUM
PEER BOOK BOOK LTM ON TANGIBLE
GROUP VALUE VALUE EARNINGS EQUITY
--------------------- ----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
AVERAGE 185.50 188.55 19.16 13.98
MEDIAN 179.70 179.70 18.25 13.87
CITIZENS & 183.18 194.01 16.98 14.48
NORTHERN/
PEOPLES
</TABLE>
The imputed value of Peoples, based upon the adjusted average and
median ratios of the comparable transactions, when applied to Peoples' book
value, tangible book value, latest 12 month earnings and core deposits resulted
in the acquisition values of Peoples shown in the chart below:
<TABLE>
<CAPTION>
CORE
PRICE/ DEPOSIT
PRICE/ TANGIBLE PRICE/ PREMIUM
PEER BOOK BOOK LTM ON TANGIBLE
GROUP VALUE VALUE EARNINGS EQUITY
--------------------- ----------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
AVERAGE $59.33 $56.94 $66.12 $57.60
MEDIAN 57.48 54.27 62.96 57.39
</TABLE>
50
<PAGE>
No company or transaction used in the ANALYSIS OF SELECTED PUBLICLY
TRADED COMPANIES AND ANALYSIS OF SELECTED TRANSACTIONS sections is identical to
Citizens & Northern, Peoples, or the merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies involved, market areas in which the companies
operate and other factors that could affect the trading values of the securities
of the company or companies to which they are being compared.
IMPACT ANALYSIS: Ryan, Beck analyzed the merger in terms of its effect on
Citizens & Northern's projected 2000 and 2001 earnings per share, current stated
book value and tangible book value, based on information provided by both
managements. Based upon certain assumptions, including those with respect to
cost savings and other synergies from the merger and earnings projections
provided by Citizens & Northern and Peoples, and based on Peoples' projected
2000 and 2001 projected earnings, the analysis showed that the merger would be
accretive to Citizens & Northern's 2000 earnings per share by 4.65%, accretive
to projected 2001 earnings per share by 4.05%, dilutive to stated book value per
share by 3.57% and dilutive to tangible book value per share by 4.36%. Ryan,
Beck analyzed the merger on Citizens & Northern values per share of Peoples
common stock based upon the exchange ratio of 2.5 Citizens & Northern shares of
common stock for each Peoples share of common stock using pro forma projected
2000 fiscal year earnings per share, pro forma projected 2001 fiscal year
earnings per share, pro forma stated book value per share and dividends per
share at March 31, 2000. That analysis found that, based on the exchange ratio,
Peoples' equivalent projected 2000 earnings per share would increase by
approximately 15.40%, projected 2001 earnings per share would increase by
approximately 11.84% and stated book value would increase by approximately
17.48%. Additionally, Peoples shareholders, based upon Citizens & Northern's
current dividend level, would receive annual dividends of $2.40 per share as
compared to $1.40, an increase of 71.43%. This analysis was based upon certain
assumptions, including those with respect to synergies and other cost savings
from the merger and the stand-alone earnings of Peoples and Citizens & Northern.
These forward-looking projections may be affected by many factors beyond the
control of Peoples and/or Citizens & Northern, including the future direction of
interest rates, economic conditions in the companies' market place, the actual
amount and timing of cost savings achieved through the merger, the actual level
of revenue enhancements brought about through the merger, future regulatory
changes and various other factors. The actual results achieved may vary from the
projected results and the variations may be material.
DISCOUNTED DIVIDEND ANALYSIS: Using a discounted dividend analysis,
Ryan, Beck estimated the present value of the future dividend stream that
Peoples could produce in perpetuity. Projection ranges for Peoples' five-year
balance sheet and income statement were provided by Peoples' management.
Management's projections were based upon various factors and assumptions,
many of which are beyond the control of Peoples. These projections are, by
their nature, forward-looking and may differ materially from the actual
future values or actual future results for the reasons discussed above. The
actual future values or results may be significantly more or less favorable
than suggested by such projections. In producing a range of per share Peoples
values, Ryan, Beck utilized the following assumptions: discount rates range
from 13% to 15 %, terminal price/earnings multiples range from 12x to 14x
(which, when
51
<PAGE>
applied to terminal year estimated earnings, produces a value which
approximates the net present value of the dividends in perpetuity, given
certain assumptions regarding growth rates and discount rates) and earnings
that include estimated savings in Peoples' non-interest expense equal to 25%
in the first year, and 30% in the second year, with 5% growth thereafter. The
discounted dividend analysis produced the range of net present values per
share of Peoples common stock illustrated in the chart below:
<TABLE>
<CAPTION>
DISCOUNT RATE: 13% 14% 15%
-------------- -----------------------------------------
<S> <C> <C> <C> <C>
Terminal Year 12 $57.04 $55.12 $53.30
Multiple of
Earnings 13 $59.75 $57.71 $55.77
Adj. for Goodwill
Amortization 14 $62.47 $60.30 $58.24
-----------------------------------------
</TABLE>
These analyses do not purport to be indicative of actual values or expected
values or an appraisal range of Peoples shares of common stock. The discounted
dividend analysis is a widely used valuation methodology, but Ryan, Beck noted
that it relies on numerous assumptions, including expense savings levels,
dividend payout rates, terminal values and discount rates, the future values of
which may be significantly more or less than such assumptions. Any variation
from these assumptions would likely produce different results.
BREAK-EVEN ANALYSIS: Using a break-even analysis, Ryan, Beck estimated
the earnings per share growth rate necessary for the present value of Peoples'
stock price to equal the value of the merger consideration. In producing the
earnings growth rate, Ryan, Beck used the following assumptions: 2000 EPS
estimate of $3.48, discount rates range from 13% to 19%, terminal price/earnings
multiples range from 12x to 20x, and a dividend payout ratio of 36%. The
break-even analysis produced the range of five-year earnings growth rates
illustrated in the chart below:
<TABLE>
<CAPTION>
TERMINAL YEAR DISCOUNT RATE
MULTIPLE OF -----------------------------------------------------------------------
EARNINGS 13.0% 15.0% 17.0% 19.0%
--------------- -------------- --------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
12.0 X 22.0 % 24.6 %
MARKET
MULTIPLES
14.0 X 18.0 % 20.6 %
18.0 X 16.5% 18.9%
ACQUISITION
MULTIPLES
20.0 x 13.7% 16.1%
</TABLE>
Ryan, Beck noted that Peoples' strategic plan called for earnings
growth rates less than those indicated above. These analyses do not purport
to be indicative of actual values or expected values or an appraisal range of
the shares of Peoples common stock. The break-even analysis is a widely used
valuation methodology, but Ryan, Beck noted that it relies on numerous
assumptions, including projected earnings, price/earnings multiples, discount
rates, dividend payout ratio and Citizens & Northern's $58.59 offer per share
to Peoples' shareholders, the
52
<PAGE>
future values of which may be significantly more or less than such
assumptions. Any variation from these assumptions would likely produce
different results.
Ryan, Beck's opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed as of the
date of the opinion. Ryan, Beck did not and does not express any opinion as to
the price or range of prices at which Citizens & Northern common stock might
trade subsequent to the merger. Events occurring after such date could
materially affect the assumptions and conclusions contained in Ryan, Beck's
opinion. Ryan, Beck has not undertaken to reaffirm or revise its opinion or
otherwise comment upon any events occurring after the date of its opinion.
Peoples agreed to pay Ryan, Beck a transaction fee for its services in
connection with the merger, a substantial portion of which is contingent upon
the consummation of the merger. Peoples will pay Ryan, Beck a total fee of
approximately $240,000, of which $140,000 has been paid and the remainder of
which will be paid when the merger is consummated. In addition, Peoples has
agreed to reimburse Ryan, Beck for its reasonable out-of-pocket expenses, which
can not exceed $10,000 without the prior consent of Peoples. Peoples has also
agreed to indemnify Ryan, Beck and other related persons against certain
liabilities, including liabilities under federal securities law, incurred in
connection with its services. The amounts of Ryan, Beck's fees were determined
by negotiation between Peoples and Ryan, Beck.
Prior to this engagement, Ryan, Beck has not had an investment banking
relationship with Peoples or Citizens & Northern. Ryan, Beck's research
department does not provide published investment analysis on Peoples or Citizens
& Northern, nor does Ryan, Beck make a market in Peoples' common stock. However,
Ryan, Beck does make a market in Citizens & Northern's common stock.
CITIZENS & NORTHERN'S REASONS FOR THE MERGER
The board of directors and management of Citizens & Northern believe that
the merger is fair and in the best interests of the Citizens & Northern
shareholders. At an April 18, 2000 meeting, the Citizens & Northern board of
directors approved the merger proposal and its related transactions. We have set
forth below all the material factors that the Citizens & Northern board of
directors considered in reaching its decision to approve the merger proposal:
- the consistency of the merger with Citizens & Northern's strategic
objectives;
- the familiarity of Citizens & Northern's board of directors with
and review of its and Peoples' business, financial condition,
results of operations and prospects, including but not limited to
its potential growth, development, productivity and profitability;
- the recognition of the adjacency and overlap of the markets served
and the products offered by Citizens & Northern and Peoples and
the expectation that the merger would provide economies of scale,
expanded product offerings, expanded opportunities for
cross-selling, cost savings opportunities and enhanced
opportunities for growth, including an expanded pool of
acquisition targets;
53
<PAGE>
- the similarity between Citizens & Northern's and Peoples'
philosophy and commitments to their respective employees,
suppliers, creditors and customers, the effect of the merger on
those constituencies, and other community and societal
considerations;
- the review by Citizens & Northern's board of directors, with its
legal and financial advisors, of the provisions of the merger
agreement and the stock option agreement;
- the current and prospective environment in which each of Citizens
& Northern and Peoples operates, including national and local
conditions, the competitive environment for banks and other
financial institutions generally, the increased regulatory burden
on financial institutions generally and the trend toward
consolidation and increased competition in the financial services
industry, both in the Northeast and elsewhere;
- the review by Citizens & Northern's board of directors, based in
part on presentations by its management and advisors, of the
business, financial condition, results of operations and
management of Peoples, the strategic fit between the parties, and
the enhanced opportunities for operating efficiencies that could
result from the merger;
- the opportunity that the merger provides to strengthen and deepen
the management team of the combined entity;
- the expectation that the merger will generally be a tax-free
transaction to Peoples and its shareholders and will qualify for
pooling of interests accounting treatment, see "Material Federal
Income Tax Considerations" and "Accounting Treatment"; and
- the recognition of various financial benefits accompanying the
merger, including the belief that the merger would be accretive to
projected earnings per share in the first full year of post-merger
operations, that the combined projected organization would be well
capitalized and have strong asset quality and that the combined
organization may have a higher potential for earnings and book
value multiples expansion.
Because of the variety of factors considered in connection with its
evaluation of the merger, the Citizens & Northern board of directors did not
find it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination.
Individual members of the Citizens & Northern board of directors may have
assigned different weights to different factors.
BOARD OF DIRECTORS AND MANAGEMENT OF CITIZENS & NORTHERN FOLLOWING THE MERGER
If the merger is completed, Kenneth Taylor, currently the Chairman and
a Director of Peoples, and Donald Abrey, currently the President, Chief
Executive Officer, Treasurer and a Director of Peoples, will be appointed to
fill vacancies on the Citizens & Northern board of directors for terms of
office expiring in 2003. Upon the expiration of their initial terms, Citizens
& Northern will submit their names for consideration as director nominees for
an additional three
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year term. Citizens & Northern's current executive management will continue
in their positions following the merger.
BOARD OF DIRECTORS AND MANAGEMENT OF CITIZENS & NORTHERN BANK FOLLOWING THE
SUBSIDIARY MERGER
Immediately following the merger, Peoples State Bank of Wyalusing, Pa.
will merge with Citizens & Northern Bank, assuming that all necessary regulatory
approvals are received. At the first Citizens & Northern Bank board of directors
meeting following the subsidiary merger Donald Abrey and Kenneth Taylor will be
appointed to fill vacancies on the Citizens & Northern Bank board of directors
for terms of office expiring in 2003. Upon the expiration of their initial
terms, Citizens & Northern Bank will submit their names to its executive
committee for consideration as director nominees for an additional three year
term. Citizens & Northern Bank's current executive management will continue in
their positions following the merger. Following the merger of Citizens &
Northern Bank and Peoples State Bank of Wyalusing, Pa., members of Peoples'
Board of Directors who did not become members of Citizens & Northern's or
Citizens & Northern Bank's board of directors shall be given the opportunity to
serve on an Advisory Board of Directors for the Wyalusing, Pennsylvania area.
INTERESTS OF PEOPLES' DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER
In connection with the merger, in addition to the interests of
Peoples' Board of Directors arising from their continuing service on Citizens
& Northern Board or Directors or Advisory Board, as described above, you
should be aware that Donald Abrey and Douglas Brown, Peoples' executive
officers, each have an interest in the merger that is somewhat different than
your interests. In the case of Donald Abrey, this interest arises out of
rights he has pursuant to an Executive Employment Agreement dated May 15,
2000, as amended, among Mr. Abrey, Peoples and Peoples State Bank of
Wyalusing, an Executive Indexed Retirement Agreement between Mr. Abrey and
Peoples State Bank of Wyalusing, and a Split Dollar Agreement between Mr.
Abrey and Peoples State Bank of Wyalusing. Mr. Brown's interest arises out of
rights he has pursuant to an Executive Indexed Retirement Agreement between
Mr. Brown and Peoples State Bank of Wyalusing, and a Split Dollar Agreement
between Mr. Brown and Peoples State Bank of Wyalusing.
MR. ABREY'S EMPLOYMENT AGREEMENT. Mr. Abrey's Executive Employment Agreement, as
amended, contains certain change of control provisions. Pursuant to the
agreement, Mr. Abrey is entitled to receive, at the effective time of the
merger, from Peoples and/or Peoples State Bank of Wyalusing, Pa. and/or Citizens
& Northern Corporation, a lump sum payment equal to 2.99 times his highest
annual compensation, including cash bonuses, which he received during the
preceding three year period.
In addition, Mr. Abrey's amended employment agreement provides:
- for a term of two years beginning on January 1, 2000 and ending on
December 31, 2001, with the option to renew for an additional term
of one year on the mutual agreement of Mr. Abrey, Peoples and
Peoples State Bank of Wyalusing, Pa.;
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for a base salary of $110,000 per year, which will be reviewed
annually and subject to annual change (but which shall not be reduced below
$110,000) and an annual discretionary bonus;
- for compensation for attendance at Board meetings and an annual
stipend for Board service;
- that Mr. Abrey's position is President and Chief Executive Officer
of Peoples and Peoples State Bank of Wyalusing, Pa.;
- that at the effective time of the merger, Mr. Abrey's position be
Senior Vice President of Citizens & Northern Bank and Senior Vice
President and Chief Executive Officer of Citizens & Northern
Financial Services Corporation;
- that if Mr. Abrey terminates his employment because of his health,
or if his employment is terminated because of Mr. Abrey's death,
disability, or for cause, Mr. Abrey is entitled to his full annual
direct salary through the date of termination at the rate in
effect at the time of his termination;
- that if Mr. Abrey's employment is terminated other than for cause,
disability, or death, he shall be paid his annual direct salary
from the date of termination through the term of Mr. Abrey's
agreement or an amount equal to his annual direct salary,
whichever is greater; and
- that if Mr. Abrey terminates his employment for good reason or his
employment is terminated other than for cause, Peoples and/or
Peoples State Bank of Wyalusing, Pa. and/or Citizens & Northern
Corporation shall continue all employee benefit plans and programs
to which Mr. Abrey was entitled prior to the date of termination,
with the exception of unaccrued vacation, holidays, sick days,
personal days, business expenses, and reimbursements for use of
his personal vehicle, through the term of Mr. Abrey's agreement.
These benefits include health, medical, life and disability
insurance coverage, participation in the pension plan,
profit-sharing plan and savings plans.
EXECUTIVE INDEXED RETIREMENT AGREEMENTS. Peoples' Board of Directors
entered into discussions in October 1999 to provide Executive Indexed
Retirement Agreements to Peoples' executive officers. Each of the Executive
Indexed Retirement Agreements contains change in control language such that
the merger constitutes a change in control for purposes of such agreements.
Under Mr. Abrey's Executive Indexed Retirement Agreement, the noncompetition
provisions that provide for the forfeiture of benefits if he competes with
Peoples after his termination of employment, will not apply to Mr. Abrey
after a change in control. Under Mr. Brown's Executive Indexed Retirement
Agreement, Mr. Brown will become 100% vested in his benefits and will no
longer be subject to the noncompetition provisions that provide for the
forfeiture of benefits if he competes with Peoples after his termination of
employment, following a change in control.
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SPLIT DOLLAR AGREEMENTS. Peoples' Board of Directors entered into
discussions in October 1999 to provide Split Dollar Agreements to Peoples'
executive officers. Each of the Split Dollar Agreements contains change in
control language so that the merger constitutes a change in control for
purposes of these agreements. Under Mr. Abrey's Split Dollar Agreement, the
noncompetition provisions that provide for the forfeiture of benefits if he
competes with Peoples after his termination of employment, will not apply to
Mr. Abrey after the change in control. Under Mr. Brown's Split Dollar
agreement, Mr. Brown will be entitled to the maximum amount of net proceeds
after the change in control, and the noncompetition provisions that provide
for the forfeiture of benefits if he competes with Peoples after his
termination of employment, will not apply to Mr. Brown after the change in
control.
INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. Citizens & Northern
has agreed to indemnify, defend and hold harmless the current and former
directors, officers and employees of Peoples and its subsidiaries against all
costs, expenses (including reasonable attorneys fees), judgments, fines, losses,
claims, damages or liabilities arising from acts or omissions occurring at or
before the effective date, to the fullest extent permitted by Pennsylvania law
and Peoples' articles of incorporation and by-laws.
Citizens & Northern has also agreed that, for a period of six years from
the effective date of the merger, it will use its reasonable best efforts to
provide directors' and officers' insurance for the present and former officers
and directors of Peoples with respect to claims arising from facts or events
occurring prior to the effective date.
DIRECTORS. Peoples' Board of Directors entered into discussions in
October 1999 to provide Split Dollar Agreements to the Directors. Each of
Donald Abrey, James Chadwick, P. Dean Homer, Steven Moore, Kenneth Taylor,
and Howard Visscher (the Directors of Peoples State Bank of Wyalusing, Pa.)
entered into a Director Split Dollar Agreement with Peoples State Bank of
Wyalusing, Pa. in April, 2000. Each of the Director Split Dollar Agreements
contains change in control language so that the merger constitutes a change
in control for purposes of these agreements. Under each of these agreements,
the noncompetition provisions that provide for the forfeiture of benefits if
the Director competes with Peoples after his termination of Director
services, will not apply after the change in control.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the anticipated material federal
income 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. We include the opinion of Shumaker Williams, P.C., Special
Counsel to Peoples, as to the income tax consequences of the merger as an
exhibit to the registration statement of which this proxy
statement/prospectus forms a part. Shumaker Williams, P.C. assumed that the
merger and related transactions will take place as described in the
agreement. 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 transactions
and/or
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any sale of Citizens & Northern common stock received in the merger. We do
not anticipate that the tax law will change before completion of the merger.
The following is a summary of the opinion of Shumaker Williams, P.C.:
- The merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code;
- Neither Peoples nor Citizens & Northern will recognize gain or
loss in the merger;
- Shareholders of Peoples will not recognize any gain or loss upon
their receipt of Citizens & Northern common stock in exchange for
their Peoples common stock, except shareholders who receive cash
proceeds received for fractional interests and shareholders
exercising dissenters rights will recognize gain or loss equal to
the difference between the proceeds and the tax basis allocated to
their fractional share interests, and the gain or loss will
constitute capital gain or loss if their Peoples common stock is
held as a capital asset at the effective date of the merger;
- The tax basis of the shares of Citizens & Northern common stock,
including fractional share interests, that Peoples shareholders
receive in the merger will be the same as the tax basis of their
original shares of Peoples common stock exchanged for Citizens &
Northern common stock, less any basis allocable to fractional
share interests; and
- The holding period of the Citizens & Northern common stock Peoples
shareholders receive in the merger will include the holding period
of their original shares of Peoples common stock, provided they
hold their Peoples common stock as a capital asset at the time of
the merger.
- Pursuant to Section 381(a) of the Code and related Treasury
Regulations, Citizens & Northern will succeed to and take into
account the items of Peoples described in Section 381(c) of the
Code. Those items will be taken into account by Citizens &
Northern subject to the conditions and limitations of Sections
381, 382, 383 and 384 of the Code and Treasury Regulations
thereunder.
This is not a complete description of all the federal income tax consequences
of the merger and, in particular, does not address tax considerations that
may affect the treatment of shareholders who acquired their Peoples common
stock pursuant to the exercise of employee stock options or otherwise as
compensation, or shareholders that are exempt organizations or who are not
citizens or residents of the United States. Your individual circumstances may
affect the tax consequences of the merger to you. In addition, we have not
provided you with information with respect to the tax consequences of the
merger under applicable state, local or foreign laws. We urge you to consult
a tax advisor as to the specific tax consequences of the merger to you.
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ACCOUNTING TREATMENT
We expect that the merger will be accounted for as a pooling of interests
transaction in accordance with generally accepted accounting principles. The pro
forma results of this accounting treatment are shown in the "Unaudited Pro Forma
Condensed Combined Financial Statements" on page 79.
As noted below, as a condition to each party's obligation to complete the
merger, Citizens & Northern and Peoples must receive a letter from Parente
Randolph stating its opinion that the merger will qualify as a pooling of
interests transaction under generally accepted accounting principles. Under the
pooling of interests method of accounting, the historical basis of the assets
and liabilities of Citizens & Northern and Peoples will be combined at the
effective date of the merger and carried forward at their previously recorded
amounts and the shareholders' equity accounts of Citizens & Northern and Peoples
will be combined on Citizens & Northern's consolidated balance sheet. Income and
other financial statements of Citizens & Northern issued after the closing of
the merger will be restated retroactively to reflect the combined operations of
Citizens & Northern and Peoples as if the merger had taken place prior to the
periods covered by those financial statements. In order for the merger to
qualify for pooling of interests accounting treatment, 90% or more of the
outstanding Peoples shares of common stock must be exchanged for Citizens &
Northern shares of common stock with substantially similar terms. Other criteria
must also be satisfied in order for the merger to qualify as a pooling of
interests, some of which cannot be satisfied until after the effective time of
the merger. For example, a company is generally precluded from using pooling
accounting for a just-completed merger if treasury shares acquired within six
months after the effective time of the merger, when combined with shares
otherwise considered to preclude pooling treatment, exceed 10% of the number of
shares issued in the merger, unless the acquisition of such shares is part of a
previously established systematic plan meeting appropriate criteria.
Furthermore, in order to qualify for pooling of interests accounting treatment,
no affiliate of either Citizens & Northern or Peoples may reduce his or her risk
relative to Citizens & Northern shares of common stock until financial results
covering at least 30 days of post-merger combined operations have been
published. In the event these conditions are not met, the merger would not be
closed unless the treatment of a pooling of interests was waived by Citizens &
Northern and Peoples In that event, we would need to redistribute this proxy
statement/prospectus to reflect the accounting for the transaction as a
purchase.
EFFECT OF THE MERGER ON EMPLOYEE BENEFIT PLANS
The existing employees of Peoples will have the opportunity to
continue as employees of Citizens & Northern or one of its subsidiaries on
the effective date; subject, however, to the right of Citizens & Northern and
its subsidiaries, in their discretion, not to extend offers of employment to
any such employees. Prior to the effective date, Peoples will be responsible
for any and all obligations owing to any of its employees who do not become
employees of Citizens & Northern and its subsidiaries, including but not
limited to back pay, bonus, severance, unemployment compensation and the
like. Peoples will not enter into any severance agreement except pursuant to
written severance policies which were in effect prior to contemplation of the
merger and except for Donald Abrey's Executive Employment Agreement.
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From and after the effective date, Peoples employees will continue to
participate in the Peoples' employee benefit plans in effect at the effective
date unless and until Citizens & Northern, in its sole discretion, determines
that Peoples employees may, subject to applicable eligibility requirements,
participate in employee benefit plans and that all or some of the Peoples plans
will terminate or merge into certain Citizens & Northern employee benefit plans.
Notwithstanding the foregoing, each Peoples employee will be credited with years
of Peoples (or predecessor) service for purposes of eligibility and vesting in
employee benefit plans. Citizens & Northern will provide or allow severance
payments to Peoples employees (other than employees whose severance benefits are
provided for in written employment agreements) whose employment is terminated
(other than for cause) on or after the effective date and before the expiration
of six months following the effective date, in the amount equal to one week for
each year of service with Peoples, up to a maximum of 13 weeks. In computing
these severance payments for non-exempt, full time employees, overtime and bonus
are excluded. In computing the severance payments for non-exempt regular part
time employees, the weekly compensation will be based on 1/52 of the employee's
total salary, excluding overtime and bonus, paid in 1999. For full time exempt
employees, weekly compensation is calculated by taking 1/52 of the employee's
1999 annual salary, excluding bonus.
Prior to the effective date of the merger, Peoples will not enter into,
establish, adopt or amend any employee benefit plans except:
- to satisfy previously disclosed contractual obligations;
- to satisfy the regular annual renewal of insurance contracts, any
pension, retirement, stock option, stock purchase, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance
or other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement (or similar arrangement)
related thereto, in respect of any director, officer or employee
of Peoples or its subsidiaries, or take any action to accelerate
the vesting or exercisability of stock options, restricted stock
or other compensation or benefits payable thereunder; or
- to comply with applicable law or regulation.
Peoples maintains various employee benefit plans in which eligible
employees of Peoples and its subsidiaries participate. Specifically, Peoples
maintains the following benefit plans:
- 401k pension plan,
- health coverage,
- dental insurance,
- short-term disability insurance,
- long-term disability insurance, and
- group life and AD&D insurance.
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In addition, Peoples State Bank of Wyalusing has the following benefits:
- family death policy,
- jury duty,
- employee loan program, and
- discretionary end of the year bonuses.
EXPENSES OF THE MERGER
Citizens & Northern and Peoples will each bear all their own respective
expenses incurred in connection with this merger and related transactions
contemplated hereby, except that the cost of printing and mailing this proxy
statement/prospectus will be paid by Citizens & Northern. All fees to be paid to
regulatory authorities and the Securities and Exchange Commission in connection
with the merger and related transactions will be paid by Citizens & Northern.
REGULATORY APPROVALS
Citizens & Northern will file the application necessary to obtain
approval for the merger from the Federal Deposit Insurance Corporation. The
merger may not be consummated for up to 15 days after approval by the Federal
Deposit Insurance Corporation. Citizens & Northern will make required notice
filings with the Federal Reserve Board and also will make the applications
necessary to obtain approval for the merger from Pennsylvania Department of
Banking.
RESALE OF CITIZENS & NORTHERN COMMON STOCK
No restrictions on the sale or other transfer of the shares of Citizens &
Northern common stock issued pursuant to the merger will be imposed solely as a
result of the merger, except for restrictions on the transfer of shares of
common stock issued to any Peoples shareholder who is deemed to be a Peoples
"affiliate" for purposes of Rule 145 under the Securities Act of 1933.
Generally, "affiliates" of Peoples include its officers, directors and
significant shareholders. The merger agreement requires Peoples to cause persons
who could be considered to be affiliates to enter into an agreement with
Citizens & Northern stating that these affiliates will not sell, pledge,
transfer or otherwise dispose of the shares of Citizens & Northern common stock
they acquire except in compliance with the Securities Act of 1933 and its
related rules and regulations. Sales of shares of Citizens & Northern common
stock by affiliates of Citizens & Northern are subject to similar transfer
restrictions.
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Peoples affiliates may resell the shares of Citizens & Northern common
stock they receive in the merger only:
- in transactions permitted by Rule 145 promulgated under the
Securities Act of 1933;
- pursuant to an effective registration statement; or
- in transactions exempt from registration.
Rule 145, as currently in effect, restricts the manner in which affiliates may
resell shares of common stock and also restricts the number of shares of common
stock that affiliates, and others with whom they might act together, may sell
within any three month period. This proxy statement/prospectus does not cover
resales of shares of Citizens & Northern common stock received by any person in
connection with the merger, and no person is authorized to make use of this
proxy statement/prospectus in connection with any resale.
STOCK EXCHANGE LISTING
Citizens & Northern common stock to be issued in connection with the
merger will be listed on the OTC Bulletin Board under the symbol "CZNC.OB."
DIVIDENDS
Peoples, during the period prior to completion of the merger, may
continue to declare quarterly cash dividends, in an amount not to exceed 40% of
net annual income, consistent with its past practice.
Following completion of the merger, former Peoples shareholders will be
Citizens & Northern shareholders and will receive dividends, if any, declared by
Citizens & Northern.
DISSENTERS' RIGHTS
The Pennsylvania Business Corporation Law provides Peoples' shareholders
with the right to dissent from the merger, and to demand and receive the "fair
value" of their shares of stock instead of the Citizens & Northern common stock
to be received in the merger. In order to assert these dissenters' rights, you
must:
- file with Peoples, prior to the vote at the special meeting, a
written notice of your intent to demand that you be paid the fair
value for your shares should the merger be approved;
- not vote in favor of the merger;
- continuously hold your shares of Peoples common stock from the
date of filing the notice through the effective date of the
merger; and
- comply with all other statutory procedures set forth in
Pennsylvania law.
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It is not necessary that a dissenting shareholder vote on the merger at
the special meeting, but a vote in favor of the merger, whether in person or by
proxy, eliminates that dissenting shareholder's rights under Subchapter D of
Chapter 15 of the Pennsylvania Business Corporation Law. Delivery of written
notice of intent to demand payment PRIOR to the vote on the merger is essential;
a vote against the merger at the special meeting, by itself, will not satisfy
the requirement.
If the merger is authorized at the special meeting, Peoples will mail a
further notice to all dissenters who gave proper notice of intent to demand
payment of the fair value of their shares and who refrained from voting in favor
of the proposed merger. The dissenters' notice will:
- state where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to
obtain payment;
- inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received;
- supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, on whose
behalf the shareholder dissents, acquired beneficial ownership of
the shares; and
- be accompanied by a copy of Subchapter D of Chapter 15 of the
Pennsylvania Business Corporation Law.
A dissenting shareholder must then demand payment, certify the date on
which the shareholder acquired beneficial ownership of the shares, and deposit
his certificates in the place specified in the dissenter's notice. This demand
must be made by the time set forth in the dissenter's notice but cannot be less
than 30 days from the mailing date of the notice. A shareholder who fails to
timely demand payment, or fails to timely deposit certificates as required by
the dissenter's notice, will not have any rights to receive payment of the fair
value of his shares.
Immediately following of the merger, Peoples will either remit to
dissenters who have made demand and, if the shares are certificated, have
deposited their certificates the amount that Peoples estimates to be the fair
value of the shares, or give written notice that no remittance will be made. The
remittance notice will be accompanied by:
- Peoples' closing balance sheet and statement of income 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;
- a statement of Peoples' estimate of the fair value of the shares;
and
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- a notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of
Subchapter D of Chapter 15 of the Pennsylvania Business
Corporation Law.
If Peoples 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 and the dissenter believes that the amount stated
or remitted is less than the fair value of his shares, he may send to Peoples
his own estimate of the fair value of the shares. This estimate will be deemed a
demand for payment of the amount or the deficiency. If the dissenter does not
file his own estimate within 30 days after Peoples mailing of its remittance or
notice, the dissenter will not be entitled to more than the amount stated in the
notice or remitted to him by Peoples.
THE FOREGOING IS ONLY A SUMMARY OF THE RIGHTS OF A DISSENTING
SHAREHOLDER AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUBCHAPTER D OF
CHAPTER 15 OF THE PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, ATTACHED TO
THIS PROXY STATEMENT/PROSPECTUS AS ANNEX D. ANY HOLDER OF PEOPLES COMMON STOCK
WHO INTENDS TO DISSENT FROM THE MERGER SHOULD CAREFULLY REVIEW THE TEXT OF THE
APPLICABLE PROVISIONS OF SUBCHAPTER D AND SHOULD ALSO CONSULT WITH AN ATTORNEY.
THE FAILURE OF A DISSENTING SHAREHOLDER TO FOLLOW PRECISELY THE PROCEDURES
SUMMARIZED ABOVE AND SET FORTH IN SUBCHAPTER D MAY RESULT IN THE LOSS OF
DISSENTERS' RIGHTS. NO FURTHER NOTICE OF THE EVENTS GIVING RISE TO DISSENTERS'
RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE FURNISHED TO HOLDERS OF PEOPLES
COMMON STOCK, EXCEPT AS INDICATED ABOVE OR OTHERWISE REQUIRED BY LAW.
THE MERGER AGREEMENT
The following is a description of the material terms of the merger
agreement and the stock option agreement. Complete copies of the merger
agreement and stock option agreement are attached as Annexes A and B to this
proxy statement/prospectus and are incorporated into this proxy
statement/prospectus by reference. We encourage you to read the merger agreement
and the stock option agreement in their entirety.
THE MERGER
Under the merger agreement, Peoples will merge with Citizens & Northern
and, immediately after the merger, assuming the receipt of all necessary
regulatory approvals, Peoples State Bank of Wyalusing, Pa., the wholly-owned
subsidiary of Peoples, will merge with Citizens & Northern Bank, a wholly-owned
subsidiary of Citizens & Northern. At the effective time of the merger, Citizens
& Northern will issue 2.5 Citizens & Northern shares of common stock to existing
Peoples shareholders in exchange for each of their Peoples shares of common
stock. Citizens & Northern and Peoples are corporations formed under
Pennsylvania law and the merger therefore must be completed in accordance with
Pennsylvania law.
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EFFECTIVE DATE
The merger will be effective on the date the articles of merger are
filed with the Secretary of State of the Commonwealth of Pennsylvania. We plan
to file the articles of merger as soon as possible after all of the conditions
described in the merger agreement have been satisfied.
CONVERSION OF PEOPLES COMMON STOCK
On the merger's effective date, each outstanding Peoples common share,
except for shares owned by Citizens & Northern, will be converted into 2.5
shares of Citizens & Northern common stock. If you would have the right to
receive a fraction of a Citizens & Northern common share as a result of that
conversion, you will receive, instead, a cash payment equal to:
- the fractional share of Citizens & Northern common stock,
multiplied by
- the average of the bid and ask prices of Citizens & Northern
common stock, as reported by the OTC Bulletin Board for the 20
trading days immediately preceding the fifth trading day prior to
the effective date of the merger.
Citizens & Northern Bank will serve as exchange agent and will be responsible
for sending you any cash payment you have the right to receive.
At the merger's effective time, if you are a Peoples shareholder, you
will no longer have any rights as a holder of those shares, but you will, upon
proper surrender of your Peoples common stock certificates, have the rights of a
Citizens & Northern shareholder. For a comparison of the rights you have as a
Peoples shareholder to the rights you will have as a Citizens & Northern
shareholder, read "Material Differences Between the Rights of Citizens &
Northern and Peoples Shareholders" on page 77.
SURRENDER OF CERTIFICATES
After the merger's effective time, each holder of outstanding
certificates for Peoples common stock convertible into shares of Citizens &
Northern common stock will be entitled to receive certificates representing the
number of whole shares of Citizens & Northern common stock into which the
holder's Peoples shares are converted, and, if applicable, a cash payment in
lieu of any fractional share.
If you are a Peoples shareholder, promptly after the merger's
effective, the exchange agent will send you transmittal materials that you
should use when surrendering your Peoples share certificates. After you
surrender your Peoples share certificate(s) for cancellation to the exchange
agent, together with a completed letter of transmittal and any other documents
reasonably requested, you will be entitled to receive certificates for the
shares of Citizens & Northern common stock you have a right to receive and, if
applicable, a cash payment for any fractional shares. Your surrendered Peoples
share certificate(s) will be canceled. YOU SHOULD NOT SURRENDER YOUR
CERTIFICATES FOR EXCHANGE UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL AND
INSTRUCTIONS FROM THE EXCHANGE AGENT.
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If you own Peoples common stock, the transfer of which has not been
registered in Peoples transfer records, you may nevertheless exchange these
shares for shares of Citizens & Northern common stock if you provide the
exchange agent with the certificates representing your shares of Peoples common
stock, along with all documents required by Citizens & Northern to evidence and
effect the transfer and to evidence that any applicable stock transfer taxes
have been paid. Furthermore, if your certificates have been lost, stolen or
destroyed, the exchange agent will issue the Citizens & Northern certificate(s)
provided you complete an affidavit stating that your certificate(s) have been
lost, stolen or destroyed. The affidavit may ask that you agree to indemnify
Citizens & Northern and the exchange agent against any liabilities that could
arise from claims to the shares brought by other people.
After the merger's closing, Peoples will not transfer any of its
common stock. If, within two years after the merger's closing, certificates
and letters of transmittal for Peoples shares of common stock are properly
presented to the exchange agent, the exchange agent will cancel these
certificates and exchange them as described above, subject to applicable law
and to the extent that Citizens & Northern has not surrendered the
certificates or cash to a public official pursuant to applicable abandoned
property laws.
After the merger's effective time, Citizens & Northern will promptly
mail to Peoples shareholders detailed instructions, including a transmittal
form, as to the method of exchanging certificates representing shares of Peoples
common stock for certificates representing shares of Citizens & Northern common
stock.
CONDITIONS TO COMPLETION OF THE MERGER
CONDITIONS TO CITIZENS & NORTHERN'S OBLIGATION AND PEOPLES' OBLIGATION
TO COMPLETE THE MERGER. The obligations of Citizens & Northern and Peoples to
complete the merger are subject to the satisfaction of specified conditions,
including:
- approval and adoption of the merger agreement by Peoples'
shareholders;
- receipt of the required regulatory approvals and expiration or
termination of all applicable statutory waiting periods relating
to the merger;
- absence of any injunction or other order by any court or
governmental entity delaying or preventing the merger;
- effectiveness of the registration statement relating to the
issuance of shares of Citizens & Northern common stock in the
merger;
- receipt of all required approvals and other authorizations under
state securities laws necessary to complete the transactions
contemplated by the merger; and
- receipt by Citizens & Northern and Peoples of letters from Parente
Randolph, PC dated the date of or shortly prior to the mailing of
this proxy statement/prospectus and
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the effective date of the merger, stating its opinion that the
merger qualifies for pooling of interests accounting treatment
under generally accepted accounting principles.
CONDITIONS TO PEOPLES' OBLIGATION TO COMPLETE THE MERGER. Peoples'
obligation to complete the merger is further subject to the satisfaction of
several conditions, including:
- performance by Citizens & Northern of its obligations under the
merger agreement in all material respects;
- representations and warranties of Citizens & Northern contained in
the merger agreement being be true and correct when made and as if
made on the effective date of the merger;
- receipt by Peoples of a legal opinion from Shumaker Williams,
P.C., special counsel to Peoples, that the merger will constitute
a "reorganization" for federal income tax purposes and that no
gain or loss will be recognized by Peoples shareholders who
receive Citizens & Northern shares of common stock, other than the
gain or loss recognized as to cash received in lieu of fractional
shares;
- receipt by Peoples of a legal opinion of counsel to Citizens &
Northern, stating that Citizens & Northern is duly organized and
in good standing, that the merger agreement was duly executed by,
and is binding and enforceable against Citizens & Northern, that
the shares of Citizens & Northern common stock to be issued will
be authorized, fully paid and nonassessable and that the adoption
of the merger agreement by Citizens & Northern shareholders is not
required by Pennsylvania law; and
- receipt by Peoples of a fairness opinion from Ryan, Beck & Co.,
financial advisor to Peoples, stating that the exchange ratio is
fair to the Peoples shareholders from a financial point of view.
CONDITIONS TO CITIZENS & NORTHERN'S OBLIGATION TO COMPLETE THE MERGER.
Citizens & Northern's obligation to complete the merger is further subject to
the satisfaction of several conditions, including:
- performance by Peoples of its obligations under the merger
agreement in all material respects;
- representations and warranties of Peoples contained in the merger
agreement must be true and correct when made and as if made on the
effective date of the merger;
- receipt by Citizens & Northern of a legal opinion from Shumaker
Williams, P.C., special counsel to Peoples, stating that Peoples
is duly organized and in good standing, that the merger agreement
was duly executed by, and is binding and
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enforceable against Peoples and that Peoples is not subject to
Subchapters D through J of Chapter 25 of the Pennsylvania Business
Corporation Law; and
- receipt by Citizens & Northern of executed affiliate agreements
from each affiliate of Peoples.
Each party, to the extent permitted by law, decide to waive some of the
conditions to its obligation to complete the merger even though these conditions
may have not been met. In the case of mutual conditions, however, both parties
must decide to waive a condition to their obligations to complete the merger. We
cannot guarantee that the conditions to the merger will be satisfied or waived,
or that the merger will be completed at all.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains some customary representations and
warranties made by both Citizens & Northern and Peoples, including
representations and warranties relating to:
- due organization and good standing;
- capitalization;
- subsidiaries;
- corporate power and authorization to enter into the transactions
contemplated by the merger agreement;
- governmental filings, reviews and approvals required in connection
with the transactions contemplated by the merger agreement;
- financial statements;
- litigation;
- regulatory matters;
- compliance with laws;
- brokerage fees;
- accounting treatment;
- deposit insurance with the Federal Deposit Insurance Corporation;
- risk management instruments;
- corporate books and records;
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<PAGE>
- loans;
- allowance for loan losses; and
- repurchase agreements.
The merger agreement also contains some customary representations and
warranties made by Peoples only, including representations and warranties
relating to:
- material contracts;
- absence of default under any material contracts or agreements;
- environment;
- taxes;
- disclosure statements;
- absence of material changes or events;
- absence of undisclosed liabilities;
- employee benefit plans and plan compliance;
- labor matters;
- insurance coverage; and
- real and personal property.
The merger agreement contains some customary representations and
warranties made by Citizens & Northern only, including representations and
warranties relating to:
- filings with the Securities and Exchange Commission; and
- takeover laws.
The representations and warranties in the merger agreement will not
survive the effective time of the merger.
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CONDUCT OF BUSINESS PENDING THE MERGER
CONDUCT OF BUSINESS BY PEOPLES UNTIL THE EFFECTIVE TIME OF THE MERGER.
From June 22, 2000 until the merger's effective time, unless Citizens & Northern
consents in writing, Peoples and its subsidiaries must not:
- fail to conduct their business in the ordinary course;
- fail to use their reasonable efforts to preserve intact their
present business organizations and assets;
- fail to use their reasonable efforts to maintain their rights,
franchises and their existing relationships with customers,
suppliers, employees and business associates;
- voluntarily take any action that is likely to have an adverse
effect upon Peoples' ability to perform any of its material
obligations under the merger agreement;
- issue or sell any shares of common stock or authorize the creation
of additional shares of common stock or enter into any agreement
with respect to the same;
- permit any additional shares of their common stock to become
subject to new grants of employee or director stock options or
similar rights;
- make, declare, pay or set aside for payment any dividend, other
than quarterly cash dividends on Peoples common stock in an amount
not to exceed 40% of annual net income and consistent with past
practice, and dividends from wholly-owned subsidiaries to Peoples,
or directly or indirectly adjust, split, combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its
common stock;
- enter into or amend or renew any employment, consulting, severance
or similar agreements or arrangements with any director, officer
or employee of Peoples or its subsidiaries (other than Mr. Abrey's
Executive Employment Agreement), change the position or title of
any officer or employee of Peoples or any of its subsidiaries or
grant any salary or wage increase or increase any employee
benefit, (including incentive or bonus payments) except:
- for normal individual increases in compensation to employees
in the ordinary course of business consistent with past
practice;
- for other changes that are required by applicable law;
- to satisfy previously disclosed contractual obligations
existing as of the date of the merger agreement, or
- for grants of awards to newly hired employees consistent
with past practice.
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- enter into, establish, adopt or amend any employee benefit plans
except:
- to satisfy previously disclosed contractual obligations
existing as of the date of the merger agreement;
- to satisfy the regular annual renewal of insurance
contracts, any pension, retirement, stock option, stock
purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement,
or any trust agreement (or similar arrangement) related
thereto, in respect of any director, officer or employee of
Peoples or its subsidiaries, or take any action to
accelerate the vesting or exercisability of stock options,
restricted stock or other compensation or benefits payable
thereunder; or
- to comply with applicable law or regulation.
- sell, transfer, mortgage, encumber or otherwise dispose of or
discontinue any of its assets, deposits, business or properties
except in the ordinary course of business;
- acquire (other than by way of foreclosures or acquisitions of
control in a bona fide fiduciary capacity or in satisfaction of
debts previously contracted in good faith, in each case in the
ordinary and usual course of business consistent with past
practice) all or any portion of, the assets, business, deposits or
properties of any other entity;
- amend its articles of incorporation or by-laws or the articles of
incorporation or by-laws (or similar governing documents) of any
of its subsidiaries;
- implement or adopt any change in its accounting principles,
practices or methods, other than as may be required by generally
accepted accounting principles;
- except in the ordinary course of business consistent with past
practice, enter into, terminate, amend or modify in any material
respect any of its existing contracts, involving payments in
excess of $25,000;
- except in the ordinary course of business consistent with past
practice, settle any claim, action or proceeding, except for any
claim, action or proceeding which does not involve precedent for
other material claims, actions or proceedings and which involve
solely money damages in an amount, individually or in the
aggregate for all such settlements, that is not material to it and
its subsidiaries, taken as a whole;
- take any action while knowing that such action would, or is
reasonably likely to, prevent or impede the merger from qualifying
for "pooling of interests" accounting treatment or as a
reorganization within the meaning of Section 368(a) of the Code.
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- knowingly take any action that is intended or is reasonably likely
to result in:
- any of its representations and warranties set forth in the
merger agreement being or becoming untrue in any material
respect at any time at or prior to the effective time,
- any of the conditions to the merger not being satisfied; or
- a material violation of any provision of the merger
agreement except, in each case, as may be required by
applicable law or regulation.
- implement or adopt any material change in its interest rate risk
management and other risk management policies, procedures or
practices;
- fail to follow its existing policies or practices with respect to
managing its exposure to interest rate and other risk or fail to
use commercially reasonable means to avoid any material increase
in its aggregate exposure to interest rate risk;
- incur any indebtedness for borrowed money other than in the
ordinary course of business; and
- purchase any securities except in conformance with its investment
policy in effect as of May 9, 2000.
CONDUCT OF BUSINESS BY CITIZENS & NORTHERN UNTIL THE EFFECTIVE TIME OF
THE MERGER. From June 22, 2000 until the merger's effective time, unless Peoples
otherwise consents in writing, Citizens & Northern and its subsidiaries must
not:
- fail to conduct their business in the ordinary course;
- fail to use their reasonable efforts to preserve intact their
present business organizations and assets;
- fail to use their reasonable efforts to maintain their rights,
franchises and their existing relationships with customers,
suppliers, employees and business associates;
- declare or pay any extraordinary dividend;
- adopt any change in their accounting principles or practices;
- settle any material claim, action or proceeding;
- take any action that would disqualify the merger as a pooling of
interests for accounting purposes or as a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code;
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- take any action that is intended or is likely to result in any
representations or warranties in the merger agreement being
untrue, any condition not being satisfied or a material violation
of any provision;
- except pursuant to law, fail to follow their existing policies or
practices with respect to managing their exposure to interest rate
and other risk or fail to use commercially reasonable means to
avoid any material increase in their aggregate exposure to
interest rate risk; or
- amend any of their articles of incorporation or by-laws.
OTHER ACQUISITION PROPOSALS
Peoples has agreed not to solicit or encourage inquiries or proposals
or engage in discussions or negotiations with any person relating to any
acquisition proposal. An acquisition proposal is any tender or exchange offer,
merger, consolidation or other business combination proposal, or any offer to
acquire a substantial equity interest in, or a substantial portion of the assets
of, Peoples or any of its subsidiaries, other than the merger with Citizens &
Northern.
Peoples has agreed to end any inquiries, discussions or negotiations
with persons other than Citizens & Northern that were begun prior to the date of
the merger agreement.
Peoples will notify Citizens & Northern within 48 hours of its receipt
of and contents of any acquisition proposals, including any material
developments.
Notwithstanding the foregoing, Peoples may provide information or enter
into negotiations with persons presenting acquisition proposals, if the Peoples
board of directors determines in good faith, after consultation with and based
upon the advice of independent legal counsel, that the failure to do so would
result in a breach of its fiduciary duties to Peoples shareholders under law.
As part of the merger agreement, Peoples maintains the right to opt out
of the merger with Citizens & Northern upon the occurrence of certain events.
Specifically, from the date of the merger agreement's signing until the merger's
effective date, Citizens & Northern agreed to notify Peoples should it desire to
take certain actions. These actions include:
- selling all of substantially all of its assets,
- issuing Citizens & Northern common stock or other securities
convertible into Citizens & Northern common stock so that the
newly issued Citizens & Northern common stock or the Citizens &
Northern common stock into which the other securities would be
converted would equal or exceed 20% of the number of shares of
Citizens & Northern common stock issued as of the date of the
merger agreement, or
- merging of consolidating with or into, or converting to, any other
person or entity.
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If Citizens & Northern takes any of these actions, Peoples has the right, in its
sole discretion, to terminate the merger agreement without cost, expense or
liability on its part.
TERMINATION; FEES AND EXPENSES
TERMINATION. We can terminate the merger agreement without completing
the merger if each of our board of directors agree to terminate it by a majority
vote. Either of us acting alone can terminate the merger agreement if:
- the other party breaches a representation or warranty or breaches
a covenant or agreement contained in the merger agreement that
cannot be cured within 30 days of giving notice of the breach to
the breaching party, provided that the breach would be reasonably
likely to result in a material adverse effect to the other party;
- the merger has not been completed on or before December 31, 2000;
- the approval of any governmental entity required for the
completion of the merger has been denied by final nonappealable
action;
- the Peoples shareholders do not approve the merger agreement; or
- the closing conditions required by the merger agreement have not
been met.
AMENDMENT; WAIVER
At any time prior to the merger's effective time, any provision of the
merger agreement may be waived by the party benefited by the provision, or
amended or modified by a written agreement between the parties executed in the
same manner as the merger agreement, except that no amendment or waiver may be
made that would change the form or the amount of the merger consideration
following the Peoples special shareholders meeting.
STOCK OPTION AGREEMENT
On June 23, 2000, Citizens & Northern entered into a stock option
agreement with Peoples that grants Citizens & Northern a binding option to
purchase up to 19.9% of the outstanding shares of Peoples at an exercise price
of $47 per share upon specified triggering events. Peoples entered into the
stock option agreement as an inducement for Citizens & Northern to enter into
the merger agreement.
The stock option agreement is intended to increase the likelihood that
the merger will be completed in accordance with the terms of the merger
agreement. Therefore, some aspects of the stock option agreement may have the
effect of discouraging persons who might now or at any other time prior to the
merger's effective date be interested in acquiring all of or a significant
interest in Peoples from considering or proposing an acquisition. The
acquisition of Peoples by a party other than Citizens & Northern could cause
Citizens & Northern's option to become exercisable. The existence of the option
could significantly increase the cost to a potential
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acquirer of acquiring Peoples compared to the cost if the stock option agreement
did not exist. This increased cost might discourage a potential acquirer from
considering or proposing an acquisition or might result in a potential acquirer
having to pay a lower per share price to acquire Peoples than it might otherwise
have proposed to pay. Moreover, following consultation with their own
independent accountants, Citizens & Northern and Peoples believe that the
exercise or repurchase of Citizens & Northern's option is likely to prohibit any
other acquirer of Peoples from accounting for that acquisition using the pooling
of interests accounting method for a period of two years. Our financial advisors
tell us that a stock option agreement is within the customary range of actions
companies take to ensure completion of negotiated merger agreements.
Citizens & Northern may exercise the binding option at any time upon
the occurrence of any of the following purchase events:
- Peoples enters into an agreement with any person or entity to
merge, consolidate or acquire all or substantially all of Peoples'
assets or for the purchase or acquisition of securities
representing 20% or more of Peoples voting power;
- any person or entity, other than Peoples, Citizens & Northern or
fiduciaries of either party, acquires beneficial ownership or the
right to acquire beneficial ownership of 20% or more of the
outstanding Peoples shares of common stock after the date of the
stock option agreement;
- Peoples breaches the stock option agreement in any material
respect, which breach is not cured within 15 days after notice;
- any person or entity makes a bona fide takeover proposal to
Peoples by public announcement or written communication that is or
becomes the subject of public disclosure, and, following such bona
fide takeover proposal, the Peoples shareholders vote not to
approve and adopt the merger agreement;
- Peoples breaches the merger agreement between Citizens & Northern
and Peoples following a bona fide takeover proposal and Peoples
does not cure the breach prior to the date Citizens & Northern
sends Peoples notice of its intention to exercise the option;
- Peoples' shareholders fail to approve the merger agreement at a
meeting held for that purpose or the meeting is not held or was
canceled after a public announcement that a person or entity has
made, or disclosed an intention to make, a proposal to engage in
an acquisition transaction; or
- Peoples' board of directors withdraws or modifies its
recommendation that Peoples shareholders approve the transactions
contemplated by the merger agreement, or Peoples or its
subsidiaries authorize, recommend or propose an agreement to enter
into an acquisition transaction.
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Citizens & Northern's binding option may be terminated in any of the
following manners:
- by mutual consent of Citizens & Northern and Peoples;
- by either Citizens & Northern or Peoples if the Federal Reserve
Board issues an order denying approval of the merger of Citizens &
Northern and Peoples or if any other governmental entity issues a
final permanent order enjoining or otherwise prohibiting the
merger;
- by either Citizens & Northern or Peoples if the merger has not
occurred on or before December 31, 2000; or
- by either Citizens & Northern or Peoples if no purchase event has
occurred and Peoples' shareholders fail to approve the merger.
We have attached a copy of the stock option agreement to this proxy
statement/prospectus as Annex B which is incorporated herein by reference. We
encourage you to read the stock option agreement in its entirety.
DESCRIPTION OF CITIZENS & NORTHERN COMMON STOCK
The following is a summary of the material terms of the Citizens &
Northern common stock. If you would like to review copies of the Citizens &
Northern articles of incorporation and by-laws, these documents are on file with
the Securities and Exchange Commission. For further information on the rights of
holders of Citizens & Northern shares of common stock, see "Material Differences
between the Rights of Citizens & Northern and Peoples Shareholders."
Citizens & Northern has authorized 10,000,000 shares of common stock,
with a par value of $1.00 each, of which 5,324,962 shares are issued, including
119,470 held in treasury as of June 30, 2000. Each outstanding Citizens &
Northern common share is duly authorized, validly issued, fully paid and
nonassessable. The holders of shares of Citizens & Northern common stock have
one vote per share on each matter on which shareholders are entitled to vote.
Directors are elected for staggered, three-year terms. Therefore, the Citizens &
Northern board of directors is divided into three classes, one of which is
elected annually. On liquidation or dissolution of Citizens & Northern, the
holders of shares of Citizens & Northern common stock are entitled to share
ratably in the assets that remain after creditors have been paid. Holders of
shares of Citizens & Northern common stock have no preemptive rights,
subscription rights or conversion rights.
The Citizens & Northern board of directors determines whether to
declare dividends and the amount of any dividends declared. The determinations
by the Citizens & Northern board of directors take into account Citizens &
Northern's financial condition, results of operations and other relevant
factors. While management expects to maintain its policy of paying regular
quarterly cash dividends, we give no assurance that any dividends will be
declared, or, if declared, in what amount.
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Citizens & Northern Bank is the transfer agent and registrar for the
Citizens & Northern common stock and will be the exchange agent for the merger.
MATERIAL DIFFERENCES BETWEEN THE RIGHTS OF CITIZENS & NORTHERN
AND PEOPLES SHAREHOLDERS
INTRODUCTION
On the merger's effective date, each share of Peoples common stock,
other than treasury shares, shares previously owned by Citizens & Northern and
shares as to which dissenters' rights have been exercised, will be converted
into 2.5 shares of Citizens & Northern common stock. As a result, Peoples
shareholders will become Citizens & Northern shareholders and the Citizens &
Northern articles of incorporation and the Citizens & Northern by-laws will
govern their rights as new Citizens & Northern shareholders. The following is a
summary of material differences between the rights of Citizens & Northern
shareholders and Peoples shareholders. These differences arise from differences
between the Citizens & Northern articles of incorporation and by-laws and the
Peoples articles of incorporation and by-laws. As it is impractical to compare
all of the aspects in which the companies' charter documents differ with respect
to shareholders' rights, the following discussion summarizes the material
differences between them. We encourage you to read the relevant provisions of
Pennsylvania law, the Citizens & Northern articles of incorporation and by-laws
and the Peoples articles of incorporation and by-laws.
AUTHORIZED SHARES
CITIZENS & NORTHERN. Citizens & Northern articles of incorporation
provide for 10,000,000 shares of common stock, with a par value of $1.00 each.
PEOPLES. Peoples' articles of incorporation provide for 500,000 shares
of common stock, with a par value of $0.50 each.
SPECIAL MEETINGS OF SHAREHOLDERS
CITIZENS & NORTHERN. Special meetings of Citizens & Northern
shareholders may be called at any time by its board of directors or by three or
more shareholders owning in the aggregate an amount not less than 20% its
outstanding common stock.
PEOPLES. A special meeting of Peoples shareholders may be called at any
time by the Chairman of its board of directors, its President, a majority of the
board of directors or of its Executive Committee or by shareholders entitled to
cast at least 51% of the votes which all shareholders are entitled to cast at
the particular meeting.
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NUMBER OF DIRECTORS
CITIZENS & NORTHERN. Citizens & Northern's articles of incorporation
authorize no fewer than 5 and no more than 25 persons to serve on its board of
directors. Within these limits, the number of directors, which is presently set
at 14, is determined by resolution of the board of directors or by the
shareholders at the annual meeting. Vacant directorships may be filled by the
affirmative vote of a majority of the directors then in office. At times other
than to fix the number of directors to be elected at the annual meeting, the
board of directors may increase the size of the board, but only by one if the
number of directors last elected by the shareholders was 15 or less; or by up to
two if the number of directors last elected by shareholders was 16 or more,
except that with the approval of at least 75% of the members of the entire board
of directors a larger increase in the number of directors may be made. This
provision of the Citizens & Northern articles of incorporation may be altered,
amended or repealed by the affirmative vote of (i) 66.66% of the Citizens &
Northern board of directors together with a majority vote of the outstanding
shares of Citizens & Northern entitled to vote or (ii) the vote of 75% of the
outstanding shares of Citizens & Northern entitled to vote.
PEOPLES. Peoples' by-laws authorize no fewer than 5 and no more than 25
persons to serve on its board of directors. Peoples presently has 6 directors.
The number of directors may be increased or decreased by amendment of Peoples'
by-laws. Vacancies and newly created directorships resulting from any such
increase may be filled by a majority of the directors then in office. This
provision of Peoples' by-laws may be altered, amended or repealed by the
affirmative vote of the majority of Peoples' board of directors or 75% of the
outstanding Peoples' shares entitled to vote.
VOTING RIGHTS
CITIZENS & NORTHERN AND PEOPLES. Neither Citizens & Northern's nor
Peoples' articles of incorporation provides for cumulative voting rights for the
election of directors or otherwise.
SHAREHOLDER VOTE REQUIRED FOR CERTAIN TRANSACTIONS
CITIZENS & NORTHERN. The affirmative vote of Citizens & Northern's
shareholders entitled to cast 75% of the votes that all shareholders are
entitled to cast is required to approve:
- any merger or consolidation of Citizens & Northern with or into
any other corporation;
- any share exchange in which a corporation, person, or entity
acquires the issued or outstanding shares of common stock of
Citizens & Northern pursuant to a vote of shareholders;
- any lease exchange or other transfer of all, or substantially all,
of the assets of Citizens & Northern to any other corporation,
person, or entity; or
- any transaction similar to, or having similar effect as, any of
the foregoing transactions.
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The foregoing voting requirements, however, do not apply to any transaction that
is approved by 2/3 of the members of the board of directors in advance at a
meeting of the board of directors of Citizens & Northern duly held for such
specific purpose.
PEOPLES. Peoples' articles of incorporation provides that no merger,
consolidation, liquidation or dissolution of Peoples, nor any action that would
result in the sale or other disposition of all or substantially all of Peoples
assets, shall be valid unless first approved by the affirmative vote of the
holders of at least 75% of the outstanding shares of common stock.
AMENDMENTS OF BY-LAWS
CITIZENS & NORTHERN AND PEOPLES. Citizens & Northern's and Peoples'
by-laws may be amended either by their respective board of directors or by the
vote of the holders of 75% of the outstanding shares of common stock of each
respective entity. The Citizens & Northern articles of incorporation also
provide however, that the by-laws may not be amended to increase the directors'
exposure to liability or decrease the indemnification available for its
directors, officers and others except by the affirmative vote of 75% of the
entire board of directors or by the affirmative vote of shareholders of common
stock entitled to cast 75% of the votes that all shareholders are entitled to
cast.
COMPOSITION OF BOARD
CITIZENS & NORTHERN. Citizens & Northern's articles provide that its
board of directors be divided into three classes. Each class is to be as nearly
equal in number as possible. The term of office of each class of Citizens &
Northern's directors is three years.
PEOPLES. The Peoples' by-laws provide that the board of directors be
classified into three classes, each class to be elected for a term of three
years. The number of directors in each class may be fixed by the board of
directors.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as
of June 30, 2000, and the pro forma condensed combined income statements for the
six months ended June 30, 2000 and 1999, and for each of the three years in the
period ended December 31, 1999, give effect to the merger, to be accounted for
as a pooling-of-interests. The unaudited pro forma condensed combined financial
statements have been prepared by the managements of Citizens & Northern and
Peoples based on their respective consolidated financial statements under the
assumptions and adjustments discussed in the accompanying notes. Pro forma per
share amounts are based on the conversion rate of 2.5 Citizens & Northern shares
of common stock for each Peoples common share in this merger.
The unaudited pro forma condensed combined financial statements include
results of operations as if the merger had been completed as of the beginning of
the earliest period presented.
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The unaudited pro forma condensed combined income statements do not reflect
merger related charges to be incurred nor the cost savings anticipated to
result from the merger.
You should read the unaudited pro forma condensed combined financial
statements together with the historical consolidated financial statements,
including the respective notes, of Citizens & Northern and Peoples. Pro forma
financial statements are presented for informational purposes only and are not
necessarily indicative of the results of operations or combined financial
position that would have resulted had the merger been consummated as of the
beginning of the earliest period indicated, nor are they necessarily indicative
of future results of operations or combined financial position.
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CITIZENS & NORTHERN CORPORATION
PEOPLES LTD.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(In thousands) (Unaudited)
<TABLE>
<CAPTION>
CITIZENS &
NORTHERN, AND
PEOPLES
CITIZENS & PRO FORMA PRO FORMA
NORTHERN PEOPLES ADJUSTMENT COMBINED
(A)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 12,134 $ 4,159 $16,293
Federal funds sold and interest
bearing deposits 2,326 24 2,350
Securities 350,329 29,697 $(514) 379,512
Loans, net 313,992 78,609 392,601
Premises and equipment 8,485 2,059 10,544
Accrued interest receivable and other assets 12,996 5,851 108 18,955
-------------------------------------------------------------------------------------------------------
Total assets $700,262 $120,399 $(406) $820,255
=======================================================================================================
LIABILITIES
Deposits $498,951 $ 93,817 $592,768
Short-term and long-term borrowings 117,395 12,547 129,942
Accrued interest payable and other
liabilities 6,444 668 7,112
-------------------------------------------------------------------------------------------------------
Total liabilities 622,790 107,032 729,822
SHAREHOLDERS' EQUITY 77,472 13,367 $(406) 90,433
-------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $700,262 $120,399 $(406) $820,255
=======================================================================================================
</TABLE>
(A) Elimination of Citizens & Northern's investment in 14,139 shares of Peoples
common stock, determined as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Cost basis of investment $ 197
Fair value appreciation 317
----------
Carrying value of investment 514
Deferred tax on appreciation (108)
----------
Amount eliminated from shareholders' equity $ 406
==========
</TABLE>
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CITIZENS & NORTHERN CORPORATION
PEOPLES LTD.
PRO FORMA COMBINED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 2000
(In thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
CITIZENS & PEOPLES CITIZENS &
NORTHERN SIX NORTHERN AND
SIX MONTHS MONTHS PEOPLES
ENDED ENDED PRO FORMA PRO FORMA
6/30/00 6/30/00 ADJUSTMENT COMBINED
(A)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 13,513 $ 3,606 $ 17,119
Securities and other 12,293 804 $ (10) 13,087
-------------------------------------------------------------
Total interest income 25,806 4,410 (10) 30,206
INTEREST EXPENSE
Deposits 11,081 1,750 12,831
Borrowing 3,460 393 3,853
-------------------------------------------------------------
Total interest expense 14,541 2,143 16,684
NET INTEREST INCOME 11,265 2,267 (10) 13,522
PROVISION FOR LOAN LOSSES 376 78 454
NET INTEREST INCOME AFTER -------------------------------------------------------------
PROVISION FOR LOAN LOSSES 10,889 2,189 (10) 13,068
OTHER INCOME 2,745 450 3,195
OTHER EXPENSE 8,325 2,039 10,364
-------------------------------------------------------------
INCOME BEFORE INCOME TAXES 5,309 600 (10) 5,899
INCOME TAXES 947 186 1,133
-------------------------------------------------------------
NET INCOME $ 4,362 $ 414 $ (10) $ 4,766
=============================================================
EARNINGS PER COMMON SHARE
Basic $ 0.84 $ 1.01 $ 0.77
Diluted $ 0.84 $ 1.01 $ 0.77
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 5,205,403 410,395 6,196,043
Diluted 5,207,130 410,395 6,197,770
</TABLE>
(A) Elimination of dividend income recorded by Citizens & Northern related to
its investment in Peoples common stock.
82
<PAGE>
CITIZENS & NORTHERN CORPORATION
PEOPLES LTD.
PRO FORMA COMBINED INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1999
(In thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
CITIZENS & PEOPLES CITIZENS &
NORTHERN SIX NORTHERN AND
SIX MONTHS MONTHS PEOPLES
ENDED ENDED PRO FORMA PRO FORMA
6/30/99 6/30/99 ADJUSTMENT COMBINED
(A)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $12,898 $3,395 $16,293
Securities and other 10,268 821 $(10) 11,079
-----------------------------------------------------------
Total interest income 23,166 4,216 (10) 27,372
INTEREST EXPENSE
Deposits 9,139 1,806 10,945
Borrowing 2,166 30 2,196
-----------------------------------------------------------
Total interest expense 11,305 1,836 - 13,141
NET INTEREST INCOME 11,861 2,380 (10) 14,231
PROVISION FOR LOAN LOSSES 450 66 516
NET INTEREST INCOME AFTER -----------------------------------------------------------
PROVISION FOR LOAN LOSSES 11,411 2,314 (10) 13,715
OTHER INCOME 4,247 344 4,591
OTHER EXPENSE 8,654 1,710 10,364
-----------------------------------------------------------
INCOME BEFORE INCOME TAXES 7,004 948 (10) 7,942
INCOME TAXES 1,540 257 1,797
-----------------------------------------------------------
NET INCOME $5,464 $ 691 $(10) $ 6,145
===========================================================
EARNINGS PER COMMON SHARE
Basic $ 1.05 $ 1.68 $ 0.99
Diluted $ 1.05 $ 1.68 $ 0.99
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 5,205,044 410,342 6,195,551
Diluted 5,211,580 410,342 6,202,087
</TABLE>
(A) Elimination of dividend income recorded by Citizens & Northern related to
its investment in Peoples common stock.
83
<PAGE>
CITIZENS & NORTHERN CORPORATION
PEOPLES LTD.
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
TWELVE MONTHS ENDED DECEMBER 31, 1999
(In thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
CITIZENS & CITIZENS &
NORTHERN PEOPLES NORTHERN AND
YEAR YEAR PEOPLES
ENDED ENDED PRO FORMA PRO FORMA
12/31/99 12/31/99 ADJUSTMENT COMBINED
(A)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $26,183 $ 6,935 $33,118
Securities and other 22,232 1,640 $(20) 23,852
----------------------------------------------------------
Total interest income 48,415 8,575 (20) 56,970
INTEREST EXPENSE
Deposits 19,053 3,567 22,620
Borrowing 5,518 181 5,699
----------------------------------------------------------
Total interest expense 24,571 3,748 - 28,319
NET INTEREST INCOME 23,844 4,827 (20) 28,651
PROVISION FOR LOAN LOSSES 760 133 893
NET INTEREST INCOME AFTER ----------------------------------------------------------
PROVISION FOR LOAN LOSSES 23,084 4,694 (20) 27,758
OTHER INCOME 9,487 758 10,245
OTHER EXPENSE 17,732 3,642 21,374
----------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,839 1,810 (20) 16,629
INCOME TAXES 3,354 396 3,750
----------------------------------------------------------
NET INCOME $11,485 $ 1,414 $(20) $12,879
==========================================================
EARNINGS PER COMMON SHARE
Basic $ 2.21 $ 3.45 $ 2.08
Diluted $ 2.20 $ 3.45 $ 2.08
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 5,205,140 410,360 6,195,693
Diluted 5,210,949 410,360 6,201,502
</TABLE>
(A) Elimination of dividend income recorded by Citizens & Northern related to
its investment in Peoples common stock.
84
<PAGE>
CITIZENS & NORTHERN CORPORATION
PEOPLES LTD.
PRO FORMA COMBINED INCOME STATEMENT
TWELVE MONTHS ENDED DECEMBER 31, 1998
(In thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
CITIZENS & CITIZENS &
NORTHERN PEOPLES NORTHERN AND
YEAR YEAR PRO FORMA PEOPLES
ENDED ENDED ADJUSTMENT PRO FORMA
INTEREST INCOME 12/31/98 12/31/98 (A) COMBINED
<S> <C> <C> <C> <C>
Loans, including fees $26,199 $6,604 $32,803
Securities and other 19,260 1,760 $(18) 21,002
------------------------------------------------------------------
Total interest income 45,459 8,364 (18) 53,805
INTEREST EXPENSE
Deposits 18,252 3,758 22,010
Borrowing 4,441 88 4,529
------------------------------------------------------------------
Total interest expense 22,693 3,846 - 26,539
NET INTEREST INCOME 22,766 4,518 (18) 27,266
PROVISION FOR LOAN LOSSES 763 164 927
NET INTEREST INCOME AFTER ------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 22,003 4,354 (18) 26,339
OTHER INCOME 9,084 672 9,756
OTHER EXPENSE 16,483 3,248 19,731
------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,604 1,778 (18) 16,364
INCOME TAXES 3,527 465 3,992
------------------------------------------------------------------
NET INCOME $11,077 $ 1,313 $(18) $12,372
==================================================================
EARNINGS PER COMMON SHARE
Basic $ 2.13 $ 3.20 $ 2.00
Diluted $ 2.12 $ 3.20 $ 1.99
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 5,209,640 410,325 6,200,105
Diluted 5,219,444 410,325 6,209,909
</TABLE>
(A) Elimination of dividend income recorded by Citizens & Northern related to
its investment in Peoples common stock.
85
<PAGE>
CITIZENS & NORTHERN CORPORATION
PEOPLES LTD.
PRO FORMA COMBINED INCOME STATEMENT
TWELVE MONTHS ENDED DECEMBER 31, 1997
(In thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
CITIZENS & CITIZENS &
NORTHERN PEOPLES NORTHERN AND
YEAR YEAR PRO FORMA PEOPLES
ENDED ENDED ADJUSTMENT PRO FORMA
INTEREST INCOME 12/31/97 12/31/97 (A) COMBINED
<S> <C> <C> <C> <C>
Loans, including fees $ 26,424 $ 6,057 $32,481
Securities and other 19,218 1,638 $(14) 20,842
--------------------------------------------------------------
Total interest income 45,642 7,695 (14) 53,323
INTEREST EXPENSE
Deposits 18,292 3,277 21,569
Borrowing 5,020 230 5,250
--------------------------------------------------------------
Total interest expense 23,312 3,507 - 26,819
NET INTEREST INCOME 22,330 4,188 (14) 26,504
PROVISION FOR LOAN LOSSES 797 134 931
NET INTEREST INCOME AFTER --------------------------------------------------------------
PROVISION FOR LOAN LOSSES 21,533 4,054 (14) 25,573
OTHER INCOME 6,835 526 7,361
OTHER EXPENSE 15,095 2,576 17,671
--------------------------------------------------------------
INCOME BEFORE INCOME TAXES 13,273 2,004 (14) 15,263
INCOME TAXES 3,166 625 3,791
--------------------------------------------------------------
NET INCOME $10,107 $ 1,379 $(14) $ 11,472
==============================================================
EARNINGS PER COMMON SHARE
Basic $ 1.94 $ 3.27 $ 1.84
Diluted $ 1.94 $ 3.27 $ 1.84
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 5,215,775 421,378 6,233,873
Diluted 5,220,625 421,378 6,238,723
</TABLE>
(A) Elimination of dividend income recorded by Citizens & Northern related to
its investment in Peoples common stock.
86
<PAGE>
EXPERTS
The consolidated financial statements of Citizens & Northern
Corporation incorporated in this proxy statement/prospectus by reference from
Citizens & Northern's Annual Report on Form 10-K for the years ended December
31, 1999, 1998 and 1997 have been audited by Parente Randolph, PC,
independent auditors, as stated in their report which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Peoples for the years ended
December 31, 1998 and 1999 have been audited by Parente Randolph, PC,
independent auditors, as stated in their report which is included herein, and
have been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Citizens & Northern common stock to be issued in
the merger has been passed upon for Citizens & Northern by Squire, Sanders &
Dempsey L.L.P., Cleveland, Ohio. Certain tax matters related to the merger have
been passed upon for Peoples by its special counsel, Shumaker Williams, P.C.,
Camp Hill, Pennsylvania.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Citizens & Northern's Code of Regulations provides that Citizens &
Northern will indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative by reason
of the fact that such person is or was a director, officer, employee, or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees), amounts paid in settlement, judgments, and fines actually and reasonably
incurred by such person in connection with such action, suit, or proceeding;
provided, however, that no indemnification shall be made in any case where the
act or failure to act giving rise to the claim for indemnification is determined
by a court to have constituted willful misconduct or recklessness.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
87
<PAGE>
SHAREHOLDER PROPOSALS
The Citizens & Northern 2001 annual meeting of shareholders is
scheduled to be held in April 2001. Any shareholder who intends to present a
proposal at the 2001 annual meeting and who wishes to have the proposal included
in Citizens & Northern's proxy statement and form of proxy for that meeting must
deliver the proposal to Citizens & Northern's executive offices, 90-92 Main
Street, P.O. Box 58, Wellsboro, Pennsylvania 16901, by December 17, 2000.
Citizens & Northern must receive notice of all other shareholder proposals for
the 2001 annual meeting no less than sixty days nor more than ninety days prior
to the Annual Meeting; provided, however, on the fifteenth day following the
earlier of the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. If notice is not received by Citizens &
Northern within this time frame, Citizens & Northern will consider such notice
untimely. Citizens & Northern reserves the right to vote in its discretion all
of the shares of common stock for which it has received proxies for the 2001
annual meeting with respect to any untimely shareholder proposals.
Peoples has not yet set a date for its 2001 annual meeting of
shareholders pending the outcome of the shareholder vote on the merger proposal
described in this proxy statement/prospectus. If Peoples holds an annual meeting
of shareholders in 2001 any shareholder who intends to present a proposal at
that meeting and who wishes to have the proposal included in Peoples' proxy
statement and form of proxy for that meeting must deliver the proposal, to
Peoples' principal office, Peoples State Bank of Wyalusing, Pa., 201 Church
Street, Wyalusing, Pennsylvania 18853, by December 4, 2000. Peoples must receive
notice of all other shareholder proposals for the 2001 annual meeting by
February 17, 2001 or Peoples will consider them untimely. Peoples reserves the
right to vote in its discretion all of the shares of common stock for which it
has received proxies for the 2001 annual meeting with respect to any untimely
shareholder proposals.
88
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Peoples Ltd.
Wyalusing, Pennsylvania:
We have audited the accompanying consolidated balance sheet of Peoples Ltd. and
subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in shareholders' 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 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 Peoples Ltd. and
subsidiary as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Parente Randolph, PC
Wilkes-Barre, Pennsylvania
January 14, 2000
89
<PAGE>
PEOPLES CONSOLIDATED FINANCIAL STATEMENTS
Peoples Ltd. And Subsidiary
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
1999 1998
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,102,811 $ 7,435,546
Interest-bearing balances in banks - 2,000,000
Available-for-sale securities 31,018,118 26,147,533
Loans, net 78,089,646 72,885,214
Bank premises and equipment, net 2,496,090 2,550,080
Accrued interest receivable 877,815 837,033
Intangible asset, net 732,792 830,969
Other assets 909,426 529,423
------------- -----------
TOTAL $ 119,226,698 $ 113,215,798
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits:
Interest-bearing $ 14,451,375 $ 13,996,301
Noninterest-bearing 12,577,822 13,899,998
------------- -------------
Total 27,029,197 27,896,299
Savings deposits 20,627,726 20,529,206
Time deposits 45,421,497 50,105,100
------------- -------------
Total deposits 93,078,420 98,530,605
Borrowed funds 12,451,475 1,000,000
Accrued interest payable 425,090 506,928
Other liabilities 144,776 106,849
------------- -------------
Total liabilities 106,099,761 100,144,382
------------- -------------
90
<PAGE>
(continued)
Common stock, $.50 par value, authorized 500,000
Shares; issued and outstanding 425,490 shares 212,745 212,745
Surplus 1,751,810 1,751,810
Retained earnings 12,311,550 11,496,463
Accumulated other comprehensive (loss) income (650,433) 111,758
------------- ------------
Total shareholders' equity 13,625,672 13,572,776
Less treasury stock, at cost (498,735) (501,360)
------------- ------------
Shareholders' equity, net 13,126,937 13,071,416
------------- ------------
TOTAL $119,226,698 $113,215,798
============= ============
----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
91
<PAGE>
PEOPLES LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
1999 1998
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 6,934,638 $ 6,604,133
Interest and dividends on investments:
Taxable interest and dividends 920,755 1,248,920
Nontaxable interest 681,652 412,729
Interest on federal funds sold 38,377 98,318
------------ -----------
Total interest income 8,575,422 8,364,100
------------ -----------
INTEREST EXPENSE:
Interest on deposits 3,566,976 3,757,345
Interest on borrowed funds 181,503 88,175
------------ -----------
Total interest expense 3,748,479 3,845,520
------------ -----------
NET INTEREST INCOME 4,826,943 4,518,580
PROVISION FOR POSSIBLE LOAN LOSSES 132,600 164,400
------------ -----------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 4,694,343 4,354,180
------------ -----------
OTHER INCOME:
Service charges 485,604 469,021
Other operating income 237,481 162,925
Gain on sale of securities 35,255 39,964
------------ -----------
Total other income 758,340 671,910
------------ -----------
92
<PAGE>
(continued)
OTHER EXPENSES:
Salaries and employee benefits 1,651,199 1,442,615
Occupancy expense, net 238,059 242,780
Furniture and equipment expense 253,141 129,574
Other operating expenses 1,500,041 1,432,922
------------ -----------
Total other expenses 3,642,440 3,247,891
------------ -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,810,243 1,778,199
PROVISION FOR INCOME TAXES 396,000 465,000
------------ -----------
NET INCOME $ 1,414,243 $ 1,313,199
============ ===========
EARNINGS PER SHARE $ 3.45 $ 3.20
============ ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 410,360 410,325
=========== ===========
--------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
93
<PAGE>
PEOPLES LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK TREASURY STOCK OTHER
---------------- ---------------- RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT SURPLUS EARNINGS (LOSS) INCOME TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 425,490 $212,745 15,165 $(501,360) $1,751,810 $10,737,202 $28,555 $ 12,228,952
------------
COMPREHENSIVE INCOME:
Net income 1,313,199 1,313,199
Change in net unrealized gain (loss)
on securities available for sale,
net of reclassification adjustment
and tax effects 83,203 83,203
------
Total comprehensive income 1,396,402
---------
CASH DIVIDEND DECLARED
($1.35 per share) (553,938) (553,938)
----------- ---------
BALANCE, DECEMBER 31, 1998 425,490 212,745 15,165 (501,360) 1,751,810 11,496,463 111,758 13,071,416
----------
94
<PAGE>
(Continued)
COMPREHENSIVE INCOME:
Net income 1,414,243 1,414,243
Change in net unrealized gain (loss)
on securities available for sale,
net of reclassification adjustment
and tax effects (762,191) (762,191)
--------
Total comprehensive income 652,052
-------
CASH DIVIDEND DECLARED
($1.46 per share) (599,156) (599,156)
SALE OF TREASURY STOCK (70) 2,625 2,625
--- ----- -----
BALANCE, DECEMBER 31, 1999 425,490 $212,745 15,095 $(498,735) $1,751,810 $12,311,550 $(650,433) $13,126,937
======= ======== ====== ========= ========== =========== ========= ===========
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
95
<PAGE>
PEOPLES LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,414,243 $ 1,313,199
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 132,600 164,400
Depreciation 324,374 194,430
Amortization and accretion, net 18,658 2,485
Unrealized loss (gain) on investments 392,646 (42,862)
Amortization of intangible asset 98,177 73,634
Loss on the sale of foreclosed assets held for sale 22,191 33,059
Loss on the sale of bank premises and equipment 7,477
Deferred income taxes (7,154) (847)
Gain on sale of securities (35,255) (39,964)
Change in:
Accrued interest receivable (40,782) (4)
Other assets (375,612) (181,877)
Accrued interest payable (81,838) (49,950)
Other liabilities 37,927 (78,896)
------------ ------------
Net cash provided by operating activities 1,907,652 1,386,807
------------ ------------
INVESTING ACTIVITIES:
Proceeds from sale and maturities of
available-for sale securities 10,636,217 22,731,939
Proceeds from sale of foreclosed assets held for sale 13,144 65,273
Proceeds from sales of bank premises and equipment 55,000
Purchase of available-for-sale securities (16,645,041) (21,776,431)
Purchase of interest-bearing balances in banks (2,000,000)
Proceeds from sales of interest-bearing balances in banks 2,000,000
Excess of loans originated over principal collected (5,369,605) (7,439,973)
Purchase of bank premises and equipment (332,861) (994,614)
------------ ------------
Net cash used in investing activities (9,643,146) (9,413,806)
------------ ------------
96
<PAGE>
(continued)
FINANCING ACTIVITIES:
Net (decrease) increase in deposit accounts (5,452,185) 6,663,564
Cash received for deposit liabilities assumed 10,402,928
Net increase (decrease) in borrowed funds 11,451,475 (5,675,000)
Cash dividends (599,156) (553,938)
Sale of treasury stock 2,625
------------
Net cash provided by financing activities 5,402,759 10,837,554
------------ ------------
(DECREASE) INCREASE IN CASH AND DUE FROM BANKS (2,332,735) 2,810,555
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 7,435,546 4,624,991
------------ ------------
CASH AND DUE FROM BANKS, END OF YEAR $ 5,102,811 $ 7,435,546
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION,
Amounts transferred from loans to foreclosed
Assets held for sale $ 32,573 $ 91,688
============ ============
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
97
<PAGE>
PEOPLES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Peoples Ltd. and its wholly-owned subsidiary, Peoples State Bank of
Wyalusing (the "Bank") (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
NATURE OF OPERATIONS
The Company provides a full range of basic financial services to
individuals, small businesses and corporate customers through its three
offices in Wyalusing and Wysox, Pennsylvania. The area is a rural and
suburban market with a strong economic base made up of light
manufacturing, retail and agricultural businesses. The Company's primary
deposit products are demand deposits and interest bearing time and
savings accounts. It offers a full array of loan products to meet the
needs of retail and commercial customers.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for possible loan
losses and the valuation of assets acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for possible loan losses and foreclosed
assets, management obtains independent appraisals for significant
properties.
The Company grants real estate, commercial, industrial and consumer loans
to customers primarily in Bradford County, Pennsylvania and its
contiguous counties. Although the Company has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent on the economic sector in which the Company
98
<PAGE>
operates. While management uses available information to recognize losses
on loans and foreclosed assets, future additions to the allowances may be
necessary based on changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowances for possible loan losses and
foreclosed assets. Such agencies may require the Company to recognize
additions to the allowances based on their judgments about information
available to them at the time of their examination. Because of these
factors, it is reasonably possible that the allowances for possible loan
losses and foreclosed assets may change materially in the near term.
INVESTMENT SECURITIES
Held-to-Maturity Securities - includes debt securities that the Company
has the positive intent and ability to hold to maturity. Such securities
are reported at amortized cost. The Company did not have any
held-to-maturity securities during 1999 or 1998.
Trading Securities - includes debt and equity securities bought and held
principally for the purpose of selling them in the near term. Such
securities are reported at fair value with unrealized holding gains and
losses included in earnings. The Company did not have any investment
securities held for trading purposes during 1999 or 1998.
Available-for-Sale Securities - includes debt and equity securities not
classified as either held-to-maturity or trading securities. Such
securities are reported at fair value, with unrealized holding gains and
losses excluded from earnings and reported as a separate component of
shareholders' equity, net of deferred income taxes. These net unrealized
holding gains and losses are the sole component of other comprehensive
(loss) income.
Gains and losses on sale of securities are determined using the specific
identification method.
LOANS
Loans are stated at face value, net of unearned discount, net unamortized
loan fees and the allowance for possible loan losses. Interest on real
estate loans is accrued on the principal balance on an actual day basis.
Interest on consumer loans is accrued over the term of each loan using
the simple interest method. Interest on commercial loans is accrued over
the term of each loan using the "actuarial" method. Nonrefundable loan
origination fees and certain direct loan origination costs are recognized
over the life of the related loans as an adjustment of the yield.
Loan losses and recoveries are charged or credited to the allowance for
possible loan losses account at the time incurred; the provision for
possible loan losses is charged to
99
<PAGE>
operating expenses and credited to the allowance for possible loan losses
account based upon management's continual appraisal of the allowance
account as it relates to the loan portfolio. It is the opinion of
management that the allowance for possible loan losses is adequate to
absorb future loan losses.
IMPAIRED LOANS
Loans are placed on nonaccrual when a loan is specifically determined to
be impaired or when principal or interest is delinquent for 90 days or
more. Interest income generally is not recognized on specific impaired
loans unless the likelihood of further loss is remote. Interest payments
received on such loans are applied as a reduction of the loan principal
balance. Interest income on other nonaccrual loans is recognized only to
the extent of interest payments received. When a loan is removed from
nonaccrual and a loss occurs, any unpaid interest previously accrued is
charged off through the loan loss allowance unless it was earned in the
current year then it is reversed from income.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation expense is determined on the straight-line and
accelerated methods over the estimated useful lives of the related
assets. Costs incurred for routine maintenance and repairs are expensed
currently. The estimated depreciable lives used in determining
depreciation expense are as follows:
<TABLE>
<CAPTION>
<S> <C>
Bank premises 5 to 50 years
Equipment 3 to 33 years
</TABLE>
INTANGIBLE ASSET
The premium paid for deposit liabilities assumed is being amortized over
the expected life of the deposit base for each type of deposit and ranges
from 8 to 12 years.
FORECLOSED ASSETS HELD FOR SALE
Foreclosed assets held for sale are carried at the lower of cost or fair
value of the assets less estimated selling costs. Foreclosed assets held
for sale amounted to $120,677 and $56,545 at December 31, 1999 and 1998,
respectively, and are included in other assets in the accompanying
financial statements.
100
<PAGE>
PENSION PLAN
The Company maintains a Section 401(k) profit sharing plan which covers
substantially all of its employees. Eligible, participating employees may
contribute between 1% and 10% of their salaries. The Company contributes
an amount equal to 50% of the first 3% of the participant's contribution.
In addition, the Company may elect to make a discretionary contribution
of participants' salary. Participants are, at all times, fully vested in
their contributions and become fully vested in the Company's
contributions in five years.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax
assets or liabilities are expected to be realized or settled. As changes
in tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock outstanding, adjusted for treasury stock. The Company's
basic and diluted earnings per share are the same since there are no
dilutive shares of potential common stock outstanding.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold. Generally,
federal funds are sold for one-day periods.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has no derivative financial instruments requiring disclosure
under SFAS No. 119.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and Due From Banks - The carrying amounts reported in the statement
of financial condition for cash and due from banks approximate those
assets' fair values.
101
<PAGE>
Securities - The fair value of securities, except certain state and
municipal securities, is estimated based on bid prices published in
financial newspapers or bid quotations received from securities dealers.
The fair value of certain state and municipal securities is not readily
available through market sources other than dealer quotations, so fair
value estimates are based on quoted market prices of similar instruments,
adjusted for differences between the quoted instruments and the
instruments being valued.
Loans - For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans (for example, fixed rate
commercial real estate, rental property mortgage loans and commercial and
industrial loans) are estimated using discounted cash flow analysis,
based on interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value estimates
include judgments regarding future expected loss experience and risk
characteristics.
Deposits - The fair values disclosed for demand deposits (for example,
interest-bearing checking accounts and passbook accounts) are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The fair values for certificates of
deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated contractual maturities on such time deposits.
Borrowed Funds - The carrying amounts of borrowed funds approximate their
fair values.
Commitments - Commitments to extend credit were evaluated and fair value
was estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current
levels of interest rates and the committed rates.
Accrued Interest - The carrying amount of accrued interest receivable and
payable approximates fair value.
102
<PAGE>
In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instruments. The aggregate fair
value amounts presented do not represent the underlying value of the
Company.
2. CASH AND DUE FROM BANKS
The Company is required to maintain average reserve balances with the
Federal Reserve Bank based on a percentage of deposits. The average
amount of those reserve balances for the years ended December 31, 1999
and 1998 was approximately $50,000.
Deposits with one financial institution are insured up to $100,000. The
Company maintains cash and cash equivalents with certain other financial
institutions in excess of the insured amount.
3. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities at December
31, 1999 and 1998, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999
----
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-Sale Securities:
U.S. Treasury securities $ 2,466 $ - $160 $ 2,306
U.S. government agencies 9,500 - 305 9,195
Obligation of states and
political subdivision 17,012 10 506 16,516
Corporate securities 1,732 1 24 1,709
Other securities 9 - 1 8
------ ------- ------- ------
Total debt securities 30,719 11 996 29,734
Restricted equity securities 1,284 - - 1,284
------ ------- ------- ------
Total $32,003 $11 $996 $31,018
======= ======= ======= =======
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
1998
----
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available-for-Sale Securities:
U.S. Treasury securities $ 2,004 $ 29 $ 2,033
U.S. government agencies 10,900 27 $11 10,916
Obligation of states and
political subdivision 11,484 141 17 11,608
Corporate securities 1,077 7 1,084
Other securities 113 7 106
------ ----- ------ ------
Total debt securities 25,578 204 35 25,747
Restricted equity securities 401 401
------ ----- ------ ------
Total $25,979 $204 $35 $26,148
======= ===== ====== =======
</TABLE>
There are no significant concentrations of investments (greater than 10
percent of shareholders' equity) in any individual security issue other
than U.S. government securities.
Securities with a carrying value of approximately $3,512,000 at December
31, 1999, were pledged to secure public deposits and for other purposes as
required by law.
The amortized cost and fair value of debt securities at December 31, 1999
by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or repay obligations with or without call or
repayment penalties:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---- -----
<S> <C> <C>
Available-for-Sale Debt Securities:
Due in one year or less $ 4,171 $ 4,164
Due after one year through five years 15,034 14,757
Due after five years through ten years 7,261 6,923
Due ten years and over 4,244 3,882
Mortgage-backed securities 9 8
--------- --------
Total $30,719 $29,734
========= ========
</TABLE>
104
<PAGE>
Proceeds from the sale of available-for-sale securities amounted to
$8,347,734 and $4,063,853 in 1999 and 1998, respectively. Gross gains of
$35,255 and $39,964 were realized on those sales in 1999 and 1998,
respectively.
4. LOANS
Major loan classifications at December 31, 1999 and 1998, are summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Real estate loans $32,084,083 $30,010,848
Commercial and industrial loans 25,122,276 22,164,273
Consumer loans 21,862,826 21,594,787
----------- -----------
Gross loans 79,069,185 73,769,908
Less:
Unearned discount - (119)
Unamortized loan fees, net (68,115) (83,742)
Allowance for possible loan losses (911,424) (800,833)
----------- -----------
Loans, net $78,089,646 $72,885,214
=========== ===========
</TABLE>
Changes in the allowance for possible loan losses for the years ended
December 31, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Beginning balance $800,833 $710,622
Provision charged to operations 132,600 164,400
Loans charged off (148,160) (120,442)
Recoveries 126,151 46,253
----------- -----------
Ending balance $ 911,424 $ 800,833
=========== ===========
</TABLE>
At December 31, 1999 and 1998, impaired loans on nonaccrual status
amounted to $411,220 and $262,521, respectively. The average balance of
impaired loans was $427,021 in 1999 and $92,070 in 1998. The allowance
for possible loan losses related to impaired loans was approximately
$146,000 and $39,000 at December 31, 1999 and 1998, respectively.
Payments of $258,435 were received in 1999 of which $239,792 and $14,556
were applied
105
<PAGE>
to principal and interest respectively. Payments of $142,359 received in
1998 were applied to principal.
5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1999 and 1998, are summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Land and improvements $ 25,474 $ 35,474
Bank premises 2,230,942 2,230,942
Equipment, furniture and fixtures 1,829,163 1,563,011
--------- ---------
Total 4,085,579 3,829,427
Less accumulated depreciation 1,589,489 1,279,347
--------- ---------
Bank premises and equipment, net $2,496,090 $2,550,080
========== ==========
</TABLE>
6. DEPOSITS
Certificates of deposit of $100,000 or more, included in time deposits,
totaled $12,614,481 and $13,564,181 at December 31, 1999 and 1998,
respectively. Interest expense related to such deposits was $731,488 and
$691,780 for the years ended December 31, 1999 and 1998, respectively.
At December 31, 1999, the scheduled maturities of certificates of deposit
are as follows (in thousands):
<TABLE>
<S> <C>
2000 $38,985
2001 4,256
2002 1,419
2003 761
-------
Total $45,421
=======
</TABLE>
The Company paid interest on all deposits and other borrowings of
$3,748,481 and $3,845,521 during 1999 and 1998, respectively.
106
<PAGE>
7. BORROWED FUNDS
Borrowed funds from the Federal Home Loan Bank of Pittsburgh consists of
the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Fixed rate advances:
Due June 16, 2000, 6.07% $ 1,000,000 $ -
Due March 25, 2002, 5.51% - 1,000,000
Convertible select-fixed to float
Due December 2004, 5.60% 2,000,000 -
Due December 2006, 5.85% 5,500,000 -
Line of credit, 4.06% at December 31, 1999 (1) 3,951,375 -
----------- ----------
Total $12,451,375 $1,000,000
=========== ==========
</TABLE>
These borrowed funds and the line of credit are secured by the Company's
Federal Home Loan Bank stock, U.S. government agency and mortgage-backed
securities, and first mortgage liens under a collateral pledge and
security agreement.
(1) The Company has a $15,000,000 line of credit available from the
Federal Home Loan Bank of Pittsburgh which expires March 8, 2000.
8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Currently payable $403,154 $465,847
Deferred (7,154) (847)
-------- --------
Provision for income taxes $396,000 $465,000
======== ========
</TABLE>
107
<PAGE>
The following temporary differences gave rise to the deferred tax asset
(liability) at December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $130 $ 93
Loan fees and costs - 4
Intangible asset 10 -
Unrealized loss on available-for-sale securities 335 -
---- ----
Total 475 97
---- ----
Deferred tax liabilities:
Depreciation (89) (51)
Bond accretion (5) (5)
Intangible asset - (3)
Unrealized gains on available-for-sale securities - (58)
Loan fees and costs (1) -
---- ----
Total (95) (117)
---- ----
Deferred tax asset (liability), net $380 $ (20)
==== ====
</TABLE>
The deferred tax balance at December 31, 1999 and 1998 is included in
other assets (other liabilities) in the accompanying balance sheet. The
effective federal income tax rates for the years ended December 31, 1999
and 1998 were 22.0% and 26.5%, respectively. A reconciliation between the
expected statutory income tax rates and the effective income tax rates on
income before income taxes follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Provision at statutory rate $ 615,483 34.0% $ 604,587 34.0%
Tax-exempt income (231,762) (12.8) (154,991) (8.7)
Other, net 12,279 .8 15,404 1.2
--------- ------- --------- -------
Effective income tax and rates $ 396,000 22.0% $ 465,000 26.5%
========= ======= ========= =======
</TABLE>
The Company made income tax payments of $358,215 and $631,200 during 1999
and 1998, respectively.
108
<PAGE>
9. RETIREMENT PLAN
The Company made contributions to its profit sharing plan of $74,630
and $60,175 in 1999 and 1998, respectively.
10. COMPREHENSIVE (LOSS) INCOME
The components of other comprehensive income and related tax effects are
as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Unrealized holding (losses) gains on available-for-sale
securities $ (996) $166
Less reclassification adjustment for gains realized in income (35) (40)
-------- -----
Net unrealized holding (losses) gains (1,031) 126
Tax effect 269 (43)
-------- -----
Net-of-tax amount $ (762) $ 83
======== =====
</TABLE>
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off- balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments are commitments to extend credit
and standby letters of credit. Those instruments involve, to varying
degrees, elements of credit, interest rate or liquidity risk in excess of
the amount recognized in the balance sheet. The contract or notional
amounts of those instruments express the extent of involvement the Company
has in particular classes of financial instruments.
The Company's exposure to credit loss from nonperformance by the other
party to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with off-balance-sheet credit
risk.
109
<PAGE>
A summary of the notional amounts of the Company's financial
investments with off-balance-sheet risk at December 31, 1999, follows:
<TABLE>
<S> <C>
Commitments to extend credit $5,900,699
Standby letters of credit $ 198,500
</TABLE>
Commitments to extend credit are legally binding agreements to lend to
customers. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of fees. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future liquidity
requirements. The Company evaluates each customer's credit-worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Company on extension of credit, is based on management's credit
assessment of the counterparty.
Standby letters of credit written are conditional commitments issued by
the Company guaranteeing performance by a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers.
12. COMMITMENTS
The Company has entered into a number of operating lease agreements for
its branch banking facilities. The following is a schedule of the future
minimum rental payments required under these operating lease agreements:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31
------------------------
<S> <C>
2000 $ 73,500
2001 74,333
2002 76,000
2003 76,000
2004 78,958
Thereafter 658,001
-------
Total $1,036,792
==========
</TABLE>
Rental expense on these leases was $61,799 and $68,635 in 1999 and 1998,
respectively.
110
<PAGE>
13. LOANS TO DIRECTORS AND EXECUTIVE OFFICERS
At December 31, 1999 and 1998, certain officers and directors, and
companies in which they have 10 percent or more beneficial interest were
indebted to the Company in the aggregate amount of $1,531,794 and
$1,500,789, respectively. New loans and loan repayments in 1999 were
$373,884 and $342,879, respectively. All such loans were made in the
ordinary course of business, and were substantially on the same terms and
at those rates prevailing at the time for comparable transactions with
others.
14. REGULATORY MATTERS
Peoples, Ltd. and the Bank are subject to various regulatory capital
requirements administered by the state and federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect of the Company's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific
capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined)
to average assets (as defined). Management believes, as of December 31,
1999, that the Company meets all capital adequacy requirements to which it
is subject.
111
<PAGE>
The Bank's actual capital amounts and ratios are also presented in the
table (in thousands). No deduction from capital for interest-rate risk was
made in 1999 or 1998. The Company's capital and ratios are not materially
different from those of the Bank.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
UNDER PROMPT
FOR CAPITAL ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
--------------- -------------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ------------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999:
Total Capital (to Risk Weighted
Assets) $13,774 19.2% LESS THAN OR LESS THAN OR LESS THAN OR LESS THAN OR
EQUAL TO EQUAL TO EQUAL TO EQUAL TO
$ 5,744 8.0% $7,174 10.0%
Tier I Capital (to Risk Weighted
Assets) $13,041 18.2% LESS THAN OR LESS THAN OR LESS THAN OR LESS THAN OR
EQUAL TO EQUAL TO EQUAL TO EQUAL TO
$ 2,869 4.0% $4,304 6.0%
Tier I Capital (to Average
Assets) $13,041 11.1% LESS THAN OR LESS THAN OR LESS THAN OR LESS THAN OR
EQUAL TO EQUAL TO EQUAL TO EQUAL TO
$ 4,699 4.0% $5,882 5.0%
December 31, 1998:
Total Capital (to Risk Weighted
Assets) $12,928 19.0% LESS THAN OR LESS THAN OR LESS THAN OR LESS THAN OR
EQUAL TO EQUAL TO EQUAL TO EQUAL TO
$ 5,451 8.0% $ 6,813 10.0%
Tier I Capital (to Risk Weighted
Assets) $12,128 17.8% LESS THAN OR LESS THAN OR LESS THAN OR LESS THAN OR
EQUAL TO EQUAL TO EQUAL TO EQUAL TO
$ 2,725 4.0% $ 4,088 6.0%
Tier I Capital (to Average
Assets) $12,128 11.1% LESS THAN OR LESS THAN OR LESS THAN OR LESS THAN OR
EQUAL TO EQUAL TO EQUAL TO EQUAL TO
$ 4,357 4.0% $ 5,447 5.0%
</TABLE>
Dividends which may be paid by Peoples State Bank of Wyalusing to Peoples
Ltd. are limited to undistributed profits of the bank which amounted to
approximately $11,812,000 at December 31, 1999 subject to minimum
regulatory capital requirements. Dividends which may be paid by Peoples
Ltd. are limited to the net income of the current year plus the retained
net income of the previous two years. Accordingly, 2000 dividends for
Peoples Ltd. cannot exceed $1,574,348 plus 2000 net income.
112
<PAGE>
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying or notional amount and estimated fair values of the Company's
financial instruments are as follows at December 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
CARRYING CARRYING
OR OR
NOTIONAL FAIR NOTIONAL FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------ -------- ------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks $ 5,103 $ 5,103 $ 7,436 $ 7,436
Interest-bearing balances
in banks - - 2,000 2,000
Available-for-sale securities 31,018 31,018 26,148 26,148
Loans, net of allowance 78,090 77,146 72,885 76,262
Accrued interest receivable 878 878 837 837
FINANCIAL LIABILITIES:
Deposits 93,078 92,968 98,531 99,142
Borrowed funds 12,451 12,112 1,000 1,000
Accrued interest payable 425 425 507 507
OTHER LIABILITIES,
Commitments to extend credit 6,099 6,099 6,902 6,902
</TABLE>
16. YEAR 2000 RISKS (UNAUDITED)
Like virtually every organization, the Company is subject to risks
associated with the Year 2000 Issue (the "Issue"). The Issue is the result
of shortcomings in electronic data processing systems which affects
computer software and hardware, transactions with customers, vendors and
other organizations; and equipment dependent on microchips. The Company
performed the remediation efforts it believes necessary to address the
Issue but recognizes the Issue could result in risks beyond January 1,
2000 because failures can occur after that date.
It is not possible for any organization to guarantee the results of its
own remediation efforts or to accurately predict the impact of the Issue
on third parties with whom the Company does business. If the Company's
efforts or those of third parties with whom it does business are not
successful, the Issue could adversely affect the Company's operations and
financial condition in the near term.
113
<PAGE>
17. DEPOSIT ACQUISITION
In March 1998, the Company assumed approximately $11.3 million of deposit
accounts in connection with the acquisition of three branch offices from
another bank. A premium of $904,603 was paid for those deposits. In
addition, bank premises and equipment were acquired at a cost of $90,000.
114
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
dated as of
June 22, 2000
by and between
CITIZENS & NORTHERN CORPORATION
and
PEOPLES LTD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
RECITALS.......................................................... A-1
ARTICLE I Certain Definitions
1.01 CERTAIN DEFINITIONS......................................... A-1
ARTICLE II The Merger
2.01 THE PEOPLES MERGER.......................................... A-5
2.02 THE SUBSIDIARY MERGER....................................... A-5
2.03 EFFECTIVENESS OF THE PEOPLES MERGER......................... A-5
2.04 EFFECTIVE DATE AND EFFECTIVE TIME........................... A-5
ARTICLE III Consideration; Exchange Procedures
3.01 MERGER CONSIDERATION........................................ A-5
3.02 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS..................... A-6
3.03 FRACTIONAL SHARES........................................... A-6
3.04 EXCHANGE PROCEDURES......................................... A-6
3.05 ANTI-DILUTION PROVISIONS.................................... A-7
3.06 OTHER TRANSACTIONS.......................................... A-7
ARTICLE IV Representations and Warranties
4.01 DISCLOSURE SCHEDULES........................................ A-8
4.02 STANDARD.................................................... A-8
4.03 REPRESENTATIONS AND WARRANTIES OF PEOPLES................... A-8
4.04 REPRESENTATIONS AND WARRANTIES OF CNN....................... A-16
ARTICLE V Covenants
5.01 PEOPLES TO CARRY ON BUSINESS IN NORMAL MANNER............... A-20
5.02 CNN TO CARRY ON BUSINESS IN NORMAL MANNER................... A-21
5.03 REASONABLE BEST EFFORTS..................................... A-22
5.04 SHAREHOLDER APPROVAL........................................ A-22
5.05 REGISTRATION STATEMENT...................................... A-22
5.06 PRESS RELEASES.............................................. A-23
5.07 ACCESS; INFORMATION......................................... A-23
5.08 ACQUISITION PROPOSALS....................................... A-24
5.09 AFFILIATE AGREEMENTS........................................ A-24
5.10 TAKEOVER LAWS............................................... A-24
5.11 [INTENTIONALLY DELETED]
5.12 REGULATORY APPLICATIONS..................................... A-24
5.13 INDEMNIFICATION............................................. A-25
5.14 OPPORTUNITY OF EMPLOYMENT; EMPLOYEE BENEFITS................ A-25
5.15 NOTIFICATION OF CERTAIN MATTERS............................. A-26
5.16 DIVIDEND COORDINATION....................................... A-26
5.17 CNN BOARD REPRESENTATION.................................... A-26
5.18 RESULTING BANK BOARD OF DIRECTORS........................... A-26
5.19 FORMATION OF ADVISORY BOARD................................. A-26
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
5.20 ACCOUNTING AND TAX TREATMENT................................ A-27
5.21 NO BREACHES OF REPRESENTATIONS AND WARRANTIES............... A-27
5.22 CONSENTS.................................................... A-27
5.23 INSURANCE COVERAGE.......................................... A-27
5.24 CORRECTION OF INFORMATION................................... A-27
5.25 CONFIDENTIALITY............................................. A-27
5.26 SUPPLEMENTAL ASSURANCES..................................... A-27
5.27 EMPLOYMENT AGREEMENT........................................ A-28
5.28 VOTING AGREEMENT............................................ A-28
ARTICLE VI Conditions to Consummation of the Holding Company Merger
6.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER...................................................... A-28
6.02 CONDITIONS TO OBLIGATION OF PEOPLES......................... A-28
6.03 CONDITIONS TO OBLIGATION OF CNN............................. A-30
ARTICLE VII Termination
7.01 TERMINATION................................................. A-30
7.02 EFFECT OF TERMINATION AND ABANDONMENT; ENFORCEMENT OF
AGREEMENT................................................... A-31
ARTICLE VIII Miscellaneous
8.01 SURVIVAL.................................................... A-31
8.02 WAIVER; AMENDMENT........................................... A-31
8.03 COUNTERPARTS................................................ A-31
8.04 GOVERNING LAW............................................... A-32
8.05 EXPENSES.................................................... A-32
8.06 NOTICES..................................................... A-32
8.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES.......... A-32
8.08 INTERPRETATION; EFFECT...................................... A-32
8.09 WAIVER OF JURY TRIAL........................................ A-33
</TABLE>
<TABLE>
<S> <C>
EXHIBIT A Form of Stock Option Agreement
EXHIBIT B Form of PEOPLES Affiliate Agreement
EXHIBIT C Form of Voting Agreement
EXHIBIT D First Amendment to Executive Employment Agreement
</TABLE>
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AGREEMENT AND PLAN OF MERGER, dated as of June 22, 2000, (this "AGREEMENT"),
is by and between Citizens & Northern Corporation ("CNN") and Peoples Ltd.
("PEOPLES").
RECITALS
A. CITIZENS & NORTHERN CORPORATION. CNN is a Pennsylvania corporation,
having its principal place of business in Wellsboro, Pennsylvania.
B. PEOPLES LTD. PEOPLES is a Pennsylvania corporation, having its
principal place of business in Wyalusing, Pennsylvania.
C. STOCK OPTION AGREEMENT. As an inducement to the willingness of CNN to
continue to pursue the transactions contemplated by this Agreement, PEOPLES
intends to grant to CNN an option pursuant to a stock option agreement, in
substantially the form of Exhibit A.
D. INTENTIONS OF THE PARTIES. It is the intention of the parties to this
Agreement that the business combinations contemplated hereby be accounted for
under the "pooling-of-interests" accounting method and that each be treated as a
"reorganization" under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE").
E. BOARD ACTION. The respective Boards of Directors of each of CNN and
PEOPLES have determined that it is in the best interests of their respective
companies and their shareholders to consummate the strategic business
combinations provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 CERTAIN DEFINITIONS. The following terms are used in this Agreement
with the meanings set forth below:
"ACQUISITION PROPOSAL" means any tender or exchange offer, proposal for
a merger, consolidation or other business combination involving PEOPLES or
any of its Subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets or
deposits of, PEOPLES or any of its Subsidiaries, other than the transactions
contemplated by this Agreement.
"AGREEMENT" means this Agreement, as amended or modified from time to
time in accordance with Section 8.02.
"AGREEMENT TO MERGE" has the meaning set forth in Section 2.03.
"BANK" means Peoples State Bank of Wyalusing, Pa., a wholly-owned
subsidiary of PEOPLES.
"BHCA" means the Bank Holding Company Act of 1956, as amended.
"CNN" has the meaning set forth in the preamble to this Agreement.
"CNN ARTICLES" means the Articles of Incorporation of CNN, as amended.
"CNN BANK" means Citizens & Northern Bank, a Pennsylvania banking
corporation which is a wholly-owned subsidiary of CNN.
"CNN BOARD" means the Board of Directors of CNN.
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"CNN BYLAWS" means the Bylaws of CNN, as amended.
"CNN COMMON STOCK" means the common stock, par value $1.00 per share, of
CNN.
"CNN SEC DOCUMENTS" has the meaning set forth in Section 4.04(g).
"CNN STOCK" means the CNN Common Stock.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPENSATION AND BENEFIT PLANS" has the meaning set forth in
Section 4.03(m).
"CONSULTANTS" has the meaning set forth in Section 4.03(m).
"COSTS" has the meaning set forth in Section 5.14(a).
"DIRECTORS" has the meaning set forth in Section 4.03(m).
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4.01.
"DISSENTING SHARES" means any shares of PEOPLES Common Stock held by a
holder who properly demands and perfects appraisal rights with respect to
such shares in accordance with applicable provisions of the PBCL.
"DSCP" means the Department of State of the Commonwealth of
Pennsylvania.
"EFFECTIVE DATE" means the date on which the Effective Time occurs.
"EFFECTIVE TIME" means the effective time of the Merger, as provided for
in Section 2.04.
"EMPLOYEES" has the meaning set forth in Section 4.03(m).
"EMPLOYMENT AGREEMENT" has the meaning set forth in Section 5.01(d).
"ENVIRONMENTAL LAWS" means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Clean Water Act,
the Federal Clean Air Act, and the Occupational Safety and Health Act, each
as amended, regulations promulgated thereunder, and state counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means PEOPLES and any other employer that is, or at
any relevant time was, together with PEOPLES, treated as a "single employer"
under Code Sections 414(b), 414(c), 414(m) or 414(o).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"EXCHANGE AGENT" has the meaning set forth in Section 3.04.
"EXCHANGE FUND" has the meaning set forth in Section 3.04.
"EXCHANGE RATIO" has the meaning set forth in Section 3.01.
"FDIC" means the Federal Deposit Insurance Corporation.
"FFIEC" means Federal Financial Institutions Examination Committee.
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"GOVERNMENTAL AUTHORITY" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"INDEMNIFIED PARTY" has the meaning set forth in Section 5.14(a).
"IRS" has the meaning set forth in Section 4.03(m).
The term "KNOWLEDGE" means, with respect to a party hereto, actual
knowledge of any officer of that party with the title of not less than the
senior vice president.
"LIEN" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"MATERIAL ADVERSE EFFECT" means, with respect to CNN or PEOPLES, any
effect that (i) is material and adverse to the financial position, results
of operations or business of CNN and its Subsidiaries taken as a whole, or
PEOPLES and its Subsidiaries taken as a whole, respectively, or (ii) would
materially impair the ability of either CNN or PEOPLES to perform its
obligations under this Agreement or otherwise materially threaten or
materially impede the consummation of the Merger and the other transactions
contemplated by this Agreement; PROVIDED, HOWEVER, that Material Adverse
Effect shall not be deemed to include the impact of (a) changes in banking
and similar laws of general applicability or interpretations thereof by
courts or governmental authorities or other changes affecting depository
institutions generally, including changes in general economic conditions and
changes in prevailing interest and deposit rates, (b) any modifications or
changes to valuation policies and practices in connection with the Merger or
restructuring charges taken in connection with the Merger, in each case in
accordance with generally accepted accounting principles, (c) changes
resulting from expenses (such as legal, accounting and investment bankers'
fees) incurred in connection with this Agreement or the transactions
contemplated herein, and (d) actions or omissions of a party which have been
waived in accordance with Section 8.02 hereof.
"MERGER" collectively refers to the PEOPLES Merger and the Subsidiary
Merger, as set forth in Section 2.01 and Section 2.02, respectively.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.01.
"NEW CERTIFICATE" has the meaning set forth in Section 3.04.
"NASD" means The National Association of Securities Dealers.
"OLD CERTIFICATE" has the meaning set forth in Section 3.04.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PBCL" means the Pennsylvania Business Corporation Law of 1988, as
amended.
"PDB" means the Pennsylvania Department of Banking.
"PENSION PLAN" has the meaning set forth in Section 4.03(m).
"PEOPLES" has the meaning set forth in the preamble to this Agreement.
"PEOPLES ARTICLES" means the Articles of Incorporation of PEOPLES.
"PEOPLES AFFILIATE" has the meaning set forth in Section 5.09.
"PEOPLES BOARD" means the Board of Directors of PEOPLES.
"PEOPLES BYLAWS" means the Bylaws of PEOPLES, as amended.
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"PEOPLES COMMON STOCK" means the common stock, par value $.50 per share,
of PEOPLES.
"PEOPLES MEETING" has the meaning set forth in Section 5.04.
"PEOPLES MERGER" has the meaning set forth in Section 2.01.
"PEOPLES STOCK" means PEOPLES Common Stock, par value $.50 per share.
"PERSON" means any individual, bank, corporation, partnership,
association, joint-stock company, business trust or unincorporated
organization.
"PREVIOUSLY DISCLOSED" by a party shall mean information set forth in
its Disclosure Schedule.
"PROXY/PROSPECTUS" has the meaning set forth in Section 5.05.
"PROXY STATEMENT" has the meaning set forth in Section 5.05.
"REGISTRATION STATEMENT" has the meaning set forth in Section 5.05.
"REGULATORY AUTHORITY" has the meaning set forth in Section 4.03(i).
"REPLACEMENT OPTION" has the meaning set forth in Section 3.06.
"REPRESENTATIVES" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"RESULTING BANK" has the meaning set forth in Section 2.02.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"STOCK OPTION AGREEMENT" has the meaning set forth in Recital C.
"SUBSIDIARY" AND "SIGNIFICANT SUBSIDIARY" have the meanings ascribed to
them in Rule 1-02 of Regulation S-X of the SEC.
"SUBSIDIARY MERGER" has the meaning set forth in Section 2.02.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.01.
"TAKEOVER LAWS" has the meaning set forth in Section 6.03(c).
"TAX" AND "TAXES" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts,
sales, use, ad valorem, goods and services, capital, production, transfer,
franchise, windfall profits, license, withholding, payroll, employment,
disability, employer health, excise, estimated, severance, stamp,
occupation, property, environmental, unemployment or other taxes, custom
duties, fees, assessments or charges of any kind whatsoever, together with
any interest and any penalties, additions to tax or additional amounts
imposed by any taxing authority whether arising before, on or after the
Effective Date.
"TAX RETURNS" means any return, amended return or other report
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with respect to any Tax.
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"TREASURY STOCK" shall mean shares of PEOPLES Stock held by PEOPLES or
any of its Subsidiaries or by CNN or any of its Subsidiaries, in each case
other than in a fiduciary capacity or as a result of debts previously
contracted in good faith.
ARTICLE II
THE MERGER
2.01 THE HOLDING COMPANY MERGER. At the Effective Time (i) PEOPLES shall
be merged with and into CNN (the "HOLDING COMPANY MERGER" or the "PEOPLES
MERGER"), (ii) CNN shall survive and continue to exist as a Pennsylvania
corporation (CNN, as the surviving corporation in the Holding Company Merger,
sometimes being referred to herein as the "SURVIVING CORPORATION"). The Articles
of Incorporation of CNN, as in effect immediately prior to the Effective Time,
shall be the Articles of Incorporation of the Surviving Corporation; and the
Bylaws of CNN, as in effect immediately prior to the Effective Time, shall be
the Bylaws of the Surviving Corporation.
2.02 THE SUBSIDIARY MERGER. At the time specified by CNN Bank in its
articles of merger filed with the PDB (which shall not be earlier than the
Effective Time, Bank shall merge with and into CNN Bank (the "SUBSIDIARY
MERGER") pursuant to an agreement to merge (the "AGREEMENT TO MERGE") to be
executed by Bank and CNN Bank and filed with the PDB. Upon consummation of the
Subsidiary Merger, the separate corporate existence of Bank shall cease and CNN
Bank shall survive and continue to exist as a state banking corporation (CNN
Bank, as the resulting bank in the Subsidiary Merger, sometimes being referred
to herein as the "RESULTING BANK"). (The Holding Company Merger and the
Subsidiary Merger shall sometimes collectively be referred to herein as the
"MERGER".)
2.03 EFFECTIVENESS OF THE HOLDING COMPANY MERGER. Subject to the
satisfaction or waiver of the conditions set forth in Article VI, the PEOPLES
Merger shall become effective upon the occurrence of the filing in the office of
the DSCP of articles of merger in accordance with Section 1928 of the PBCL, or
such later date and time as may be set forth in such filings.
2.04 EFFECTIVE DATE AND EFFECTIVE TIME. The parties shall cause the
effective date of the Holding Company Merger (the "EFFECTIVE DATE") to occur as
soon as is practicable after each of the conditions set forth in Article VI have
been satisfied or waived, provided, no such election shall cause the Effective
Date to fall after the date specified in Section 7.01(c) hereof or after the
date or dates on which any Regulatory Authority approval or any extension
thereof expires. The time on the Effective Date when the Holding Company Merger
shall become effective is referred to as the "EFFECTIVE TIME."
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.01 MERGER CONSIDERATION. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the PEOPLES Merger and without
any action on the part of any Person:
(a) OUTSTANDING PEOPLES COMMON STOCK AND PEOPLES RIGHTS. Each share,
excluding Treasury Stock and Dissenting Shares, of PEOPLES Common Stock
issued and outstanding immediately prior to the Effective Time shall become
and be converted into 2.5 shares of CNN Common Stock (the "EXCHANGE RATIO").
The Exchange Ratio shall be subject to adjustment as set forth in
Section 3.05.
(b) TREASURY SHARES. Each share of PEOPLES Common Stock held as
Treasury Stock and each share of PEOPLES Common Stock held by CNN
immediately prior to the Effective Time shall be canceled and retired at the
Effective Time and no consideration shall be issued in exchange therefor.
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(c) OUTSTANDING CNN STOCK. Each share of CNN Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding and unaffected by the PEOPLES Merger.
3.02 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS. At the Effective Time,
holders of PEOPLES Common Stock shall cease to be, and shall have no rights as,
shareholders of PEOPLES, other than to receive any dividend or other
distribution with respect to such PEOPLES Common Stock with a record date
occurring prior to the Effective Time and the consideration provided under this
Article III, and appraisal rights in the case of Dissenting Shares. After the
Effective Time, there shall be no transfers on the stock transfer books of
PEOPLES or the Surviving Corporation of any shares of PEOPLES Stock.
3.03 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of CNN Common Stock and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued in the PEOPLES Merger;
instead, CNN shall pay to each holder of PEOPLES Common Stock who would
otherwise be entitled to a fractional share of CNN Common Stock (after taking
into account all Old Certificates delivered by such holder) an amount in cash
(without interest) determined by multiplying such fractional share of CNN Common
Stock to which the holder would be entitled by the average of the bid and ask
prices of CNN Common Stock, as reported by the OTC Bulletin Board for the twenty
(20) trading days immediately proceeding the fifth (5th) trading day prior to
the Effective Date.
3.04 EXCHANGE PROCEDURES. (a) At or prior to the Effective Time, CNN shall
deposit, or shall cause to be deposited, with the CNN Bank (in such capacity,
the "EXCHANGE AGENT"), for the benefit of the holders of certificates formerly
representing shares of PEOPLES Common Stock ("OLD CERTIFICATES"), for exchange
in accordance with this Article III, certificates representing the shares of CNN
Common Stock ("NEW CERTIFICATES") and an estimated amount of cash (such cash and
New Certificates, together with any dividends or distributions with a record
date occurring on or after the Effective Date with respect thereto (without any
interest on any such cash, dividends or distributions), being hereinafter
referred to as the "EXCHANGE FUND") to be paid pursuant to this Article III in
exchange for outstanding shares of PEOPLES Common Stock.
(b) Within five (5) business days after the Effective Date, CNN shall send
or cause to be sent to each former holder of record of shares of PEOPLES Common
Stock immediately prior to the Effective Time transmittal materials for use in
exchanging such shareholder's Old Certificates for the consideration set forth
in this Article III. CNN shall cause the New Certificates into which shares of a
shareholder's PEOPLES Common Stock are converted on the Effective Date and/or
any check in respect of any fractional share interests or dividends or
distributions which such person shall be entitled to receive to be delivered to
such shareholder upon delivery to the Exchange Agent of Old Certificates
representing such shares of PEOPLES Common Stock (or an indemnity affidavit
reasonably satisfactory to CNN and the Exchange Agent, if any of such
certificates are lost, stolen or destroyed) owned by such shareholder. No
interest will be paid on any such cash to be paid in lieu of fractional share
interests or in respect of dividends or distributions which any such person
shall be entitled to receive pursuant to this Article III upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent, if any, nor
any party hereto shall be liable to any former holder of PEOPLES Stock for any
amount properly delivered in good faith to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(d) Dividends, if any, payable by CNN after the Effective Date to any former
shareholder of PEOPLES who has not prior to the payment date surrendered his
PEOPLES Common Stock certificates shall be withheld. Any dividends so withheld
shall be paid, without interest, to such former shareholder of PEOPLES upon
proper surrender of his PEOPLES Common Stock certificates.
(e) All PEOPLES 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 PEOPLES shall not
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have properly surrendered his PEOPLES Common Stock certificates within two (2)
years after the Effective Date, the shares of CNN Common Stock that would
otherwise have been issued to him may, at the option of CNN, be sold and the net
proceeds of such sale, together with the cash (if any) to which he 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 his benefit. From
and after any such sale, the sole right of such former shareholder of PEOPLES
shall be the right to collect such net proceeds, cash and accumulated dividends.
Subject to all applicable laws of escheat, such net proceeds, cash and
accumulated dividends shall be paid to such former shareholder of PEOPLES,
without interest, upon proper surrender of his PEOPLES Common Stock
certificates.
3.05 ANTI-DILUTION PROVISIONS. In the event CNN changes (or establishes a
record date for changing) the number of shares of CNN Common Stock issued and
outstanding between the date hereof and the Effective Date as a result of a
stock split, stock dividend, recapitalization, reclassification, split up,
combination, exchange of shares, readjustment or similar transaction with
respect to the outstanding CNN Common Stock and the record date therefor shall
be prior to the Effective Date, the Exchange Ratio shall be proportionately
adjusted.
3.06 OTHER TRANSACTIONS. Nothing set forth in this Agreement or any
Exhibit hereto shall be construed:
(a) to preclude CNN or CNN Bank from acquiring or assuming, or to limit
in any way the right of CNN or CNN Bank to acquire or assume, prior to or
following the Effective Time, the stock, assets or liabilities of any other
financial services institution or other corporation or entity, whether by
issuance or exchange of CNN Common Stock, or otherwise;
(b) to preclude CNN or CNN Bank from issuing, or to limit in any way the
right of either of them to issue, prior to or following the Effective Date,
CNN Common Stock or other securities;
(c) to preclude CNN from granting options at any time with respect to
CNN Common Stock or other securities;
(d) to preclude option holders of CNN from exercising options at any
time with respect to CNN Common Stock or other securities; or
(e) to preclude CNN from taking, or to limit in any way the right of CNN
to take, any other action not expressly and specifically prohibited by the
terms of this Agreement; provided, however, that during the period extending
from the date of this Agreement until the Effective Date, in the event CNN
desires to (1) sell all or substantially all of its assets, (2) issue CNN
Common Stock or other securities convertible into CNN Common Stock such that
such newly issued CNN Common Stock or the CNN Common Stock into which such
other securities would be converted would equal or exceed 20% of the number
of shares of CNN Common Stock issued as of the date of this Agreement, or
(3) merge or consolidate with or into, or convert to, any other person or
entity, CNN shall notify PEOPLES simultaneously with taking any such action,
and PEOPLES shall have the right, in its sole discretion, to terminate this
Agreement without cost, expense or liability on its part to any other party.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 DISCLOSURE SCHEDULES. On or prior to the date hereof, CNN has
delivered to PEOPLES a schedule and PEOPLES has delivered to CNN a schedule
(respectively, its "DISCLOSURE SCHEDULE") setting forth, among other things,
items, the disclosure of which are necessary in response to an express
disclosure requirement contained in a provision hereof or as an exception to one
or more representations or warranties contained in Section 4.03 or 4.04 or to
one or more of its respective covenants contained in Article V and Article VI;
PROVIDED, that (a) no such item is required to be set forth in a Disclosure
Schedule as an exception to a representation or warranty if its absence would
not be reasonably likely to result in the related representation or warranty
being deemed untrue or incorrect under the standard established by
Section 4.02, and (b) the mere inclusion of an item in a Disclosure Schedule as
an exception to a representation or warranty shall not be deemed an admission by
a party that such item represents a material exception or fact, event or
circumstance or that such item is reasonably likely to have or result in a
Material Adverse Effect on the party making the representation. PEOPLES'
representations, warranties and covenants contained in this Agreement shall not
be deemed to be untrue, incorrect or to have been breached as a result of
effects on PEOPLES arising solely from actions taken in compliance with a
written request of CNN or this Agreement.
4.02 STANDARD. No representation or warranty of PEOPLES or CNN contained
in Section 4.03 or 4.04 shall be deemed untrue or incorrect, and no party hereto
shall be deemed to have breached a representation or warranty, as a consequence
of the existence of any fact, event or circumstance unless such fact,
circumstance or event, individually or taken together with all other facts,
events or circumstances inconsistent with any representation or warranty
contained in Section 4.03 or 4.04 has had, or is reasonably likely to have, a
Material Adverse Effect.
4.03 REPRESENTATIONS AND WARRANTIES OF PEOPLES. Subject to Sections 4.01
and 4.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, PEOPLES hereby
represents and warrants to CNN:
(a) ORGANIZATION, STANDING AND AUTHORITY. PEOPLES is a corporation
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and any foreign jurisdictions where its
ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified. PEOPLES is registered as a bank holding
company under the BHCA. Bank is a state chartered banking institution duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Bank is duly qualified to do business and is
in good standing in the Commonwealth of Pennsylvania and any foreign
jurisdictions where its ownership or leasing of property or assets or the
conduct of its business requires it to be so qualified.
(b) CAPITAL STRUCTURE OF PEOPLES. As of June 1, 2000, the authorized
capital stock of PEOPLES consisted solely of 500,000 shares of PEOPLES
Common Stock, of which 410,325 shares were issued and outstanding and
15,165 shares were issued and held as Treasury Stock. The outstanding shares
of PEOPLES Common Stock have been duly authorized, are validly issued and
outstanding, fully paid and nonassessable, and are not subject to any
preemptive rights (and were not issued in violation of any preemptive
rights). No options, warrants or other rights to purchase, agreements or
other obligations to issue, or other rights to convert any obligation into
any shares of PEOPLES Common Stock have been authorized, granted or entered
into by PEOPLES.
(c) SUBSIDIARIES. (i)(A) PEOPLES has Previously Disclosed a list of
all of its Subsidiaries together with the jurisdiction of organization of
each such Subsidiary, (B) except as Previously Disclosed, it owns, directly
or indirectly, all the issued and outstanding equity securities of each of
its Subsidiaries, (C) except as Previously Disclosed, no equity securities
of any of its Subsidiaries are or may become required to be issued (other
than to it or its wholly-owned Subsidiaries) by reason of any
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Right or otherwise, (D) except as Previously Disclosed, there are no
contracts, commitments, understandings or arrangements by which any of such
Subsidiaries is or may be bound to sell or otherwise transfer any equity
securities of any such Subsidiaries (other than to it or its wholly-owned
Subsidiaries), (E) except as Previously Disclosed, there are no contracts,
commitments, understandings, or arrangements relating to its rights to vote
or to dispose of such securities and (F) except as Previously Disclosed, all
the equity securities of each Subsidiary held by PEOPLES or its Subsidiaries
are fully paid and nonassessable and are owned by PEOPLES or its
Subsidiaries free and clear of any Liens.
(ii) PEOPLES does not own beneficially, directly or indirectly, any
equity securities or similar interests of any Person, or any interest in a
partnership or joint venture of any kind, other than its Subsidiaries.
(iii) Each of PEOPLES' Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and in good standing in
the jurisdictions where its ownership or leasing of property or the conduct
of its business requires it to be so qualified.
(d) CORPORATE POWER; AUTHORIZED AND EFFECTIVE AGREEMENT. Each of
PEOPLES and its Subsidiaries has full corporate power and authority to carry
on its business as it is now being conducted and to own all its properties
and assets; PEOPLES has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement and the Stock
Option Agreement; and Bank has the corporate power and authority to
consummate the Subsidiary Merger and the Agreement to Merge in accordance
with the terms of this Agreement.
(e) CORPORATE AUTHORITY. Subject to receipt of the requisite adoption
of this Agreement by the holders of Seventy-Five Percent (75%) of the
outstanding shares of PEOPLES Common Stock entitled to vote thereon (which
is the only shareholder vote required thereon), this Agreement, the Stock
Option Agreement and the transactions contemplated hereby and thereby have
been authorized by all necessary corporate action of PEOPLES and the PEOPLES
Board no later than the date hereof. The Agreement to Merge, when executed
by Bank, shall have been approved by the Board of Directors of Bank and by
the PEOPLES Board, as the sole shareholder of Bank. This Agreement is a
valid and legally binding obligation of PEOPLES, enforceable in accordance
with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors'
rights or by general equity principles). The PEOPLES Board has received the
written opinion of Ryan, Beck & Co. to the effect that as of the date hereof
the Exchange Ratio to be received by the holders of PEOPLES Common Stock in
the PEOPLES Merger is fair to the holders of PEOPLES Common Stock from a
financial point of view.
(f) REGULATORY FILINGS; NO DEFAULTS. (i) No consents or approvals of,
or filings or registrations with, any Governmental Authority or with any
third party are required to be made or obtained by PEOPLES or any of its
Subsidiaries in connection with the execution, delivery or performance by
PEOPLES of this Agreement or the Stock Option Agreement or to consummate the
Merger except for (A) filings of applications, and notices and the Agreement
to Merge, as applicable, with federal and state banking authorities,
(B) filings with the SEC and state securities authorities, and (C) the
filing of the articles of merger with the DSCP pursuant to the PBCL. As of
the date hereof, PEOPLES is not aware of any reason why the approvals set
forth in Section 6.01(b) will not be received without the imposition of a
condition, restriction or requirement of the type described in
Section 6.01(b).
(ii) Subject to receipt of the regulatory and shareholder approvals
referred to above and expiration of related regulatory waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the Stock Option Agreement
and the consummation of the transactions contemplated hereby and thereby do
not and will not (A)
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constitute a breach or violation of, or a default under, or give rise to any
Lien, any acceleration of remedies or any right of termination under, any
law, rule or regulation or any judgment, decree, order, governmental permit
or license, or agreement, indenture or instrument of PEOPLES or of any of
its Subsidiaries or to which PEOPLES or any of its Subsidiaries or
properties is subject or bound, (B) constitute a breach or violation of, or
a default under, the PEOPLES Articles or the PEOPLES Bylaws, or (C) require
any consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license, agreement, indenture or
instrument.
(g) FINANCIAL STATEMENTS. PEOPLES has delivered or will deliver to CNN
(a) consolidated financial statements for each of the fiscal years ended
December 31, 1997, 1998, and 1999, respectively, consisting of balance
sheets and the related statements of income, changes in shareholder equity
and cash flows for the fiscal years ended on such date, all as certified by
Parente Randolph, PEOPLES' independent auditors, and (b) unaudited
consolidated financial statements for the interim period ended March 31,
2000 consisting of balance sheets and the related statements of income. The
aforesaid financial statements, as of the dates thereof and for the periods
covered thereby, have been prepared in conformity with generally accepted
accounting principles, consistently applied throughout the periods
indicated, and fairly present the financial position of PEOPLES as of the
dates thereof and the results of operations and cash flow for the periods
indicated, except in the case of the interim financial statements, normal
year-end adjustments and the absence of notes thereto. Since the date of the
December 31, 1999 balance sheet (the "BALANCE SHEET"), there has not been
any material adverse change in the financial condition, results of
operations, assets of business of PEOPLES.
(h) LITIGATION. No litigation, claim or other proceeding before any
court or governmental agency is pending against PEOPLES or any of its
Subsidiaries and, to PEOPLES' knowledge, no such litigation, claim or other
proceeding has been threatened.
(i) REGULATORY MATTERS.
(i) Neither PEOPLES nor any of its Subsidiaries or properties is a party
to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or similar
submission to, or extraordinary supervisory letter from, any federal or
state governmental agency or authority charged with the supervision or
regulation of financial institutions (or their holding companies) or issuers
of securities or engaged in the insurance of deposits (including, without
limitation, PDB, the Federal Reserve System and the FDIC) or the supervision
or regulation of it or any of its Subsidiaries (collectively, the
"REGULATORY AUTHORITIES").
(ii) Neither it nor any of its Subsidiaries has been advised by any
Regulatory Authority that such Regulatory Authority is contemplating issuing
or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter, supervisory letter or similar submission.
(j) COMPLIANCE WITH LAWS. Each of PEOPLES and its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders
or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own
or lease their properties and to conduct their businesses as presently
conducted; all such permits, licenses, certificates of authority, orders
and approvals are in full force and effect and, to PEOPLES' knowledge, no
suspension or cancellation of any of them is threatened; and
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(iii) has received, since December 31, 1999, no notification or
communication from any Governmental Authority (A) asserting that PEOPLES
or any of its Subsidiaries is not in compliance with any of the statutes,
regulations, or ordinances which such Governmental Authority enforces or
(B) threatening to revoke any license, franchise, permit, or governmental
authorization (nor, to PEOPLES's knowledge, do any grounds for any of the
foregoing exist).
(k) MATERIAL CONTRACTS; DEFAULTS.
(i) Except for the Stock Option Agreement and as Previously
Disclosed, as of the date of this Agreement, PEOPLES is not a party to,
or bound by, any oral or written:
(A) "material contract" as such term is defined in Item
601(b)(10) of Regulation S-K promulgated by the SEC;
(B) consulting agreement not terminable on thirty (30) days or
less notice involving the payment of more than $10,000 per annum, in
the case of any such agreement;
(C) agreement with any officer or other key employee the benefits
of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction of the nature
contemplated by this Agreement;
(D) agreement with respect to any officer providing any term of
employment or compensation guarantee extending for a period longer
than one year or for a payment in excess of $10,000;
(E) agreement or plan, including any stock option plan, stock
appreciation rights plan, employee stock ownership plan, restricted
stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(F) agreement containing covenants that limit its ability to
compete in any line of business or with any person, or that involve
any restriction on the geographic area in which, or method by which,
it may carry on its business (other than as may be required by law or
any regulatory agency);
(G) agreement, contract or understanding, other than this
Agreement, and the Stock Option Agreement, regarding the capital
stock of PEOPLES or committing to dispose of some or all of the
capital stock or substantially all of the assets of PEOPLES; or
(H) collective bargaining agreement, contract, or other agreement
or understanding with a labor union or labor organization.
(ii) PEOPLES is not in default under or in violation of any provision
of any note, bond, indenture, mortgage, deed of trust, loan agreement,
lease of other agreement to which it is a party or to which any of its
respective properties or assets is subject, other that such defaults or
violations as could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on it.
(l) NO BROKERS. No action has been taken by PEOPLES that would give
rise to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, except for a fee to be paid to Ryan, Beck &
Co.
(m) EMPLOYEE BENEFIT PLANS. (i) Section 4.03(m)(i) of PEOPLES
Disclosure Schedule contains a complete and accurate list of all existing
bonus, incentive, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase,
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restricted stock, stock option, severance, welfare and fringe benefit plans,
employment or severance agreements and all similar practices, policies and
arrangements maintained or contributed to by PEOPLES or any of its
Subsidiaries and in which any employee or former employee (the "EMPLOYEES"),
consultant or former consultant (the "CONSULTANTS") or director or former
director (the "DIRECTORS") of PEOPLES or any of its Subsidiaries
participates or to which any such Employees, Consultants or Directors are a
party (the "COMPENSATION AND BENEFIT PLANS"). Neither PEOPLES nor any of its
Subsidiaries has any commitment to create any additional Compensation and
Benefit Plan or to modify or change any existing Compensation and Benefit
Plan, except as otherwise contemplated by Section 5.01(e) of this Agreement.
(ii) Each Compensation and Benefit Plan has been operated and
administered in all material respects in accordance with its terms and with
applicable law, including, but not limited to, ERISA, the Code, the
Securities Act, the Exchange Act, the Age Discrimination in Employment Act,
or any regulations or rules promulgated thereunder, and all filings,
disclosures and notices required by ERISA, the Code, the Securities Act, the
Exchange Act, the Age Discrimination in Employment Act and any other
applicable law have been timely made. Each Compensation and Benefit Plan
which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA (a "PENSION PLAN") and which is intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter (including a determination that the related trust under
such Compensation and Benefit Plan is exempt from tax under Section 501(a)
of the Code) from the Internal Revenue Service ("IRS"), and PEOPLES is not
aware of any circumstances likely to result in revocation of any such
favorable determination letter. There is no material pending or, to the
knowledge of PEOPLES, threatened legal action, suit or claim relating to the
Compensation and Benefit Plans other than routine claims for benefits
thereunder. Neither PEOPLES nor any of its Subsidiaries has engaged in a
transaction, or omitted to take any action, with respect to any Compensation
and Benefit Plan that would reasonably be expected to subject PEOPLES or any
of its Subsidiaries to a tax or penalty imposed by either Section 4975 of
the Code or Section 502 of ERISA, assuming for purposes of Section 4975 of
the Code that the taxable period of any such transaction expired as of the
date hereof. To the knowledge of PEOPLES, there is no pending investigation
or enforcement action by the PBGC, the Department of Labor (the "DOL") or
IRS or any other governmental agency with respect to any Compensation and
Benefit Plan.
(iii) Neither PEOPLES nor any ERISA Affiliate has sponsored, maintained
or contributed to any employee pension benefit plan (within the meaning of
ERISA Section 3(2)) that is subject to Title IV of ERISA.
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan or ERISA Affiliate Plan or any employee
benefit arrangements under any collective bargaining agreement to which
PEOPLES or any of its Subsidiaries is a party have been timely made or have
been reflected on PEOPLES's financial statements.
(v) Neither PEOPLES nor any of its Subsidiaries has any obligations to
provide retiree health and life insurance or other retiree death benefits
under any Compensation and Benefit Plan, other than benefits mandated by
Section 4980B of the Code. There has been no communication to Employees by
PEOPLES or any of its Subsidiaries that would reasonably be expected to
promise or guarantee such Employees retiree health or life insurance or
other retiree death benefits on a permanent basis.
(vi) PEOPLES and its Subsidiaries do not maintain any Compensation and
Benefit Plans covering foreign Employees.
(vii) With respect to each Compensation and Benefit Plan, if applicable,
PEOPLES has provided or made available to CNN, true and complete copies of
existing: (A) Compensation and Benefit Plan documents and amendments
thereto; (B) trust instruments and insurance contracts; (C) two most
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recent Forms 5500 filed with the IRS; (D) most recent actuarial report and
financial statement; (E) the most recent summary plan description; (F) forms
filed with the PBGC within the past year (other than for premium payments);
(G) most recent determination letter issued by the IRS; (H) any Form 5310 or
Form 5330 filed within the past year with the IRS; and (I) most recent
nondiscrimination tests performed under ERISA and the Code (including 401(k)
and 401(m) tests).
(viii) Except as disclosed on Section 4.03(m)(viii) of PEOPLES's
Disclosure Schedule, the consummation of the transactions contemplated by
this Agreement would not, directly or indirectly (including, without
limitation, as a result of any termination of employment prior to or
following the Effective Time) reasonably be expected to (A) entitle any
Employee, Consultant or Director to any payment (including severance pay or
similar compensation) or any increase in compensation, (B) result in the
vesting or acceleration of any benefits under any Compensation and Benefit
Plan or (C) result in any material increase in benefits payable under any
Compensation and Benefit Plan.
(ix) Except as disclosed on Section 4.03(m)(ix) of PEOPLES's Disclosure
Schedule, neither PEOPLES nor any of its Subsidiaries maintains any
compensation plans, programs or arrangements the payments under which would
not reasonably be expected to be deductible as a result of the limitations
under Section 162(m) of the Code and the regulations issued thereunder.
(x) Except as disclosed on Section 4.03(m)(x) of PEOPLES's Disclosure
Schedule, as a result, directly or indirectly, of the transactions
contemplated by this Agreement (including, without limitation, as a result
of any termination of employment prior to or following the Effective Time),
none of CNN, PEOPLES or the Surviving Corporation, or any of their
respective Subsidiaries will be obligated to make a payment that would be
characterized as an "excess parachute payment" to an individual who is a
"disqualified individual" (as such terms are defined in Section 280G of the
Code) of PEOPLES on a consolidated basis, without regard to whether such
payment is reasonable compensation for personal services performed or to be
performed in the future.
(n) LABOR MATTERS. Neither PEOPLES nor any of its Subsidiaries is a
party to or is bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization,
nor is PEOPLES or any of its Subsidiaries the subject of a proceeding
asserting that it or any such Subsidiary has committed an unfair labor
practice (within the meaning of the National Labor Relations Act) or seeking
to compel PEOPLES or any such Subsidiary to bargain with any labor
organization as to wages or conditions of employment, nor is there any
strike or other labor dispute involving it or any of its Subsidiaries
pending or, to PEOPLES's knowledge, threatened, nor is PEOPLES aware of any
activity involving its or any of its Subsidiaries' employees seeking to
certify a collective bargaining unit or engaging in other organizational
activity.
(o) TAKEOVER LAWS. [INTENTIONALLY DELETED]
(p) ENVIRONMENTAL MATTERS. To PEOPLES's Knowledge, neither the conduct
nor operation of PEOPLES or its Subsidiaries nor any condition of any
property presently or previously owned, leased or operated by any of them
(including, without limitation, in a fiduciary or agency capacity), violates
or violated Environmental Laws and to PEOPLES's Knowledge, no condition has
existed or event has occurred with respect to any of them or any such
property that, with notice or the passage of time, or both, is reasonably
likely to result in liability under Environmental Laws. To PEOPLES's
Knowledge, neither PEOPLES nor any of its Subsidiaries has received any
notice from any person or entity that PEOPLES or its Subsidiaries or the
operation or condition of any property ever owned, leased, operated, or held
as collateral or in a fiduciary capacity by any of them are or were in
violation of or otherwise are alleged to have liability under any
Environmental Law, including, but not limited to, responsibility (or
potential responsibility) for the cleanup or other remediation of any
pollutants, contaminants, or hazardous or toxic wastes, substances or
materials at, on, beneath, or originating from any such property.
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(q) TAX MATTERS. (i) All Tax Returns that are required to be filed by
or with respect to PEOPLES and its Subsidiaries have been duly filed, (ii)
all Taxes shown to be due on the Tax Returns referred to in clause (i) have
been paid in full, (iii) the Tax Returns referred to in clause (i) for tax
years prior to 1997, in the case of federal tax returns, and tax years prior
to 1998, for Pennsylvania state tax returns, have been examined, fettled or
closed by the Internal Revenue Service or the appropriate state, local or
foreign taxing authority or the period for assessment of the Taxes in
respect of which such Tax Returns were required to be filed has expired,
(iv) all deficiencies asserted or assessments made as a result of such
examinations have been paid in full, (v) no issues that have been raised by
the relevant taxing authority in connection with the examination of any of
the Tax Returns referred to in clause (i) are currently pending, and (vi) no
waivers of statutes of limitation have been given by or requested with
respect to any Taxes of PEOPLES or its Subsidiaries. PEOPLES has made or
will make available to CNN true and correct copies of the United States
federal income Tax Returns filed by PEOPLES and its Subsidiaries for each of
the three most recent fiscal years ended on or before December 31, 1999.
Neither PEOPLES nor any of its Subsidiaries has any liability with respect
to income, franchise or similar Taxes that accrued on or before the end of
the most recent period covered by PEOPLES' Balance Sheet filed prior to the
date hereof in excess of the amounts accrued with respect thereto that are
reflected in the financial statements included in PEOPLES' Balance Sheet
filed on or prior to the date hereof. As of the date hereof, neither PEOPLES
nor any of its Subsidiaries has any reason to believe that any conditions
exist that might prevent or impede the PEOPLES Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(ii) No Tax is required to be withheld pursuant to Section 1445 of the
Code as a result of the transfer contemplated by this Agreement.
(iii) To their Knowledge, neither PEOPLES nor its Subsidiaries will be
liable for any taxes as a result of any covered transaction.
(r) RISK MANAGEMENT INSTRUMENTS. All material interest rate swaps,
caps, floors, option agreements, futures and forward contracts and other
similar risk management arrangements, whether entered into for PEOPLES's own
account, or for the account of one or more of PEOPLES's Subsidiaries or
their customers (all of which are listed on PEOPLES's Disclosure Schedule)
were entered into (i) in accordance with prudent business practices and all
applicable laws, rules, regulations and regulatory policies and (ii) with
counterparties believed to be financially responsible at the time; and each
of them constitutes the valid and legally binding obligation of PEOPLES or
one of its Subsidiaries, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles), and is in full force and effect. Neither PEOPLES nor its
Subsidiaries, nor to PEOPLES' knowledge any other party thereto, is in
breach of any of its obligations under any such agreement or arrangement.
(s) BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other records of PEOPLES, all of which have been or will
be made available to CNN, are complete and correct in all material respects
and have been maintained in accordance with sound business practices and, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of PEOPLES, including the maintenance of an
adequate system of internal controls that is sufficient to provide
reasonable assurances that transactions are executed in accordance with
management's authorization, that transactions are recorded as necessary,
that access to assets is permitted only in accordance with management's
authorization, and that the recorded accountability for assets is compared
at reasonable intervals and appropriate action is taken with respect to any
differences. The minute books of PEOPLES contain accurate and complete
records of all meetings held of, and corporate action taken by, the
shareholders, the Board of Directors, and committees of the Board of
Directors and PEOPLES, and no meeting of any such shareholders, Board of
Directors, or committee
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has been held for which minutes have not been prepared and are not contained
in such minute books, which minutes have not yet been prepared.
(t) INSURANCE. PEOPLES' Disclosure Schedule sets forth all of the
insurance policies, binders, or bonds maintained by PEOPLES or its
Subsidiaries. PEOPLES and its Subsidiaries are insured with reputable
insurers against such risks and in such amounts as the management of PEOPLES
reasonably has determined to be prudent in accordance with industry
practices. All such insurance policies are in full force and effect; PEOPLES
and its Subsidiaries are not in material default thereunder; and all claims
thereunder have been filed in due and timely fashion.
(u) ACCOUNTING TREATMENT. As of the date hereof, it is not aware of
any reason why the Merger will fail to qualify for "pooling-of-interests"
accounting treatment.
(v) DISCLOSURE. The representations and warranties contained in this
Section 4.03 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 4.03 not misleading.
(w) YEAR 2000. [INTENTIONALLY DELETED].
(x) MATERIAL ADVERSE CHANGE. PEOPLES has not, on a consolidated basis,
suffered a change in its business, financial condition or results of
operations since December 31, 1999, that has had a Material Adverse Effect
on PEOPLES.
(y) ABSENCE OF UNDISCLOSED LIABILITIES. Neither PEOPLES nor any of its
Subsidiaries has any liability (contingent or otherwise) that is material to
PEOPLES on a consolidated basis, or that, when combined with all liabilities
as to similar matters would be material to PEOPLES on a consolidated basis,
except as disclosed in the PEOPLES Financial Statements.
(z) PROPERTIES. PEOPLES and its Subsidiaries have good and marketable
title, free and clear of all liens, encumbrances, charges, debts or
equitable interests to all of the properties and assets, real and personal,
reflected on the PEOPLES Financial Statements as being owned by PEOPLES as
of December 31, 1999 or acquired after such date, except (i) statutory liens
for amounts not yet due and payable, (ii) pledges to secure deposits and
other liens incurred in the ordinary course of banking business, (iii) such
imperfections of title, easements, encumbrances, liens, charges, defaults or
equitable interests, if any, as do not affect the use of properties or
assets subject thereto or affected thereby or otherwise materially impair
business operations at such properties, (iv) dispositions and encumbrances
in the ordinary course of business, and (v) liens on properties acquired in
foreclosure or on account of debts previously contracted. All leases
pursuant to which PEOPLES or any of its Subsidiaries, as lessee, leases real
or personal property (except for leases that have expired by their terms or
that PEOPLES or any such Subsidiary has agreed to terminate since the date
hereof) are valid without default thereunder by the lessee or, to PEOPLES'
knowledge, the lessor.
(aa) LOANS. Each loan reflected as an asset in the PEOPLES financial
statements as of December 31, 1999 and each balance sheet date subsequent
thereto, other than loans the unpaid balance of which does not exceed
$150,000 in the aggregate, (i) is evidenced by notes, agreements or other
evidences of indebtedness which are true, genuine and what they purport to
be, (ii) to the extent secured, has been secured by valid liens and security
interests which have been perfected, and (iii) is the legal, valid and
binding obligation of the obligor named therein, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors'
rights and to general equity principles. Except as Previously Disclosed, as
of December 31, 1999, Bank is not a party to a loan, including any loan
guaranty, with any director, executive officer or 5% shareholder of PEOPLES
or any of its Subsidiaries or any person, corporation or enterprise
controlling, controlled by or under common control with any of the
foregoing. All loans and extensions of credit that have been made by Bank
and that are subject either to Section 22(b) of the Federal Reserve Act, as
amended, or to 12 C.F.R. Section 563.43, comply therewith.
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(bb) ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses reflected
on the PEOPLES Financial Statements, as of their respective dates, is
adequate in all material respects under the requirements of generally
accepted accounting principles to provide for reasonably anticipated losses
on outstanding loans.
(cc) REPURCHASE AGREEMENTS. With respect to all agreements pursuant to
which PEOPLES or any of its Subsidiaries has purchased securities subject to
an agreement to resell, if any, PEOPLES or such Subsidiary, as the case may
be, has a valid, perfected first lien or security interest in or evidence of
ownership in book entry form of the government securities or other
collateral securing the repurchase agreement, and the value of such
collateral equals or exceeds the amount of the debt secured thereby.
(dd) DEPOSIT INSURANCE. The deposits of Bank are insured by the FDIC in
accordance with The Federal Deposit Insurance Act ("FDIA"), and Bank has
paid all assessments and filed all reports required by the FDIA.
4.04 REPRESENTATIONS AND WARRANTIES OF CNN. Subject to Sections 4.01 and
4.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, CNN hereby represents
and warrants to PEOPLES as follows:
(a) ORGANIZATION, STANDING AND AUTHORITY. CNN is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. CNN is duly qualified to do business and is in
good standing in the Commonwealth of Pennsylvania and any foreign
jurisdictions where its ownership or leasing of property or assets or the
conduct of its business requires it to be so qualified. CNN is registered as
a bank holding company under the BHCA. CNN Bank is a state chartered banking
institution duly organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania. CNN Bank is duly qualified to do
business and is in good standing in the Commonwealth of Pennsylvania and any
foreign jurisdictions where its ownership or leasing of property or assets
or the conduct of its business requires it to be so qualified.
(b) CNN STOCK. (i) As of June 1, 2000, the authorized capital stock of
CNN consists of 10,000,000 shares of CNN Common Stock, of which
5,205,492 shares were outstanding and 119,470 shares were held as Treasury
Stock. As of June 1, 2000, except as set forth in its Disclosure Schedule,
CNN does not have any Rights issued or outstanding with respect to CNN
Common Stock and CNN does not have any commitment to authorize, issue or
sell any CNN Common Stock or Rights, except pursuant to this Agreement. The
outstanding shares of CNN Common Stock have been duly authorized and are
validly issued and outstanding, fully paid and nonassessable, and subject to
no preemptive rights (and were not issued in violation of any preemptive
rights).
(ii) The shares of CNN Common Stock to be issued in exchange for shares
of PEOPLES Common Stock in the PEOPLES Merger, when issued in accordance
with the terms of this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable and subject to no preemptive rights and duly
registered under the Securities Act of 1933, as amended.
(c) SUBSIDIARIES. CNN has Previously Disclosed a list of all its
Subsidiaries together with the jurisdiction or organization of each
Subsidiary. Each of CNN's Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and is in good standing
in the jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and it owns, directly
or indirectly, all the issued and outstanding equity securities of each of
its Significant Subsidiaries.
(d) CORPORATE POWER. Each of CNN and its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and CNN has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby.
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(e) CORPORATE AUTHORITY; AUTHORIZED AND EFFECTIVE AGREEMENT. This
Agreement, the Stock Option Agreement and the transactions contemplated
hereby and thereby have been authorized by all necessary corporate action of
CNN and the CNN Board prior to the date hereof and no shareholder approval
is required on the part of CNN. The Agreement to Merge, when executed by CNN
Bank, shall have been approved by the Board of Directors of CNN Bank and by
the CNN Board, as the sole shareholder of CNN Bank. This Agreement is a
valid and legally binding agreement of CNN, enforceable in accordance with
its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws
of general applicability relating to or affecting creditors rights or by
general equity principles).
(f) REGULATORY APPROVALS; NO DEFAULTS. (i) No consents or approvals
of, or filings or registrations with, any Governmental Authority or with any
third party are required to be made or obtained by CNN or any of its
Subsidiaries in connection with the execution, delivery or performance by
CNN of this Agreement or to consummate the Merger except for (A) the filing
of applications, notices, or the Agreement to Merge, as applicable, with the
federal and state banking authorities; (B) the filing and declaration of
effectiveness of the Registration Statement; (C) the filing of the articles
of merger with the DSCP pursuant to the PBCL; (D) such filings as are
required to be made or approvals as are required to be obtained under the
securities or "Blue Sky" laws of various states in connection with the
issuance of CNN Common Stock in the PEOPLES Merger; and (E) receipt of the
approvals set forth in Section 7.01(d). As of the date hereof, CNN is not
aware of any reason why the approvals set forth in Section 7.01(d) will not
be received without the imposition of a condition, restriction or
requirement of the type described in Section 7.01(d).
(ii) Subject to the satisfaction of the requirements referred to in the
preceding paragraph and expiration of the related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (A) constitute a breach
or violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license,
or agreement, indenture or instrument of CNN or of any of its Subsidiaries
or to which CNN or any of its Subsidiaries or properties is subject or
bound, (B) constitute a breach or violation of, or a default under, the
Articles of Incorporation or Bylaws (or similar governing documents) of CNN
or any of its Subsidiaries, or (C) require any consent or approval under any
such law, rule, regulation, judgment, decree, order, governmental permit or
license, agreement, indenture or instrument.
(g) FINANCIAL REPORTS AND SEC DOCUMENTS; MATERIAL ADVERSE EFFECT. (i)
CNN's Annual Report on Form 10-K for the fiscal years ended December 31,
1997, 1998 and 1999, and all other reports, registration statements,
definitive proxy statements or other statements filed or to be filed by it
or any of its Subsidiaries with the SEC subsequent to December 31, 1997
under the Securities Act, or under Section 13, 14 or 15(d) of the Exchange
Act, in the form filed or to be filed (collectively, "CNN SEC DOCUMENTS") as
of the date filed, (A) complied or will comply in all material respects with
the applicable requirements under the Securities Act or the Exchange Act, as
the case may be, and (B) did not and will not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and each of the
balance sheets or statements of condition contained in or incorporated by
reference into any such CNN SEC Document (including the related notes and
schedules thereto) fairly presents, or will fairly present, the financial
position of CNN and its Subsidiaries as of its date, and each of the
statements of income or results of operations and changes in shareholders'
equity and cash flows or equivalent statements in such CNN SEC Documents
(including any related notes and schedules thereto) fairly presents, or will
fairly present, the results of operations, changes in shareholders' equity
and cash flows, as the case may be, of CNN and its Subsidiaries for the
periods to which they relate, in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except in each case as
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may be noted therein, subject to normal year-end audit adjustments in the
case of unaudited statements.
(ii) CNN has not, on a consolidated basis, suffered a change in its
business, financial condition or results of operations since December 31,
1999, that has had a Material Adverse Effect on CNN.
(h) LITIGATION; REGULATORY ACTION. (i) No litigation, claim or other
proceeding before any court or governmental agency is pending against CNN or
any of its Subsidiaries and, to the best of CNN's knowledge, no such
litigation, claim or other proceeding has been threatened.
(ii) Neither CNN nor any of its Subsidiaries or properties is a party to
or is subject to any order, decree, agreement, memorandum of understanding
or similar arrangement with, or a commitment letter or similar submission
to, or extraordinary supervisory letter from a Regulatory Authority, nor has
CNN or any of its Subsidiaries been advised by a Regulatory Authority that
such agency is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum of understanding, commitment letter, supervisory letter or
similar submission.
(i) COMPLIANCE WITH LAWS. Each of CNN and its Subsidiaries:
(i) is in compliance with all applicable federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders
or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home
Mortgage Disclosure Act and all other applicable fair lending laws and
other laws relating to discriminatory business practices; and
(ii) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to
conduct their businesses substantially as presently conducted; all such
permits, licenses, certificates of authority, orders and approvals are in
full force and effect and, to the best of its knowledge, no suspension or
cancellation of any of them is threatened; and
(iii) has received, since December 31, 1999, no notification or
communication from any Governmental Authority (A) asserting that CNN or
any of its Subsidiaries is not in compliance with any of the statutes,
regulations, or ordinances which such Governmental Authority enforces or
(B) threatening to revoke any license, franchise, permit, or governmental
authorization (nor, to CNN's knowledge, do any grounds for any of the
foregoing exist).
(j) BROKERAGE AND FINDER'S FEES. Except for fees payable to its
financial advisor, Sandler O'Neill & Partners, LLP ("Sandler"), CNN has not
employed any broker, finder, or agent, or agreed to pay or incurred any
brokerage fee, finder's fee, commission or other similar form of
compensation in connection with this Agreement or the transactions
contemplated hereby.
(k) TAKEOVER LAWS. CNN has taken all action required to be taken by it
in order to exempt this Agreement, the Stock Option Agreement and the
transactions contemplated hereby and thereby from, and this Agreement, the
Stock Option Agreement and the transactions contemplated hereby and thereby
are exempt from, the requirements of any Takeover Laws applicable to CNN.
(l) ACCOUNTING TREATMENT. As of the date hereof, CNN is aware of no
reason why the Merger will fail to qualify for "pooling-of-interests"
accounting treatment and is aware of no reason why any other merger of CNN
consummated within the prior two years will fail to so qualify.
(m) DEPOSIT INSURANCE. The deposits of CNN Bank are insured by the
FDIC in accordance with the FDIA, and CNN Bank has paid all assessments and
filed all reports required by the FDIA.
(n) BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other records of CNN, all of which have been or will be
made available to PEOPLES, are complete and
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correct in all material respects and have been maintained in accordance with
sound business practices and, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of CNN, including
the maintenance of an adequate system of internal controls that is
sufficient to provide reasonable assurances that transactions are executed
in accordance with management's authorization, that transactions are
recorded as necessary, that access to assets if permitted only in accordance
with management's authorization, and that the recorded accountability for
assets is compared at reasonable intervals and appropriate action is taken
with respect to any differences. The minute books of CNN contain accurate
and complete records of all meetings held of, and corporate action taken by,
the shareholders, the Board of Directors, and committees of the Board of
Directors and CNN, and no meeting of any such shareholders, Board of
Directors, or committee has been held for which minutes have not been
prepared and are not contained in such minute books, which minutes have not
yet been prepared.
(o) RISK MANAGEMENT INSTRUMENTS. All material interest rate swaps,
caps, floors, option agreements, futures and forward contracts and other
similar risk management arrangements, whether entered into for CNN's own
account, or for the account of one or more of its Subsidiaries or their
customers, were entered into (i) in accordance with prudent business
practices and all applicable laws, rules, regulations and regulatory
policies and with counterparties believed to be financially responsible at
the time; and each of them constitutes the valid and legally binding
obligation of CNN or one of its Subsidiaries, enforceable in accordance with
its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws
of general applicability relating to or affecting creditors' rights or by
general equity principles), and is in full force and effect. Neither CNN nor
its Subsidiaries, nor to CNN's knowledge any other party thereto, is in
breach of any of its obligations under any such agreement or arrangement in
any material respect.
(p) LOANS. Each loan reflected as an asset in the CNN financial
statements as of December 31, 1999 and each balance sheet date subsequent
thereto, other than loans the unpaid balance of which does not exceed
$500,000 in the aggregate, (i) is evidenced by notes, agreements or other
evidences of indebtedness which are true, genuine and what they purport to
be, (ii) to the extent secured, has been secured by valid liens and security
interests which have been perfected, and (iii) is the legal, valid and
binding obligation of the obligor named therein, enforceable in accordance
with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors'
rights and to general equity principles. Except as Previously Disclosed, as
of December 31, 1999, CNN Bank is not a party to a loan, including any loan
guaranty, with any director, executive officer or 5% shareholder of CNN or
any of its Subsidiaries or any person, corporation or enterprise
controlling, controlled by or under common control with any of the
foregoing. All loans and extensions of credit that have been made by Bank
and that are subject either to Section 22(b) of the Federal Reserve Act, as
amended, or to 12 C.F.R. Section 563.43, comply therewith.
(q) ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses reflected
on the CNN financial statements, as of their respective dates, is adequate
in all material respects under the requirements of generally accepted
accounting principles to provide for reasonably anticipated losses on
outstanding loans.
(r) REPURCHASE AGREEMENTS. With respect to all agreements pursuant to
which CNN or any of its Subsidiaries has purchased securities subject to an
agreement to resell, if any, CNN or such Subsidiary, as the case may be, has
a valid, perfected first lien or security interest in or evidence of
ownership in book entry form of the government securities or other
collateral securing the repurchase agreement, and the value of such
collateral equals or exceeds the amount of the debt secured thereby.
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ARTICLE V
COVENANTS
5.01 PEOPLES TO CARRY ON BUSINESS IN NORMAL MANNER. From the date hereof
until the Effective Time, except as expressly contemplated by this Agreement
and/or disclosed on the Disclosure Schedule, without the prior written consent
of CNN, PEOPLES will not, and will cause each of its Subsidiaries not to:
(a) ORDINARY COURSE. Conduct the business of PEOPLES and its
Subsidiaries other than in the ordinary and usual course or fail to use
reasonable efforts to preserve intact their business organizations and
assets and maintain their rights, franchises and existing relations with
customers, suppliers, employees and business associates, or voluntarily take
any action which, at the time taken, is reasonably likely to have an adverse
affect upon PEOPLES' ability to perform any of its material obligations
under this Agreement.
(b) CAPITAL STOCK. Other than pursuant to Rights Previously Disclosed
and outstanding on the date hereof (i) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional shares of
PEOPLES Stock or any Rights, (ii) enter into any agreement with respect to
the foregoing, or (iii) permit any additional shares of PEOPLES Stock to
become subject to new grants of employee or director stock options, other
Rights or similar stock-based employee rights.
(c) DIVIDENDS, ETC. Except as otherwise provided in Section 5.16,
(i) Make, declare, pay or set aside for payment any dividend, other than
(A) quarterly cash dividends on PEOPLES Stock in an amount not to exceed 40%
of annual net income and consistent with past practice, and (B) dividends
from wholly owned Subsidiaries to PEOPLES, or (ii) directly or indirectly
adjust, split, combine, redeem, reclassify, purchase or otherwise acquire,
any shares of its capital stock.
(d) COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Enter into or amend or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of PEOPLES or its
Subsidiaries (other than Executive Employment Agreement by and among
Donald E. Abrey, PEOPLES and the Bank dated May 15, 2000 (the "EMPLOYMENT
AGREEMENT")), change the position or title of any officer or employee of
PEOPLES or any of its Subsidiaries or grant any salary or wage increase or
increase any employee benefit, (including incentive or bonus payments)
except (i) for normal individual increases in compensation to employees in
the ordinary course of business consistent with past practice, (ii) for
other changes that are required by applicable law, (iii) to satisfy
Previously Disclosed contractual obligations existing as of the date hereof,
or (iv) for grants of awards to newly hired employees consistent with past
practice.
(e) BENEFIT PLANS. Enter into, establish, adopt or amend except to
satisfy (i) Previously Disclosed contractual obligations existing as of the
date hereof, (ii) the regular annual renewal of insurance contract, any
pension, retirement, stock option, stock purchase, savings, profit sharing,
deferred compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any trust
agreement (or similar arrangement) related thereto, in respect of any
director, officer or employee of PEOPLES or its Subsidiaries, or take any
action to accelerate the vesting or exercisability of stock options,
restricted stock or other compensation or benefits payable thereunder or
(iii) to comply with applicable law or regulation.
(f) DISPOSITIONS. Sell, transfer, mortgage, encumber or otherwise
dispose of or discontinue any of its assets, deposits, business or
properties except in the ordinary course of business.
(g) ACQUISITIONS. Acquire (other than by way of foreclosures or
acquisitions of control in a bona fide fiduciary capacity or in satisfaction
of debts previously contracted in good faith, in each case in the ordinary
and usual course of business consistent with past practice) all or any
portion of, the assets, business, deposits or properties of any other
entity.
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(h) GOVERNING DOCUMENTS. Amend the PEOPLES Articles, PEOPLES Bylaws or
the articles of incorporation or bylaws (or similar governing documents) of
any of PEOPLES' Subsidiaries.
(i) ACCOUNTING METHODS. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by generally accepted accounting principles.
(j) CONTRACTS. Except in the ordinary course of business consistent
with past practice, enter into, terminate, amend or modify in any material
respect any of its existing contracts, involving payments in excess of
$25,000.
(k) CLAIMS. Except in the ordinary course of business consistent with
past practice, settle any claim, action or proceeding, except for any claim,
action or proceeding which does not involve precedent for other material
claims, actions or proceedings and which involve solely money damages in an
amount, individually or in the aggregate for all such settlements, that is
not material to PEOPLES and its Subsidiaries, taken as a whole.
(l) ADVERSE ACTIONS. (a) Take any action while knowing that such
action would, or is reasonably likely to, prevent or impede the Merger from
qualifying (i) for "pooling-of-interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368(a) of the Code; or
(b) knowingly take any action that is intended or is reasonably likely to
result in (i) any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time at or
prior to the Effective Time, (ii) any of the conditions to the Merger set
forth in Article VI not being satisfied or (iii) a material violation of any
provision of this Agreement except, in each case, as may be required by
applicable law or regulation.
(m) RISK MANAGEMENT. Except pursuant to applicable law or regulation,
(i) implement or adopt any material change in its interest rate risk
management and other risk management policies, procedures or practices;
(ii) fail to follow its existing policies or practices with respect to
managing its exposure to interest rate and other risk; or (iii) fail to use
commercially reasonable means to avoid any material increase in its
aggregate exposure to interest rate risk.
(n) INDEBTEDNESS. Incur any indebtedness for borrowed money other than
in the ordinary course of business.
(o) COMMITMENTS. Agree or commit to do any of the foregoing.
(p) OTHERS. Purchase any securities except in conformance with its
investment policy in effect as of May 9, 2000. In addition, PEOPLES shall
submit for review to CNN all loan packages submitted to PEOPLES' loan
committee.
5.02 CNN TO CARRY ON BUSINESS IN NORMAL MANNER. From the date hereof until
the Effective Time, except as expressly contemplated by this Agreement, without
the prior written consent of PEOPLES, CNN will not, and will cause each of its
Subsidiaries not to:
(a) ORDINARY COURSE. Conduct the business of CNN and its Subsidiaries
other than in the ordinary and usual course or fail to use reasonable
efforts to preserve intact their business organizations and assets and
maintain their rights, franchises and existing relations with customers,
suppliers, employees and business associates, or voluntarily take any action
which, at the time taken, is reasonably likely to have an adverse affect
upon CNN's ability to perform any of its material obligations under this
Agreement.
(b) PRESERVATION. Fail to use reasonable efforts to preserve intact in
any material respect their business organizations and assets and maintain
their rights, franchises and existing relations with customers, suppliers,
employees and business associates.
(c) EXTRAORDINARY DIVIDENDS. Make, declare, pay or set aside for
payment any dividend other than normal quarterly dividends in accordance
with past practice.
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(d) ACCOUNTING METHODS. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required
by generally accepted accounting principles.
(e) CLAIMS. Except in the ordinary course of business consistent with
past practice, settle any claim, action or proceeding, except for any claim,
action or proceeding which does not involve precedent for other material
claims, actions or proceedings and which involve solely money damages in an
amount, individually or in the aggregate for all such settlements, that is
not material to CNN and its Subsidiaries, taken as a whole.
(f) ADVERSE ACTIONS. (a) Take any action while knowing that such
action would, or is reasonably likely to, prevent or impede the Merger from
qualifying (i) for "pooling-of-interests" accounting treatment or (ii) as a
reorganization within the meaning of Section 368(a) of the Code; or
(b) knowingly take any action that is intended or is reasonably likely to
result in (i) any of its representations and warranties set forth in this
Agreement being or becoming untrue in any material respect at any time at or
prior to the Effective Time, (ii) any of the conditions to the Merger set
forth in Article VII not being satisfied or (iii) a material violation of
any provision of this Agreement except, in each case, as may be required by
applicable law or regulation; PROVIDED, HOWEVER, that nothing contained
herein shall limit the ability of CNN to exercise its rights under the Stock
Option Agreement.
(g) COMMITMENTS. Agree or commit to do any of the foregoing.
(h) GOVERNING DOCUMENTS. Amend the articles, bylaws (or similar
governing documents) of CNN or CNN Bank.
5.03 REASONABLE BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each of PEOPLES and CNN agrees to use their reasonable best efforts
in good faith to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of the Merger as promptly as
practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end.
5.04 SHAREHOLDER APPROVAL. PEOPLES agrees to take, in accordance with
applicable law and the PEOPLES Articles and PEOPLES Bylaws, all action necessary
to convene an appropriate meeting of its shareholders to consider and vote upon
the adoption of this Agreement and any other matters required to be approved or
adopted by PEOPLES' shareholders for consummation of the PEOPLES Merger
(including any adjournment or postponement, the "PEOPLES MEETING"), as promptly
as practicable after the Registration Statement is declared effective. The
PEOPLES Board shall recommend that its shareholders adopt this Agreement at the
PEOPLES Meeting unless otherwise necessary under the applicable fiduciary duties
of the PEOPLES Board, as determined by the PEOPLES Board in good faith after
consultation with and based upon advice of independent legal counsel.
5.05 REGISTRATION STATEMENT. (a) CNN agrees to prepare pursuant to all
applicable laws, rules and regulations a registration statement on Form S-4 (the
"REGISTRATION STATEMENT") to be filed by CNN with the SEC in connection with the
issuance of CNN Common Stock in the PEOPLES Merger (including the proxy
statement and prospectus and other proxy solicitation materials of PEOPLES
constituting a part thereof (the "PROXY STATEMENT") and all related documents).
Each party agrees to cooperate, and to cause its Subsidiaries to cooperate, with
the other, its counsel and its accountants, in preparation of the Registration
Statement and the Proxy Statement; and PROVIDED that PEOPLES and its
Subsidiaries have cooperated as required above, CNN agrees to file the Proxy
Statement and the Registration Statement (together, the "PROXY/PROSPECTUS") with
the SEC as promptly as reasonably practicable. Each of PEOPLES and CNN agrees to
use all reasonable efforts to cause the Proxy/Prospectus to be declared
effective under the Securities Act as promptly as reasonably practicable after
filing thereof. CNN also agrees to use all reasonable efforts to obtain, prior
to the effective date of the Registration Statement, all necessary state
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securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement. PEOPLES agrees to furnish to CNN
all information concerning PEOPLES, its Subsidiaries, officers, directors and
shareholders as may be reasonably requested in connection with the foregoing.
(b) Each of PEOPLES and CNN agrees, as to itself and its Subsidiaries, that
none of the information supplied or to be supplied by it for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement and each amendment or supplement thereto, if any,
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to the PEOPLES shareholders and at the time of the PEOPLES Meeting, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or any statement which, in the light of the circumstances
under which such statement is made, will be false or misleading with respect to
any material fact, or which will omit to state any material fact necessary in
order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier statement in the Proxy Statement or any
amendment or supplement thereto. Each of PEOPLES and CNN further agrees that if
it shall become aware prior to the Effective Date of any information furnished
by it that would cause any of the statements in the Proxy Statement to be false
or misleading with respect to any material fact, or to omit to state any
material fact necessary to make the statements therein not false or misleading,
to promptly inform the other party thereof and to take the necessary steps to
correct the Proxy Statement.
(c) CNN agrees to advise PEOPLES, promptly after CNN receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order or the
suspension of the qualification of CNN Stock for offering or sale in any
jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
5.06 PRESS RELEASES. Each of PEOPLES and CNN agrees that it will not,
without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation or NASD rules.
5.07 ACCESS; INFORMATION. (a) Each of PEOPLES and CNN agrees that upon
reasonable notice and subject to applicable laws relating to the exchange of
information, it shall afford the other party and the other party's officers,
employees, counsel, accountants and other authorized representatives, such
access during normal business hours throughout the period prior to the Effective
Time to the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and to such other
information as any party may reasonably request and, during such period, it
shall furnish promptly to such other party (i) a copy of each material report,
schedule and other document filed by it pursuant to federal or state securities
or banking laws, and (ii) all other information concerning the business,
properties and personnel of it as the other may reasonably request.
(b) Each agrees that it will not, and will cause its representatives not to,
use any information obtained pursuant to this Section 5.07 (as well as any other
information obtained prior to the date hereof in connection with the entering
into of this Agreement) for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement. Subject to the requirements of law,
each party will keep confidential, and will cause its representatives to keep
confidential, all information and documents obtained pursuant to this Section
5.07 (as well as any other information obtained prior to the date hereof in
connection with the entering into of this Agreement) unless such information
(i) was already known to such party, (ii) becomes available to such party from
other sources not known by such party to be bound by a confidentiality
obligation, (iii) is disclosed with the prior written approval of the party to
which such information pertains or (iv) is or becomes readily ascertainable from
published information or trade
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sources. In the event that this Agreement is terminated or the transactions
contemplated by this Agreement shall otherwise fail to be consummated, each
party shall promptly cause all copies of documents or extracts thereof
containing information and data as to another party hereto to be returned to the
party which furnished the same. No investigation by either party of the business
and affairs of the other shall affect or be deemed to modify or waive any
representation, warranty, covenant or agreement in this Agreement, or the
conditions to either party's obligation to consummate the transactions
contemplated by this Agreement.
(c) During the period from the date of this Agreement to the Effective Time,
PEOPLES party shall promptly furnish CNN with copies of all monthly and other
interim financial statements produced in the ordinary course of business as the
same shall become available.
5.08 ACQUISITION PROPOSALS. PEOPLES agrees that it shall not, and shall
cause its Subsidiaries and its and its Subsidiaries' officers, directors,
agents, advisors and affiliates not to, solicit or encourage inquiries or
proposals with respect to, or engage in any negotiations concerning, or provide
any confidential information to, or have any discussions with, any person
relating to, any Acquisition Proposal, subject to the extent that the PEOPLES
Board determines in good faith, after consultations with independent legal
counsel that it may be required by its fiduciary duties to do so. It shall
immediately cease and cause to be terminated any activities, discussions or
negotiations conducted prior to the date of this Agreement with any parties
other than CNN with respect to any of the foregoing and shall use its reasonable
best efforts to enforce any confidentiality or similar agreement relating to an
Acquisition Proposal. So long as it is consistent with PEOPLES' fiduciary
duties, PEOPLES shall promptly (within 48 hours) advise CNN following the
receipt by PEOPLES of any Acquisition Proposal and the substance thereof
(including the identity of the person making such Acquisition Proposal), and
advise CNN of any material developments with respect to such Acquisition
Proposal immediately upon the occurrence thereof.
5.09 AFFILIATE AGREEMENTS. (a) Not later than the 15th day prior to the
mailing of the Proxy Statement, PEOPLES shall deliver to CNN a schedule of each
person that, to the best of its knowledge, is or is reasonably likely to be, as
of the date of the PEOPLES Meeting, deemed to be an "affiliate" of PEOPLES
(each, a "PEOPLES AFFILIATE") as that term is used in Rule 145 under the
Securities Act or SEC Accounting Series Releases 130 and 135. PEOPLES shall use
its reasonable best efforts to cause each person who may be deemed to be a
PEOPLES Affiliate to execute and deliver to PEOPLES on or before the date of
mailing of the Proxy Statement an agreement in the form attached hereto as
Exhibit B.
5.10 TAKEOVER LAWS. No party hereto shall take any action that would cause
the transactions contemplated by this Agreement or the Stock Option Agreement to
be subject to requirements imposed by any Takeover Law and each of them shall
take all necessary steps within its control to exempt (or ensure the continued
exemption of) the transactions contemplated by this Agreement from, or if
necessary challenge the validity or applicability of, any applicable Takeover
Law, as now or hereafter in effect.
5.11 [INTENTIONALLY DELETED].
5.12 REGULATORY APPLICATIONS. (a) CNN and PEOPLES and their respective
Subsidiaries shall cooperate and use their respective reasonable best efforts to
prepare all documentation, to timely effect all filings and to obtain all
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary to consummate the transactions contemplated
by this Agreement. Each of CNN, PEOPLES and PEOPLES' counsel shall have the
right to review at least 5 business days in advance, and each will consult with
the other, in each case subject to applicable laws relating to the exchange of
information, with respect to, and shall be provided in advance so as to
reasonably exercise its right to review in advance, all material written
information submitted to any third party or any Governmental Authority in
connection with the transactions contemplated by this Agreement. In exercising
the foregoing right, each of the parties hereto agrees to act reasonably and as
promptly as practicable. Each party hereto agrees that it will consult with the
other party hereto with respect to the obtaining of all material permits,
consents, approvals and authorizations of all third parties and Governmental
Authorities necessary or
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advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other party apprised of the status of material matters
relating to completion of the transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Governmental
Authority.
5.13 INDEMNIFICATION. (a) Following the Effective Date, CNN shall
indemnify, defend and hold harmless the present and past directors, officers and
employees of PEOPLES and its Subsidiaries (each, an "INDEMNIFIED PARTY") against
all costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities (collectively, "COSTS") incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of actions or
omissions occurring on or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement) to the fullest
extent that PEOPLES is permitted to indemnify (and advance expenses to) its
directors, officers, and employees under the laws of the Commonwealth of
Pennsylvania, the PEOPLES Articles and the PEOPLES By-Laws as in effect on the
date hereof; PROVIDED that any determination required to be made with respect to
whether an officer's, director's or employee's conduct complies with the
standards set forth under Pennsylvania law, the PEOPLES Articles and the PEOPLES
By-Laws shall be made by independent counsel (which shall not be counsel that
provides material services to CNN) selected by CNN and reasonably acceptable to
such officer, director or employee.
(b) For a period of six (6) years from the Effective Time, CNN shall use its
reasonable best efforts to provide that portion of director's and officer's
liability insurance that serves to reimburse the present and former officers and
directors of PEOPLES or any of its Subsidiaries (determined as of the Effective
Time) (as opposed to PEOPLES) with respect to claims against such directors and
officers arising from facts or events which occurred before the Effective Time,
on terms no less favorable than those in effect on the date hereof; PROVIDED,
HOWEVER, that CNN may substitute therefor policies providing at least comparable
coverage containing terms and conditions no less favorable than those in effect
on the date hereof; and PROVIDED, FURTHER, that officers and directors of
PEOPLES or any Subsidiary may be required to make application and provide
customary representations and warranties to CNN's insurance carrier for the
purpose of obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under Section
5.13(a), upon learning of any claim, action, suit, proceeding or investigation
described above, shall promptly notify CNN thereof; PROVIDED that the failure so
to notify shall not affect the obligations of CNN under Section 5.13(a) unless
and to the extent that CNN is actually prejudiced as a result of such failure.
(d) If CNN or any of its successors or assigns shall consolidate with or
merge into any other entity and shall not be the continuing or surviving entity
of such consolidation or merger or shall transfer all or substantially all of
its assets to any entity, then and in each case, proper provision shall be made
so that the successors and assigns of CNN shall assume the obligations set forth
in this Section 5.13.
5.14 OPPORTUNITY OF EMPLOYMENT; EMPLOYEE BENEFITS. The existing employees
of PEOPLES shall have the opportunity to continue as employees of CNN or one of
its Subsidiaries, on the Closing Date; subject, however, to the right of CNN and
its Subsidiaries, in their discretion to extend offers of employment to any such
employees. Prior to the Effective Date, PEOPLES shall be responsible for any and
all obligations owing to any of its employees who do not become employees of CNN
and its Subsidiaries, including but not limited to back pay, bonus, severance,
unemployment compensation and the like. It is understood and agreed that PEOPLES
will not enter into any severance agreement except pursuant to written severance
policies which were in effect prior to contemplation of this transaction and
except for the Employment Agreement. It is understood and agreed that nothing in
this Section 5.14 or elsewhere in this Agreement
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shall be deemed to be a contract of employment or be construed to give said
employees any rights other than as employees at will under applicable law and
said employees shall not be deemed to be third-party beneficiaries of this
provision.
From and after the Effective Time, PEOPLES employees shall continue to
participate in the PEOPLES employee benefit plans in effect at the Effective
Time unless and until CNN, in its sole discretion, shall determine that PEOPLES
employees shall, subject to applicable eligibility requirements, participate in
employee benefit plans of CNN and that all or some of the PEOPLES plans shall be
terminated or merged into certain employee benefit plans of CNN. Notwithstanding
the foregoing, each PEOPLES employee shall be credited with years of PEOPLES (or
predecessor) service for purposes of eligibility and vesting in the employee
benefit plans of CNN. As provided herein, CNN will provide or allow severance
payments to employees of PEOPLES (other than employees whose severance benefits
are provided for in written employment agreements) whose employment is
terminated (other than for cause) on or after the Effective Date and before the
expiration of six months following the Effective Date, in the amount equal to
one week for each year of service with PEOPLES, up to a maximum of thirteen (13)
weeks. In computing such severance payments for non-exempt, full time employees,
overtime and bonus are excluded. In computing such severance payments for
non-exempt regular part time employees, the weekly compensation shall be based
on one-fifty-second ( 1/52) of the employee's total salary, excluding overtime
and bonus, paid in 1999. For full time exempt employees, weekly compensation is
calculated by taking ( 1/52) of the employee's 1999 annual salary, excluding
bonus.
5.15 NOTIFICATION OF CERTAIN MATTERS. Each of PEOPLES and CNN shall give
prompt notice to the other of any fact, event or circumstance known to it that
(i) is reasonably likely, individually or taken together with all other facts,
events and circumstances known to it, to result in any Material Adverse Effect
with respect to it or (ii) would cause or constitute a material breach of any of
its representations, warranties, covenants or agreements contained herein.
5.16 DIVIDEND COORDINATION. It is agreed by the parties hereto that they
will cooperate to assure that as a result of the PEOPLES Merger, during any
applicable period, there shall not be a payment of both a CNN and a PEOPLES
dividend. The parties further agree that if the Effective Date is at the end of
a fiscal quarter, then they will cooperate to assure that the PEOPLES
shareholders receive the dividend, if any, declared by PEOPLES rather than the
dividend for that period, if any, declared by CNN. In no event will the
selection of the Effective Date cause the shareholders of PEOPLES to lose a
quarterly or a portion of a quarterly dividend.
5.17 CNN BOARD REPRESENTATION. At the first CNN Board meeting following
the Effective Date, CNN shall appoint Kenneth Taylor and Donald Abrey to fill
vacancies on the CNN Board for terms of office expiring in 2003. Upon
appointment to the CNN Board, Donald Abrey shall be appointed to the Executive
Committee. Upon expiration of the initial term of Messrs. Taylor and Abrey to
the CNN Board, CNN shall cause Messrs. Taylor and Abrey's names to be submitted
to its Executive Committee for consideration as director nominees for an
additional three year term.
5.18 RESULTING BANK BOARD OF DIRECTORS. At the first CNN Bank board
meeting following the Effective Date, CNN shall cause Kenneth Taylor and Donald
Abrey to fill vacancies on the Resulting Bank Board for terms of office expiring
in 2003. Upon appointment to the Resulting Bank Board, Donald Abrey shall be
appointed to the Resulting Bank Executive Committee. Upon expiration of the
initial term of Messrs. Taylor and Abrey to the Resulting Bank Board, Resulting
Bank shall cause Messrs. Taylor and Abrey's names to be submitted to its
Executive Committee for consideration as director nominees for an additional
three year term.
5.19 FORMATION OF ADVISORY BOARD. Following the consummation of the
Subsidiary Merger, the members of the PEOPLES Board of Directors who do not
become members of the CNN or the Resulting Bank's Board of Directors shall be
given the opportunity to serve on the Advisory Board of Directors for
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the Wyalusing Area pursuant to the CNN Bank Advisory Board of Directors
Standards and Responsibilities in effect as of the date of this Agreement.
5.20 ACCOUNTING AND TAX TREATMENT. Subject to the consummation of the
Holding Company Merger on or before December 31, 2000, each of CNN and PEOPLES
agrees not to take any actions subsequent to the date of this Agreement that
would adversely affect the ability to treat the Merger as a "pooling-of-
interests" in accordance with GAAP or PEOPLES or the shareholders of PEOPLES to
characterize the Merger as a tax-free reorganization under Section 368(a) of the
Code.
5.21 NO BREACHES OF REPRESENTATIONS AND WARRANTIES. Between the date of
this Agreement and the Effective Time, without the written consent of the other
party, each of CNN and PEOPLES will not do any act or suffer any omission of any
nature whatsoever which would cause any of the representations or warranties
made in Article IV of this Agreement to become untrue or incorrect in any
material respect.
5.22 CONSENTS. Each of CNN and PEOPLES shall use its best efforts to
obtain any required consents to the transactions contemplated by this Agreement.
5.23 INSURANCE COVERAGE. PEOPLES shall cause the policies of insurance
listed in the Disclosure Schedule to remain in effect between the date of this
Agreement and the Closing Date.
5.24 CORRECTION OF INFORMATION. Each of CNN and PEOPLES shall promptly
correct and supplement any information furnished under this Agreement so that
such information shall be correct and complete in all material respects at all
times, and shall include all facts necessary to make such information correct
and complete in all material respects at all times.
5.25 CONFIDENTIALITY. Except for the use of information in connection with
the Registration Statement and any other governmental filings required in order
to complete the transactions contemplated by this Agreement, all information
(collectively, the "INFORMATION") received by each of PEOPLES and CNN, pursuant
to the terms of this Agreement shall be kept in strictest confidence; provided
that, subsequent to the filing of the Registration Statement with the Securities
and Exchange Commission, this Section 5.25 shall not apply to information
included in the Registration Statement or to be included in the official
proxy/prospectus to be sent to the shareholders of PEOPLES and CNN under
Section 5.05. PEOPLES and CNN agree that the Information will be used only for
the purpose of completing the transactions contemplated by this Agreement.
PEOPLES and CNN agree to hold the Information in strictest confidence and shall
not use, and shall not disclose directly or indirectly any of such Information
except when, after and to the extent such Information (i) is or becomes
generally available to the public other than through the failure of PEOPLES or
CNN to fulfill its obligations hereunder, (ii) was already known to the party
receiving the Information on a nonconfidential basis prior to the disclosure or
(iii) is subsequently disclosed to the party receiving the Information on a
nonconfidential basis by a third party having no obligation of confidentiality
to the party disclosing the Information. It is agreed and understood that the
obligations of PEOPLES and CNN contained in this Section 5.25 shall survive the
Closing. In the event the transactions contemplated by this Agreement are not
consummated, PEOPLES and CNN agree to return all copies of the Information
provided to the other promptly.
5.26 SUPPLEMENTAL ASSURANCES. (a) On the date the Registration Statement
becomes effective and on the Effective Date, PEOPLES shall deliver to CNN a
certificate signed by its principal executive officer and its principal
financial officer to the effect, to such officers' knowledge, that the
information contained in the Proxy/Prospectus provided by PEOPLES relating to
the business and financial condition and affairs of PEOPLES, does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading.
(b) On the date the Registration Statement becomes effective and on the
Effective Date, CNN shall deliver to PEOPLES a certificate signed by its chief
executive officer and its chief financial officer to the effect, to such
officers' knowledge, that the Registration Statement (other than the information
contained therein relating to the business and financial condition and affairs
of PEOPLES) does not contain any
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untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
5.27 EMPLOYMENT AGREEMENT. As a result of the PEOPLES Merger, Donald E.
Abrey will be entitled to receive payment under the Employment Agreement. Prior
to the Effective Date, the Employment Agreement will be amended as set forth on
Exhibit D.
5.28 VOTING AGREEMENT. On or before the date of execution of this
Agreement, certain shareholders of PEOPLES shall execute and deliver to CNN a
voting agreement with respect to the PEOPLES common stock, which agreement shall
be in the form attached hereto as Exhibit C.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
6.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each of CNN and PEOPLES to consummate the Merger is
subject to the fulfillment or written waiver by CNN and PEOPLES prior to the
Effective Time of each of the following conditions:
(a) SHAREHOLDER APPROVALS. This Agreement shall have been duly adopted
by the requisite vote of the shareholders of PEOPLES.
(b) REGULATORY APPROVALS. All regulatory approvals required to
consummate the transactions contemplated hereby shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired and no such approvals shall contain
(i) any conditions, restrictions or requirements which the CNN Board
reasonably determines would either before or after the Effective Time have a
Material Adverse Effect on CNN and its Subsidiaries taken as a whole after
giving effect to the consummation of the Merger, or (ii) any conditions,
restrictions or requirements that are not customary and usual for approvals
of such type including, but not limited to, any requirement to divest any
offices or branches of PEOPLES or the Bank.
(c) NO INJUNCTION. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
consummation of the transactions contemplated by this Agreement.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
(e) BLUE SKY APPROVALS. All permits and other authorizations under
state securities laws necessary to consummate the transactions contemplated
hereby and to issue the shares of CNN Common Stock to be issued in the
PEOPLES Merger shall have been received and be in full force and effect.
(f) ACCOUNTING TREATMENT. CNN and PEOPLES shall have both received
from Parente Randolph PC, CNN's and PEOPLES's independent auditors, letters,
dated the date of or shortly prior to each of the mailing date of the Proxy
Statement and the Effective Date, stating its opinion that the Merger shall
qualify for pooling-of-interests accounting treatment.
6.02 CONDITIONS TO OBLIGATION OF PEOPLES. The obligation of PEOPLES to
consummate the Merger is also subject to the fulfillment or written waiver by
PEOPLES prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of CNN set forth in this Agreement shall be true and correct, subject to
Section 4.02, as of the date of this Agreement and
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as of the Effective Date as though made on and as of the Effective Date
(except that representations and warranties that by their terms speak as of
the date of this Agreement or some other date shall be true and correct as
of such date), and PEOPLES shall have received a certificate, dated the
Effective Date, signed on behalf of CNN by the Chief Executive Officer and
the Chief Financial Officer of CNN to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF CNN. CNN shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and PEOPLES shall have received
a certificate, dated the Effective Date, signed on behalf of CNN by the
Chief Executive Officer and the Chief Financial Officer of CNN to such
effect.
(c) TAX OPINION. PEOPLES shall have received an opinion of Shumaker
Williams, PC, dated the Effective Date, to the effect that, on the basis of
facts, representations and assumptions set forth in such opinion,
(i) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and CNN and PEOPLES will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by PEOPLES shareholders by
reason of the Merger;
(iii) Except for cash received in lieu of fractional shares and cash
received by Shareholders who exercise their dissenter's rights, no gain
or loss will be reorganized by the Shareholders of PEOPLES who receive
solely CNN Stock upon the exchange of their shares of PEOPLES Stock for
shares of CNN Stock;
(iv) The tax basis of the CNN Stock to be received by the PEOPLES
shareholders will be, in each instance, the same as the basis of the
PEOPLES Stock surrendered in exchange thereof;
(v) The holding period of the CNN Stock received by a PEOPLES
shareholder receiving CNN Stock will include the period during which the
PEOPLES Stock surrendered in exchange therefor was held;
(vi) Cash received by a PEOPLES shareholder in lieu of a fractional
share interest of CNN Stock or upon exercise of dissenter's rights will
be treated as having been received as a distribution in full payment in
exchange for the fractional share interest of CNN Stock, or the tax basis
in the shares surrendered, as the case may be, which they would otherwise
be entitled to receive and will qualify as capital gain or loss if their
PEOPLES Stock was held by them as a capital asset; and
(vii) Subject to any limitations imposed under Sections 381 and 382 of
the Code and certain U.S. Treasury regulations promulgated under Code
Section 1502, where applicable, CNN, as the survivor to the Merger, will
carry-over and take into account all accounting items and tax attributes
of PEOPLES, including but not limited to earning and profits, methods of
accounting, and tax basis and holding periods of PEOPLES.
(d) OPINION OF CNN'S COUNSEL. PEOPLES shall have received an opinion
of Squire, Sanders & Dempsey L.L.P., counsel to CNN, dated the Effective
Date, to the effect that, on the basis of the facts, representations and
assumptions set forth in the opinion, (i) CNN is a corporation duly
organized and presently subsisting under the laws of the Commonwealth of
Pennsylvania, (ii) this Agreement has been duly executed by CNN and
constitutes the binding obligation of CNN, enforceable in accordance with
its terms against CNN, except as the same may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, and other
similar laws relating to or affecting the enforcement of creditors' rights
generally, by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law),
(iii) that, the shares CNN Common Stock to be issued under the Agreement,
when issued, shall be duly authorized, fully paid and non-assessable and
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duly registered under the Securities Act of 1933, as amended, and
(iv) that, the adoption of the Agreement of CNN's shareholders is not
required by the PBCL.
(e) FAIRNESS OPINION. PEOPLES shall have received a fairness opinion
from Ryan, Beck & Co., financial advisor to PEOPLES, dated as of a date
reasonably proximate to the date of the Proxy Statement, stating that the
Exchange Ratio is fair to the shareholders of PEOPLES from a financial point
of view.
6.03 CONDITIONS TO OBLIGATION OF CNN. The obligation of CNN to consummate
the Merger is also subject to the fulfillment or written waiver by CNN prior to
the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of PEOPLES set forth in this Agreement shall be true and correct, subject to
Section 4.02, as of the date of this Agreement and as of the Effective Date
as though made on and as of the Effective Date (except that representations
and warranties that by their terms speak as of the date of this Agreement or
some other date shall be true and correct as of such date) and CNN shall
have received a certificate, dated the Effective Date, signed on behalf of
PEOPLES by the Chief Executive Officer and the Chief Financial Officer of
PEOPLES to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF PEOPLES. PEOPLES shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time, and CNN shall
have received a certificate, dated the Effective Date, signed on behalf of
PEOPLES by the Chief Executive Officer and the Chief Financial Officer of
PEOPLES to such effect.
(c) OPINION OF PEOPLES' COUNSEL. CNN shall have received an opinion of
Shumaker Williams, PC, counsel to PEOPLES, dated the Effective Date, to the
effect that, on the basis of the facts, representations and assumptions set
forth in the opinion, (i) PEOPLES is a corporation duly organized and
presently subsisting under the laws of the Commonwealth of Pennsylvania,
(ii) this Agreement has been duly executed by PEOPLES and constitutes a
binding obligation on PEOPLES, enforceable in accordance with its terms
against PEOPLES, except as the same may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, and other
similar laws relating to or affecting the enforcement of creditors' rights
generally, by general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law) and (iii)
PEOPLES is not subject to Subchapters D (Section 2538), E, F, G, H, I and J
of Chapter 25 of the PBCL.
(d) AFFILIATE AGREEMENTS. CNN shall have received the agreements
referred to in Section 5.09 from each affiliate of PEOPLES.
ARTICLE VII
TERMINATION
7.01 TERMINATION. This Agreement may be terminated, and the Merger may be
abandoned:
(a) MUTUAL CONSENT. At any time prior to the Effective Time, by the
mutual consent of CNN and PEOPLES, if the Board of Directors of each so
determines by vote of a majority of the members of its entire Board.
(b) BREACH. At any time prior to the Effective Time, by CNN or
PEOPLES, if its Board of Directors so determines by vote of a majority of
the members of its entire Board, in the event of either: (i) a breach by the
other party of any representation or warranty contained herein (subject to
the standard set forth in Section 4.02), which breach cannot be or has not
been cured within 30 days
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after the giving of written notice to the breaching party of such breach; or
(ii) a breach by the other party of any of the covenants or agreements
contained herein, which breach cannot be or has not been cured within
30 days after the giving of written notice to the breaching party of such
breach, provided that such breach (whether under (i) or (ii)) would be
reasonably likely, individually or in the aggregate with other breaches, to
result in a Material Adverse Effect.
(c) DELAY. At any time prior to the Effective Time, by CNN or PEOPLES,
if its Board of Directors so determines by vote of a majority of the members
of its entire Board, in the event that the PEOPLES Merger is not consummated
by December 31, 2000, except to the extent that the failure of the PEOPLES
Merger then to be consummated arises out of or results from the knowing
action or inaction of the party seeking to terminate pursuant to this
Section 7.01(c).
(d) NO APPROVAL. By PEOPLES or CNN, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, in
the event (i) the approval of any Governmental Authority required for
consummation of the Merger and the other transactions contemplated by this
Agreement shall have been denied by final nonappealable action of such
Governmental Authority; (ii) the PEOPLES shareholders fail to adopt this
Agreement at the PEOPLES Meeting; or (iii) any of the closing conditions
have not been met as required by Article VI hereof.
(e) FAILURE TO EXECUTE AND DELIVER STOCK OPTION AGREEMENT. By CNN, if
at any time prior to the close of business, Eastern Daylight Savings Time on
June 23, 2000, PEOPLES shall not have executed and delivered the Stock
Option Agreement to CNN.
7.02 EFFECT OF TERMINATION AND ABANDONMENT; ENFORCEMENT OF AGREEMENT. In
the event of termination of this Agreement and the abandonment of the Merger
pursuant to this Article VII, no party to this Agreement shall have any
liability or further obligation to any other party hereunder except (i) as set
forth in Section 8.01 and (ii) that termination will not relieve a breaching
party from liability for any willful breach of this Agreement giving rise to
such termination. Notwithstanding anything contained herein to the contrary, the
parties hereto agree that irreparable damage will occur in the event that a
party breaches any of its obligations, duties, covenants and agreements
contained herein. It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent breaches or threatened breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in any court of the Commonwealth of Pennsylvania, this being in addition to any
other remedy to which they are entitled by law or in equity.
ARTICLE VIII
MISCELLANEOUS
8.01 SURVIVAL. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 5.13, 5.14, 5.17, 5.18, 5.19, 5.25 and 5.27 and this Article VIII which
shall survive the Effective Time and be enforceable by its terms) or the
termination of this Agreement if this Agreement is terminated prior to the
Effective Time (other than Sections 5.05(b), 5.07(b), 7.02, and this
Article VIII which shall survive such termination).
8.02 WAIVER; AMENDMENT. Prior to the Effective Time, any provision of this
Agreement may be (i) waived by the party benefited by the provision, or
(ii) amended or modified at any time, by an agreement in writing between the
parties hereto executed in the same manner as this Agreement, except that no
amendment or waiver may be made that would change the form or the amount of the
merger consideration following the PEOPLES Meeting.
8.03 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
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8.04 GOVERNING LAW. This Agreement shall be governed by, and interpreted
in accordance with, the laws of the Commonwealth of Pennsylvania applicable to
contracts made and to be performed entirely within such Commonwealth (except to
the extent that mandatory provisions of Federal law are applicable).
8.05 EXPENSES. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby, except
that printing and mailing expenses shall be borne by CNN. All fees to be paid to
Regulatory Authorities and the SEC in connection with the transactions
contemplated by this Agreement shall be borne by CNN.
8.06 NOTICES. All notices, requests and other communications hereunder to
a party shall be in writing and shall be deemed given if personally delivered,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to such party at its address set forth below or such other
address as such party may specify by notice to the parties hereto.
If to PEOPLES, to:
Peoples Ltd.
201 Church Street
P.O. Box 217
Wyalusing, PA 18853
Attn: Donald Abrey, President
With a copy to:
Shumaker Williams, P.C.
The Pennsylvania Center
3425 Simpson Ferry Road
Camp Hill, Pennsylvania 17011
Attn: Nicholas Bybel, Jr.
If to CNN, to:
Citizens & Northern Corporation
90-92 Main Street
P.O. Box 58
Wellsboro, PA 16901
Attn: Craig G. Litchfield, President
With a copy to:
M. Patricia Donnelly Oliver
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, OH 44114
8.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement,
any separate agreement entered into by the parties on even date herewith, and
any Stock Option Agreement entered into represent the entire understanding of
the parties hereto with reference to the transactions contemplated hereby and
thereby and this Agreement supersedes any and all other oral or written
agreements heretofore made (other than any such separate agreement or Stock
Option Agreement). Nothing in this Agreement, whether express or implied, is
intended to confer upon any person, other than the parties hereto or their
respective successors, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
8.08 INTERPRETATION; EFFECT. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference
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purposes only and are not part of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
8.09 WAIVER OF JURY TRIAL. Each of the parties hereto hereby irrevocably
waives any and all right to trial by jury in any legal proceeding arising out of
or related to this Agreement or the transactions contemplated hereby.
[the rest of this page is intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
<TABLE>
<S> <C> <C>
PEOPLES LTD.
By: /s/ DONALD E. ABREY
------------------------------------------
Donald E. Abrey,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CITIZENS & NORTHERN CORPORATION
By: /s/ CRAIG G. LITCHFIELD
------------------------------------------
Craig G. Litchfield,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
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EXHIBIT A
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement"), effective as of this 23 day of
June, 2000, by and between Citizens & Northern Corporation, a Pennsylvania
corporation ("Grantee"); and Peoples Ltd., a Pennsylvania corporation
("Grantor");
WITNESSETH:
A. Grantor and Grantee have entered into an Agreement and Plan of Merger
dated as of June 22, 2000 (the "Merger Agreement"), providing for their
affiliation with one another.
B. As further inducement for the parties to consummate the transactions
contemplated by the Merger Agreement, Grantor wishes to grant Grantee the Option
described herein.
C. The Board of Directors of Grantor has approved the grant of the Option
and the Merger Agreement prior to the date hereof.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
Capitalized terms not defined herein shall have the meanings set
forth in the Merger Agreement.
"Applicable Price" shall mean the highest of (i) the highest price
per share of Grantor Common Stock paid for any such share by the person
or groups described in the definition of a Repurchase Event or (ii) the
price per share of Grantor Common Stock received by holders of Grantor
Common Stock in connection with any merger or other business combination
transaction which is a Purchase Event. If the consideration to be
offered, paid or received pursuant to either of the foregoing clauses (i)
or (ii) shall be other than in cash, the value of such consideration
shall be determined in good faith by an independent nationally recognized
investment banking firm selected by Grantee and reasonably acceptable to
Grantor, which determination shall be conclusive for all purposes of this
Agreement.
"Bank" shall mean a financial institution subsidiary of a party.
"Burdensome Condition" shall mean, in connection with the grant of a
requisite regulatory approval or otherwise, imposition by a governmental
entity of any condition or restriction upon the party or one of its
Subsidiaries (as defined herein) which would reasonably be expected to
either (i) have a material adverse effect after the effective time of the
Merger Agreement on the present or prospective consolidated financial
condition, business or operating results of the party, or (ii) prevent
the parties from realizing the major portion of the economic benefits of
the transactions contemplated by the Merger Agreement that they currently
anticipate obtaining.
"Commission" shall mean the Securities and Exchange Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Grantee" shall mean Citizens & Northern Corporation.
"Grantor" shall mean Peoples Ltd.
"Grantor Common Stock" shall mean the respective shares of common
stock of the same class for which Peoples Ltd. is granting an Option
under this Agreement.
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"Merger Agreement" shall mean the definitive agreement executed by
Citizens & Northern Corporation and Peoples Ltd., pursuant to which the
parties hereto intend to affiliate.
"Option" shall mean the option granted by Peoples Ltd. to Citizens &
Northern Corporation under this Agreement.
"Person" shall have the meanings specified in Sections 3(a)(9) and
13(d)(3) of the Exchange Act.
"Purchase Event" shall mean any of the following events or
transactions occurring after the date of this Agreement with respect to
the Grantor:
(i) the Grantor or any of its Subsidiaries (as defined in Rule
1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission (the "SEC") (each hereinafter individually referred to as
a "Subsidiary" and collectively, as the "Subsidiaries")), without
having received the Grantee's prior written consent, shall have
entered into an agreement with, or the Board of Directors of Grantor
shall have recommended that the shareholders of Grantor approve or
accept a transaction with any person (x) to merge or consolidate, or
enter into any similar transaction, except as contemplated by the
Merger Agreement, (y) to purchase, lease or otherwise acquire all or
substantially all of the assets of the Grantor or any of its
Subsidiaries, or (z) to purchase or otherwise acquire (including by
way of merger, consolidation, share exchange or any similar
transaction) securities representing 20% or more of the voting power
of such Grantor or any of its Subsidiaries (other than pursuant to
this Agreement);
(ii) any person (other than the Grantor or its Bank in a
fiduciary capacity, or Grantee or its Bank in a fiduciary capacity)
shall have acquired beneficial ownership or the right to acquire
beneficial ownership of 20% or more of the outstanding shares of such
Grantor Common Stock after the date of this Agreement (the term
"beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder);
(iii) Grantor shall have materially breached this Agreement in any
material respect, which breach shall not have been cured within
fifteen (15) days after notice thereof is given by Grantee to
Grantor;
(iv) any person other than Grantee shall have made a bona fide
Takeover Proposal to the Grantor by public announcement or written
communication that is or becomes the subject of public disclosure,
and following such bona fide Takeover Proposal, the shareholders of
the Grantor vote not to adopt the Merger Agreement;
(v) Grantor shall have breached the Merger Agreement following a
bona fide Takeover Proposal to such Grantor or any of its
Subsidiaries, which breach would entitle Grantee to terminate the
Merger Agreement and such breach shall not have been cured prior to
the Notice Date (as defined below);
(vi) the shareholders of Grantor shall have voted and failed to
approve the Merger Agreement and the Merger at a meeting which has
been held for that purpose or any adjournment or postponement
thereof, or such meeting shall not have been held in violation of the
Merger Agreement or shall have been canceled prior to termination of
the Merger Agreement if, prior to such meeting (or if such meeting
shall not have been held or shall have been canceled, prior to such
termination), it shall have been publicly announced that any person
(other than Grantee or any of its Subsidiaries) shall have made a
Takeover Proposal; or
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(vii) the Grantor Board of Directors shall have withdrawn or
modified (or publicly announced its intention to withdraw or modify)
its recommendation that the shareholders of Grantor approve the
transactions contemplated by the Merger Agreement, or Grantor or any
Grantor Subsidiary or group of Grantor Subsidiaries that is, or would
on an aggregate basis constitute, a Significant Subsidiary shall have
authorized, recommended, proposed (or publicly announced its
intention to authorize, recommend or propose) an agreement to engage
in a Takeover Proposal with any person other than Grantee or a
Grantee Subsidiary.
If more than one of the transactions giving rise to a Purchase Event
under this Agreement is undertaken or effected, then all such
transactions shall be deemed to give rise only to one Purchase Event with
respect to the Option, which Purchase Event shall be deemed continuing
for all purposes hereunder until all such transactions are abandoned.
"Repurchase Event" shall mean if (i) any person (other than the
Grantee or any subsidiary of the Grantee) shall have acquired actual
ownership or control, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which shall have acquired actual
ownership or control, of 24.9% or more of the then outstanding shares of
Grantor Common Stock, or (ii) any Purchase Event shall be consummated.
"Takeover Proposal" shall mean any tender or exchange offer, bona
fide written offer for a merger, consolidation or other business
combination involving Grantor or any of its Subsidiaries or any bona fide
written offer to acquire in any manner 20% or more of the outstanding
shares of any class of voting securities, or 20% or more of the
consolidated assets, of the Grantor or any of its Subsidiaries, other
than the transactions contemplated by the Merger Agreement. If Grantor
receives an unsolicited Takeover Proposal and it is determined by the
Grantor to be consistent with its fiduciary duties, it shall notify
Grantee promptly of the receipt of such Takeover Proposal, it being
understood, however, that the giving of such notice by Grantor shall not
be a condition to the right of Grantee to exercise the Option.
2. GRANT OF OPTION.
Subject to the terms and conditions set forth herein, Grantor hereby
grants to Grantee an unconditional, irrevocable Option to purchase up to
81,655 shares of Grantor Common Stock as of the date of this Agreement
(or such number equaling 19.9% of Grantor Common Stock) at an exercise
price of $47.00 per share payable in cash as provided in Section 4. In
the event that the Grantor issues or agrees to issue any shares of
Grantor Common Stock (other than as permitted under the Merger Agreement)
at a price less than the exercise price per share set forth in this
section (as adjusted pursuant to Section 6), the exercise price of the
Option shall be such lesser price.
3. EXERCISE OF OPTION.
(a) Unless the Grantee shall have breached in any material respect
any material covenant, representation or warranty contained in this
Agreement or the Merger Agreement and such breach shall not have been
cured, the Grantee may exercise the Option, in whole or part, at any time
or from time to time if a Purchase Event shall have occurred with respect
to the Grantor and be continuing; provided that to the extent the Option
shall not have been exercised, it shall terminate and be of no further
force and effect (i) on the effective date of the transaction
contemplated by the Merger Agreement, or (ii) upon termination of the
Merger Agreement in accordance with the provisions thereof (other than a
termination resulting from a willful breach by the Grantor of the Merger
Agreement or following the occurrence of a Purchase Event, failure of the
Grantor's shareholders to approve the Merger Agreement by the vote
required under applicable law or under the respective Grantor's
articles), or (iii) 9 months after termination of the Merger Agreement
due to a willful breach by the Grantor of the Merger Agreement
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or, following the occurrence of a Purchase Event, failure of the
Grantor's shareholders to approve the Merger Agreement by the vote
required under applicable law or under the Grantor's articles. Any
exercise of the Option shall be subject to compliance with applicable
provisions of law.
(b) In the event the Grantee wishes to exercise the Option, it shall
send to the Grantor a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise, and (ii) a place and
date not earlier than three (3) business days nor later than 60 business
days after the Notice Date for the closing of such purchase ("Closing
Date"). If prior notification to or approval of any federal or state
regulatory agency is required in connection with such purchase, the
Grantee shall promptly file the required notice or application for
approval and shall expeditiously process the same and the period of time
that otherwise would run pursuant to this section shall run instead from
the date on which any required notification period has expired or been
terminated or any requisite approval has been obtained and any requisite
waiting period shall have passed.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) At the closing referred to in Section 3, the Grantee shall pay to
the Grantor the aggregate purchase price for the shares of Grantor Common
Stock purchased pursuant to the exercise of the Option in immediately
available funds by a wire transfer to a bank account designated by the
Grantor. Grantor 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
under this Section 4 in the name of the Grantee or its assignee,
transferee or designee.
(b) At such closing, simultaneously with the delivery of funds as
provided in Section 4(a), the Grantor shall deliver to the Grantee a
certificate or certificates representing the number of shares of Grantor
Common Stock purchased by the Grantee, and the Grantee shall deliver to
the Grantor a letter agreeing that Grantee will not offer to sell or
otherwise dispose of such shares in violation of applicable law or the
provisions of this Agreement or federal or state laws.
(c) Certificates for Grantor Common Stock delivered at a closing
hereunder shall be endorsed with a restrictive legend which shall read
substantially as follows:
The transfer of the shares represented by this certificate is subject
to certain provisions of a Stock Option Agreement dated ,
2000, between the registered holder hereof and [Grantor] (a copy of
which agreement is on file at the principal office of [Grantor]). A
copy of such agreement will be provided to the holder hereof without
charge within five days after receipt by [Grantor] of a written
request therefor. The shares evidenced by this certificate have not
been registered under the Securities Act of 1933 and may not be sold,
pledged, transferred, or hypothecated except pursuant to an opinion
of counsel satisfactory to the corporation that such transfer is
lawful.
The above legend shall be removed or modified as appropriate by
delivery of substitute certificate(s) without such legend if the Grantee
shall have delivered to the Grantor a copy of a letter from the staff of
the Commission, or an opinion of counsel, in form and substance
satisfactory to Grantor, to the effect that such legend is not required
for purposes of the Securities Act of 1933, as amended.
5. REPRESENTATIONS.
The Grantor represents, warrants and covenants to the Grantee as
follows:
(a) Grantor agrees: (i) that it shall at all times maintain, free
from preemptive rights, sufficient authorized but unissued or treasury
shares of Common Stock so that the Option may be
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<PAGE>
exercised without additional authorization of Common Stock after giving
effect to all other options, warrants, convertible securities and other
rights to purchase Common Stock; (ii) 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 by Grantor; (iii) in the
event, under the Bank Holding Company Act of 1956, as amended (the
"BHCA"), or the Change in Bank Control Act of 1978, as amended, or any
state or other federal banking law, prior approval of or notice of the
Federal Reserve Board or to any state or other federal regulatory
authority is necessary before the Option may be exercised, cooperating
fully with the Grantee in preparing such applications or notices and
providing such information to the Federal Reserve Board or such state or
other federal regulatory authority as they may require in order to permit
the Grantee to exercise the Option and Grantor duly and effectively to
issue shares of Common Stock pursuant thereto; and (iv) promptly to take
all action provided herein to protect the rights of the Grantee against
dilution.
(b) The shares to be issued upon due exercise, in whole or in part,
of the Option, when paid for as provided herein, will be duly authorized,
validly issued and fully paid.
(c) Grantor has full corporate power and authority to execute,
deliver and perform this Agreement and all corporate action necessary for
execution, delivery and performance of this Agreement has been duly taken
by such party.
(d) Neither the execution and delivery of this Agreement nor
consummation of the transactions contemplated hereby (assuming all
appropriate shareholder and regulatory approvals) will violate or result
in any violation of or be in conflict with or constitute a default under
any term of the articles, regulations or by-laws of such party or any
agreement, instrument, judgment, decree, statute, rule or order
applicable to such party.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
The Grantor agrees that, in the event of any change in its Grantor
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, exchanges of shares or the like, the
type and number of shares subject to the Option, and the purchase price
per share, as the case may be, shall be adjusted appropriately. The
Grantor agrees that, in the event that any additional shares of its
Grantor Common Stock are issued or otherwise become outstanding after the
date of this Agreement (other than pursuant to this Agreement), the
number of shares of its Grantor Common Stock subject to the Option shall
be adjusted so that, after such issuance, it equals the same percentage
(as that on the date of this Agreement) of the number of shares of
Grantor Common Stock then issued and outstanding without giving effect to
any shares subject to or issued pursuant to the Option. Nothing contained
in this Section 6 shall be deemed to authorize the Grantor to breach any
provision of the Merger Agreement.
7. TERMINATION.
This Agreement may be terminated at any time prior to the effective
date of the transaction set forth in the Merger Agreement, by action
taken or authorized by the Board of Directors of the terminating party or
parties, whether before or after approval by the stockholders of the
matters presented in connection with the Merger Agreement:
(a) by mutual consent of Grantee and Grantor;
(b) by either Grantee or Grantor if the Federal Reserve Board shall
have issued an order denying approval of the transaction set forth in the
Merger Agreement or if any governmental entity of competent jurisdiction
shall have issued a final permanent order enjoining or otherwise
prohibiting the consummation of the transactions contemplated by this
Agreement or the Merger
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Agreement, or imposing a Burdensome Condition, and in any such case the
time for appeal or petition for reconsideration of such order shall have
expired without such appeal or petition being granted;
(c) by either Grantee or Grantor if the transactions contemplated by
the Merger Agreement shall not have been consummated on or before
December 31, 2000, unless such date is extended by mutual consent of the
parties hereto;
(d) by either Grantee or Grantor if no Purchase Event has occurred
and if any approval of their shareholders required for the consummation
of the transactions set forth in the Merger Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a duly
called and held meeting of shareholders or at any adjournment thereof;
8. EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by any party as
provided in Section 7, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of any party or
their respective officers or directors except (i) Sections 10, 11, 12,
and 13 of this Agreement shall survive the termination and (ii) with
respect to any liabilities or damages incurred or suffered by a party as
a result of the breach by another party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
(b) If a Purchase Event occurs with respect to the Grantor, then in
such event Grantor shall pay to the Grantee, within five business days
after a termination of this Agreement following such an event, the
reasonable expenses of Grantee incurred in connection with this Agreement
and the transactions set forth in the Merger Agreement, but not more than
$250,000.
9. ACCESS TO INFORMATION.
During the term of this Agreement, each party will afford each of the
other parties full and free access during normal business hours to such
party, its personnel, properties, contracts, books and records, and all
other documents and data.
10. CONFIDENTIALITY.
Except as and to the extent required by law, no party will disclose
or use, and will direct its representatives not to disclose or use, any
Confidential Information (as defined below) with respect to the other
parties furnished or to be furnished by such other parties, or their
respective representatives to the party or its representatives at any
time or in any manner other than in connection with its evaluation of the
transaction proposed in this Agreement. For purposes of this section,
"Confidential Information" means any information about the Merger
Agreement and this Agreement as well as any information about a party
stamped "confidential" or identified in writing as such promptly
following its disclosure, unless (i) such information is already known to
the party or its representatives or to others not bound by a duty of
confidentiality or such information becomes publicly available through no
fault of the party or its representatives, (b) the use of such
information is necessary in making any filing or obtaining any consent or
approval required for the consummation of the transactions set forth in
the Merger Agreement, or (c) the furnishing or use of such information is
required by or necessary in connection with legal proceedings. Upon the
written request of a party, each of the other parties will promptly
return or destroy any Confidential Information in its possession and
certify in writing to the disclosing party that it has done so.
11. DISCLOSURE.
Except as and to the extent required by law, without the prior
written consent of the other parties, no party will, and each will direct
its representatives not to, make directly or indirectly
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any public comment, statement or communication with respect to, or
otherwise to disclose or to permit the disclosure of the existence of
discussions regarding, a possible transaction among the parties or any of
the terms, conditions or other aspects of the transaction proposed in
this Agreement. If a party is required by law to make any such
disclosure, it must first provide to the other parties the content of the
proposed disclosure, the reasons that such disclosure is required by law,
and the time and place that the disclosure will be made.
12. COSTS.
Except as otherwise expressly agreed, each party will be responsible
for and bear all of its own costs and expenses (including any broker's or
finder's fees and the expenses of its representatives) incurred at any
time in connection with this Agreement and in pursuing or consummating
the Merger Agreement.
13. SEVERABILITY.
If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions contained
in this Agreement shall remain in full force and effect, and shall in no
way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that applicable law will not permit the
Grantee to acquire the full number of shares of Grantor Common Stock
provided in Section 2 (as adjusted pursuant to Section 6), it is the
express intention of the Grantor to allow the Grantee to acquire such
lesser number of shares as may be permissible, without any amendment or
modification hereof.
14. MISCELLANEOUS.
(a) THIRD PARTIES. Nothing in this Agreement, expressed or implied,
is intended to confer upon any party, other than the parties hereto, and
their respective permitted successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except
as expressly provided herein.
(b) ENTIRE AGREEMENT. Except as otherwise expressly provided herein,
this Agreement contains the entire agreement among the parties with
respect to the transactions contemplated hereunder and supersedes all
prior arrangements or understandings with respect thereto, written or
oral. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
permitted successors and assigns.
(c) ASSIGNMENT. Neither of the parties hereto may assign any of its
rights or obligations under this Agreement or the Option created
hereunder to any other person, without the express written consent of the
other party, except that in the event a Purchase Event shall have
occurred and be continuing, the Grantee may assign in whole or in part
its rights and obligations hereunder; provided, however, that Grantee may
not assign its rights under the Option except in (i) a widely dispersed
public distribution, (ii) a private placement in which no one party
acquires the right to purchase in excess of 2% of the Grantor Common
Stock, (iii) an assignment to a single party (e.g., a broker or
investment banker) for the purpose of conducting a widely dispersed
public distribution on the Grantee's behalf, or (iv) any other manner
approved by applicable regulatory authorities, so long as the Grantee is
responsible for all costs associated with the same and the assignment is
in compliance with federal and state law.
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(d) NOTICES. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered by
registered or certified mail, postage prepaid, express service, personal
delivery, telecopy or telefacsimile to the following addresses:
If to Citizens & Northern Corporation, to:
Citizens & Northern Corporation
90-92 Main Street
P.O. Box 58
Wellsboro, PA 16901
Attn: Craig G. Litchfield, President
With a copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Attn: M. Patricia Donnelly Oliver
If to Peoples Ltd., to:
Peoples Ltd.
201 Church Street
P.O. Box 217
Wyalusing, PA18853
Attn: Donald Abrey, President
With a copy to:
Shumaker Williams, PC
The Pennsylvania Center
3425 Simpson Ferry Road
Camp Hill, PA 17011
Attn: Nicholas Bybel
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) SPECIFIC PERFORMANCE. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Agreement by any
party hereto and that this Agreement may be enforced by a party hereto
through injunctive or other equitable relief.
(g) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and entirely to be performed within such
state and such federal laws as may be applicable.
15. REPURCHASE AT THE OPTION OF GRANTEE.
(a) At the request of the Grantee at any time commencing upon the
first occurrence of a Repurchase Event and ending 9 months immediately
thereafter, Grantor shall repurchase from Grantee (i) the Option and
(ii) all shares of Grantor Common Stock purchased by Grantee pursuant
hereto with respect to which Grantee then has beneficial ownership. The
date on which
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Grantee exercises its rights under this Section 17 is referred to as the
"Request Date." Such repurchase shall be at an aggregate price (the
"Repurchase Consideration") equal to the sum of:
(i) the aggregate purchase price paid by Grantee for any shares
of Grantor Common Stock acquired pursuant to the Option with respect
to which Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price for each
share of Grantor Common Stock over (y) the purchase price (subject to
adjustment pursuant to Section 6 hereof), multiplied by the number of
shares of Grantor Common Stock with respect to which the Option has
not been exercised; and
(iii) the excess, if any, of the Applicable Price over the
purchase price (subject to adjustment pursuant to Section 6 hereof
paid (or, in the case of Option Shares with respect to which the
Option has been exercised but the Closing Date has not occurred,
payable) by Grantee for each share of Grantor Common Stock with
respect to which the Option has been exercised and with respect to
which Grantee then has beneficial ownership, multiplied by the number
of such shares.
(b) If Grantee exercises its rights under this section, Grantor
shall, within 10 business days after the Request Date, pay the Grantor
Repurchase Consideration to Grantee in immediately available funds, and
contemporaneously with such payment Grantee shall surrender to Grantor
the Option and the certificates evidencing the shares of Grantor Common
Stock purchased thereunder with respect to which Grantee then has
beneficial ownership, and Grantee shall warrant that it has sole record
and beneficial ownership of such shares and that the same are then free
and clear of all liens, claims, charges and encumbrances of any kind
whatsoever. Notwithstanding the foregoing, to the extent that prior
notification to or approval of the Federal Reserve Board or other
regulatory authority is required in connection with the repayment of all
or any portion of the Repurchase Consideration Grantee shall have the
ongoing option to revoke its request for repurchase pursuant to this
section, in whole or in part, or to require that Grantor deliver from
time to time that portion of the Repurchase Consideration that it is not
then so prohibited from paying and promptly file the required notice or
application for approval and expeditiously process the same (and each
party shall cooperate with the other in the filing of any such notice or
application and the obtaining of any such approval). If the Federal
Reserve Board or any other regulatory authority disapproves of any part
of Grantor's proposed repurchase pursuant to the section, Grantor shall
promptly give notice of such fact to Grantee. If the Federal Reserve
Board or other agency prohibits the repurchase in part but not in whole,
then Grantee shall have the right (i) to revoke the repurchase request,
or (ii) to the extent permitted by the Federal Reserve Board or other
agency, determine whether the purchase should apply to the Option and or
Option shares and to what extent to each, and Grantee shall thereupon
have the right to exercise the Option as to the number of Option shares
for wich the Option was exercisable at the Request Date less the sum of
the number of shares covered by the Option in respect of which payment
has been made pursuant to this section and the number of shares covered
by the portion of the Option (if any) that has been repurchased. Grantee
shall notify Grantor of its determination under the preceding sentence
within five (5) business days of receipt of notice of disapproval of the
purchase.
Notwithstanding anything herein to the contrary, all of Grantee's rights
under this section shall terminate on the date of termination of this
Option.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
to be effective as of the day and year set forth in the first paragraph above.
<TABLE>
<S> <C> <C>
CITIZENS & NORTHERN CORPORATION
By:
-----------------------------------------
Craig G. Litchfield,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PEOPLES LTD.
By:
-----------------------------------------
Donald E. Abrey,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
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EXHIBIT B
, 2000
Citizens & Northern Corporation
Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of Peoples, Ltd. (the "Company"), as that term is defined for
purposes of Paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the
"Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") promulgated under the Securities Act of 1933, as amended (the
"Act").
Pursuant to the terms of the Agreement and Plan of Merger by and between
Citizens & Northern Corporation ("CNN") and the Company dated as of June ,
2000 (the "Merger Agreement"), providing for the merger of the Company with and
into CNN (the "Merger"), and as a result of the Merger, I will receive shares of
CNN common stock ("CNN Common Stock") in exchange for shares of common stock of
the Company ("Company Stock") owned by me at the Effective Time (as defined and
determined pursuant to the Merger Agreement). This letter is being delivered
pursuant to Sections 5.09 and 6.03(d) of the Merger Agreement. I represent and
warrant to CNN that in such event:
A. I will not sell, assign or transfer the CNN Common Stock which I
receive as aforesaid in violation of the Act or the Rules and Regulations.
Moreover, to help insure that the Merger will qualify for
pooling-of-interests accounting treatment, I shall make no sale, transfer,
or other disposition of the CNN Common Stock which I receive as aforesaid
until such time as financial results covering at least thirty (30) days of
post-merger combined operations of CNN and the Company have been published
within the meaning of Section 201.01 of the Commission's Codification of
Financial Reporting Policies.
B. I have carefully read this letter and the Merger Agreement and have
discussed their requirements and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the CNN Common Stock, to
the extent I feel necessary, with my counsel or counsel for the Company. I
understand that CNN is relying on the representations I am making in this
letter and I hereby agree to hold harmless and indemnify CNN and its
officers and directors from and against any losses, claims, damages,
expenses (including reasonable attorneys' fees), or liabilities ("Losses")
to which CNN or any officer or director of CNN may become subject under the
Act or otherwise as a result of the untruth, breach, or failure of such
representations.
C. I have been advised that the issuance of the CNN Common Stock issued
to me pursuant to the Merger will have been registered with the Commission
under the Act on a Registration Statement on Form S-4. However, I have also
been advised that since I may be deemed to be an affiliate of the Company
under the Rules and Regulations at the time the Merger is submitted for a
vote of the shareholders of the Company, that the CNN Common Stock must be
held by me indefinitely unless (i) my subsequent distribution of CNN Common
Stock has been registered under the Act; (ii) a sale of the CNN Common Stock
is made in conformity with the volume and other applicable limitations of a
transaction permitted by Rule 145 promulgated by the Commission under the
Act and as to which CNN has received satisfactory evidence of the compliance
and conformity with said Rule, or (iii) a transaction in which, in the
opinion of Squire, Sanders & Dempsey L.L.P. (or other counsel reasonably
acceptable to CNN) or in accordance with a no-action letter from the
Commission, some other exemption from registration is available with respect
to any such proposed sale, transfer or other disposition of the CNN Common
Stock. I am also aware of the additional limitation on transfers of CNN
Common Stock set forth in the second sentence of Paragraph A above.
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D. I also understand that stop transfer instructions will be given to
CNN transfer agent with respect to any CNN Common Stock which I receive in
the Merger and that there will be placed on the certificates for such CNN
Common Stock, a legend stating in substance:
"The shares represented by this certificate have been issued or
transferred to the registered holder as a result of a transaction to
which Rule 145 under the Securities Act of 1933, as amended (the "Act"),
applies. The shares represented by this certificate may not be sold,
transferred or assigned, and the issuer shall not be required to give
effect to any attempted sale, transfer or assignment, except pursuant to
(i) an effective registration statement under the Act, (ii) a transaction
permitted by Rule 145 and as to which the issuer has received reasonable
and satisfactory evidence of compliance with the provisions of Rule 145,
or (iii) a transaction in which, in the opinion of Squire, Sanders &
Dempsey L.L.P. or other counsel satisfactory to the issuer or in
accordance with a "no action" letter from the staff of the Securities and
Exchange Commission, such shares are not required to be registered under
the Act."
It is understood and agreed that the legend set forth in Paragraph D above shall
be removed and any stop order instructions with respect thereto shall be
canceled upon receipt of advice from Squire, Sanders & Dempsey L.L.P. or other
counsel satisfactory to CNN that such actions are appropriate under the then-
existing circumstances.
<TABLE>
<S> <C>
Very truly yours,
---------------------------------------------
(Name of Affiliate)
Date: , 2000
PLEASE PRINT YOUR NAME
Accepted this day of , 2000
CITIZENS & NORTHERN CORPORATION HERE: ------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
By: ----------------------------------------
Name:
Title:
</TABLE>
2
<PAGE>
EXHIBIT C
VOTING AGREEMENT
This Voting Agreement is entered into on , 2000 (this "Agreement")
by and among the persons listed on the attached Schedule A (collectively, the
"Control Stockholders").
WHEREAS, the Control Stockholders own common shares, par value $
of Peoples, Ltd., a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (the "Company") (all shares of such stock now owned
and which may hereafter be acquired by the Control Stockholders prior to the
termination of this Agreement shall be referred to herein as the "Control
Shares");
WHEREAS, Citizens & Northern Corporation and the Company propose to enter
into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), which provides, among other things, that the Company will merge
with and into Citizens & Northern Corporation, pursuant to the Merger (this and
other capitalized terms used and not defined herein shall have the meanings
given to such terms in the Merger Agreement).
WHEREAS, it is a condition to the willingness of Citizens & Northern
Corporation to enter into the Merger Agreement that the Control Stockholders
agree, and in order to induce Citizens & Northern Corporation to enter into the
Merger Agreement, the Control Stockholders have agreed to enter into this
Agreement; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree as follows:
ARTICLE 1
VOTING OF CONTROL SHARES
1.1 VOTING AGREEMENT. Except as may be otherwise required to fulfill our
fiduciary duties as a Director of Peoples and/or Peoples State Bank of
Wyalusing, the Control Stockholders hereby agree that during the time this
Agreement is in effect, at any meeting of the stockholders of the Company,
however called, and in any action by consent of the stockholders of the Company,
they shall vote their Control Shares: (i) in favor of the Merger and the Merger
Agreement (as amended from time to time) and (ii) against any proposal for any
recapitalization, merger, sale of assets or other business combination between
the Company and any person or entity other than Citizens & Northern Corporation,
or any other action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or that would result in any of the conditions to the
obligations of the Company under the Merger Agreement not being fulfilled.
ARTICLE 2
REPRESENTATION AND WARRANTIES
The Control Stockholders hereby represent and warrant to Citizens & Northern
Corporation as follows:
2.1 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of them has all necessary
power and authority or capacity, as the case may be, to execute and deliver this
Agreement, to perform his, her or its obligations hereunder and to consummate
the transaction contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Control Stockholders and constitutes a legal,
valid and binding obligation of them, enforceable against them in accordance
with its terms subject to.
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<PAGE>
2.2 VOTING POWER OF THE CONTROL SHARES. The Control Shares collectively
represent Percent ( %) of the voting power of the outstanding shares of
capital stock of the Company. The Control Shares are common shares, each of
which has one vote per share pursuant to the Articles of Incorporation of the
Company.
2.3 NO CONFLICT.
(a) The execution and delivery of this Agreement by the Control
Stockholders do not as of the hereof, and the performance of this Agreement
by them will not (i) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to them or by which the Control Shares
are bound, or (ii) result in any breach of or constitute a default (or event
that with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any
of the Control Shares pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which any such Control Stockholder is a party or by which
any such Control Stockholder or any Control Shares are bound, except, in the
case of clauses (i) and (ii), for any such conflicts, violations, breaches,
defaults or other occurrences which would not prevent or delay the
performance by any Control Stockholders of his, her or its obligations under
this Agreement.
(b) The execution and delivery of this Agreement by the Control
Stockholders do not, and the performance of this Agreement by them will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any federal, state, local or foreign regulatory body.
2.4 TITLE TO THE CONTROL SHARES. Each Control Stockholder is the sole
owner of the number and class of Control Shares specified on Schedule A hereto,
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on voting rights, charges and
other encumbrances of any nature whatsoever. No Control Stockholder has
appointed or granted any proxy, which appointment or grant is still effective,
with respect to the Common Shares. Each Control Stockholder has sole voting
power with respect to his, her or its Control Shares.
ARTICLE 3
MISCELLANEOUS
3.1 TERMINATION. This Agreement shall terminate on the earlier to occur of
(i) the date of consummation of the Merger and (ii) the date of the termination
of the Merger Agreement.
3.2 SPECIFIC PERFORMANCE. The Control Stockholders agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that Citizens & Northern
Corporation shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or in equity.
3.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior agreements and understandings with
respect to the subject matter hereof.
3.4 AMENDMENT. This Agreement may not be amended except by an instrument
in writing signed by all the parties hereto.
3.5 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the
2
<PAGE>
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the fullest extent possible.
3.6 GOVERNMENT LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
3.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
3.8 ASSIGNMENTS. This Agreement shall not be assigned by operation of law
or otherwise.
3.9 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any person, any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day first written above.
[SIGNATURE OF EACH CONTROL STOCKHOLDER
INCLUDE STOCK HELD JOINTLY, ETC.]
3
<PAGE>
SCHEDULE A
<TABLE>
NAME NUMBER OF CONTROL SHARES
<S> <C>
</TABLE>
4
<PAGE>
EXHIBIT D
FIRST AMENDMENT
TO
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 15th day of May, 2000, between PEOPLES LTD.
(the "Corporation") and PEOPLES STATE BANK OF WYALUSING PA (the "Bank"), and
DONALD E. ABREY (the "Executive").
WHEREAS, the Corporation, the Bank and the Executive entered into an
Executive Employment Agreement dated May 15, 2000 (the "Employment Agreement");
and
WHEREAS, the Corporation, the Bank and the Executive desire to amend the
Employment Agreement to accurately reflect the agreement of the parties;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and intending to be legally bound hereby, the parties agree that
the Employment Agreement is amended as follows:
1. Paragraph 1(a) is amended to read as follows:
(a) General. The Corporation and the Bank hereby shall employ the
Executive and the Executive hereby accepts employment with the
Corporation and Bank for a term of two (2) year(s) beginning on
January 1, 2000, and ending on December 31, 2001, subject, however,
to prior termination of this Agreement as set forth below.
2. Paragraph 1(b) is amended to read as follows:
(b) This Agreement shall renew and the Employment Period shall be
extended for an additional period of one (1) year upon the mutual
agreement (on or after September 1, 2001) of the Executive, the
Corporation and the Bank.
3. The following additional language is added at the end of Paragraph 2:
Notwithstanding the foregoing, upon the Effective Time of the merger of
the Corporation with and into Citizens & Northern Corporation (as such
term is defined in that certain Agreement and Plan of Merger dated
June , 2000), the Executive's position shall be that of Senior Vice
President of the Bank and Senior Vice President and Chief Executive
Officer of Citizens & Northern Financial Services Corporation with such
duties as may from time to time be prescribed by the Chief Executive
Officer of Citizens & Northern Bank as approved by the Board of
Citizens & Northern Bank.
4. A new paragraph 4(d) is hereby added to read as follows:
(d) CHANGE IN CONTROL PAYMENT. At the Effective Time of the merger of the
Corporation with and into Citizens & Northern Corporation, providing
that the Executive was not terminated prior to said Effective Time by
the Corporation, the Executive shall be entitled to receive a lump
sum cash payment or such other form of payment acceptable to the
Executive equal to 2.99 times the highest annual compensation,
including cash bonuses, which the Executive received during the
preceding three (3) year period ending on the date of termination
(the "Payment Amount"). Executive will be responsible for all tax
withholding obligations with
1
<PAGE>
respect to such payment (other than Medicare) and will hold the
Corporation and Citizens & Northern Corporation harmless with respect
thereto. In the event that:
(i) the Payment Amount would be deemed to include an "excess
parachute payment" under Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") or any successor thereto,
and
(ii) if such Payment Amount were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to three (3) times Executive's
"base amount," as determined in accordance with said Code
Section 280G, and the Non-Triggering Amount would be greater than
the aggregate value of the Payment Amount (without such
reduction) minus the amount of tax required to be paid by the
Executive thereon by Section 4999 of the Code, then the Payment
Amount shall be reduced to the Non-Triggering Amount.
5. Paragraph 9(d) is amended to read as follows:
(d) TERMINATION BY EXECUTIVE. 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" shall mean (i) any removal of the Executive
from (other than as a result of his regulatory removal) any of the
positions indicated in Paragraph 2 hereof, except in connection with
termination of the Executive's employment for Cause or (ii) failure
of the Bank to comply with Paragraph 5 hereof, after notice from the
Executive to the Corporation and the Bank that such action or
limitation of the Bank or Corporation constitutes Good Reason and the
failure to cure such situation within thirty (30) day(s) of said
notice, or if said situation cannot be cured within thirty
(30) day(s), within a reasonable time thereafter if a diligent effort
is being made by the Corporation and/or the Bank to cure such
situation.
6. The phrase "other than a Change of Control as defined herein" is deleted
form the seventh line of Paragraph 10(b).
7. Paragraph 10(c) is amended to read as follows:
If the Executive terminates his employment for Good Reason or the Bank
or Corporation or Citizens & Northern Corporation terminates the
Executive's employment other than for Cause, the Corporation and/or Bank
or Citizens & Northern Corporation (as applicable) shall maintain in
full force and effect, for the continued benefit of the Executive
through the term of his Agreement, all employee benefit plans and
programs to which the Executive was entitled prior to the date of
termination, except those under paragraphs 5(b) (but not including
accrued vacation days), (c) and (d), 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 Corporation and/or Bank or Citizens & Northern Corporation (as
applicable) 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 substantially equivalent to the insurance coverage which the
Executive was entitled prior to the date of termination.
8. Paragraph 10(d) is deleted in its entirety.
9. Paragraph 13 is deleted in its entirety.
10. Paragraph 14 is deleted in its entirety.
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<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
as of the day and year above mentioned.
<TABLE>
<CAPTION>
<S> <C>
ATTEST: PEOPLES STATE BANK OF
WYALUSING PA
------------------------------------------- By: --------------------------------------
SECRETARY Kenneth Taylor, Jr.
Chairman
ATTEST: PEOPLES LTD.
------------------------------------------- By: --------------------------------------
SECRETARY Kenneth Taylor, Jr.
Chairman
WITNESS:
------------------------------------------- ------------------------------------------
Donald E. Abrey
</TABLE>
3
<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement"), effective as of this 23 day of
June, 2000, by and between Citizens & Northern Corporation, a Pennsylvania
corporation ("Grantee"); and Peoples Ltd., a Pennsylvania corporation
("Grantor");
WITNESSETH:
A. Grantor and Grantee have entered into an Agreement and Plan of Merger
dated as of June 22, 2000 (the "Merger Agreement"), providing for their
affiliation with one another.
B. As further inducement for the parties to consummate the transactions
contemplated by the Merger Agreement, Grantor wishes to grant Grantee the Option
described herein.
C. The Board of Directors of Grantor has approved the grant of the Option
and the Merger Agreement prior to the date hereof.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS.
Capitalized terms not defined herein shall have the meanings set forth
in the Merger Agreement.
"Applicable Price" shall mean the highest of (i) the highest price per
share of Grantor Common Stock paid for any such share by the person or
groups described in the definition of a Repurchase Event or (ii) the price
per share of Grantor Common Stock received by holders of Grantor Common
Stock in connection with any merger or other business combination
transaction which is a Purchase Event. If the consideration to be offered,
paid or received pursuant to either of the foregoing clauses (i) or (ii)
shall be other than in cash, the value of such consideration shall be
determined in good faith by an independent nationally recognized investment
banking firm selected by Grantee and reasonably acceptable to Grantor, which
determination shall be conclusive for all purposes of this Agreement.
"Bank" shall mean a financial institution subsidiary of a party.
"Burdensome Condition" shall mean, in connection with the grant of a
requisite regulatory approval or otherwise, imposition by a governmental
entity of any condition or restriction upon the party or one of its
Subsidiaries (as defined herein) which would reasonably be expected to
either (i) have a material adverse effect after the effective time of the
Merger Agreement on the present or prospective consolidated financial
condition, business or operating results of the party, or (ii) prevent the
parties from realizing the major portion of the economic benefits of the
transactions contemplated by the Merger Agreement that they currently
anticipate obtaining.
"Commission" shall mean the Securities and Exchange Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Grantee" shall mean Citizens & Northern Corporation.
"Grantor" shall mean Peoples Ltd.
"Grantor Common Stock" shall mean the respective shares of common stock
of the same class for which Peoples Ltd. is granting an Option under this
Agreement.
"Merger Agreement" shall mean the definitive agreement executed by
Citizens & Northern Corporation and Peoples Ltd., pursuant to which the
parties hereto intend to affiliate.
B-1
<PAGE>
"Option" shall mean the option granted by Peoples Ltd. to Citizens &
Northern Corporation under this Agreement.
"Person" shall have the meanings specified in Sections 3(a)(9) and
13(d)(3) of the Exchange Act.
"Purchase Event" shall mean any of the following events or transactions
occurring after the date of this Agreement with respect to the Grantor:
(i) the Grantor or any of its Subsidiaries (as defined in Rule 1-02
of Regulation S-X promulgated by the Securities and Exchange Commission
(the "SEC") (each hereinafter individually referred to as a "Subsidiary"
and collectively, as the "Subsidiaries")), without having received the
Grantee's prior written consent, shall have entered into an agreement
with, or the Board of Directors of Grantor shall have recommended that
the shareholders of Grantor approve or accept a transaction with any
person (x) to merge or consolidate, or enter into any similar
transaction, except as contemplated by the Merger Agreement, (y) to
purchase, lease or otherwise acquire all or substantially all of the
assets of the Grantor or any of its Subsidiaries, or (z) to purchase or
otherwise acquire (including by way of merger, consolidation, share
exchange or any similar transaction) securities representing 20% or more
of the voting power of such Grantor or any of its Subsidiaries (other
than pursuant to this Agreement);
(ii) any person (other than the Grantor or its Bank in a fiduciary
capacity, or Grantee or its Bank in a fiduciary capacity) shall have
acquired beneficial ownership or the right to acquire beneficial
ownership of 20% or more of the outstanding shares of such Grantor Common
Stock after the date of this Agreement (the term "beneficial ownership"
for purposes of this Agreement having the meaning assigned thereto in
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder);
(iii) Grantor shall have materially breached this Agreement in any
material respect, which breach shall not have been cured within fifteen
(15) days after notice thereof is given by Grantee to Grantor;
(iv) any person other than Grantee shall have made a bona fide
Takeover Proposal to the Grantor by public announcement or written
communication that is or becomes the subject of public disclosure, and
following such bona fide Takeover Proposal, the shareholders of the
Grantor vote not to adopt the Merger Agreement;
(v) Grantor shall have breached the Merger Agreement following a bona
fide Takeover Proposal to such Grantor or any of its Subsidiaries, which
breach would entitle Grantee to terminate the Merger Agreement and such
breach shall not have been cured prior to the Notice Date (as defined
below);
(vi) the shareholders of Grantor shall have voted and failed to
approve the Merger Agreement and the Merger at a meeting which has been
held for that purpose or any adjournment or postponement thereof, or such
meeting shall not have been held in violation of the Merger Agreement or
shall have been canceled prior to termination of the Merger Agreement if,
prior to such meeting (or if such meeting shall not have been held or
shall have been canceled, prior to such termination), it shall have been
publicly announced that any person (other than Grantee or any of its
Subsidiaries) shall have made a Takeover Proposal; or
(vii) the Grantor Board of Directors shall have withdrawn or modified
(or publicly announced its intention to withdraw or modify) its
recommendation that the shareholders of Grantor approve the transactions
contemplated by the Merger Agreement, or Grantor or any Grantor
Subsidiary or group of Grantor Subsidiaries that is, or would on an
aggregate basis constitute, a Significant Subsidiary shall have
authorized, recommended, proposed (or publicly
B-2
<PAGE>
announced its intention to authorize, recommend or propose) an agreement
to engage in a Takeover Proposal with any person other than Grantee or a
Grantee Subsidiary.
If more than one of the transactions giving rise to a Purchase Event under
this Agreement is undertaken or effected, then all such transactions shall be
deemed to give rise only to one Purchase Event with respect to the Option, which
Purchase Event shall be deemed continuing for all purposes hereunder until all
such transactions are abandoned.
"Repurchase Event" shall mean if (i) any person (other than the Grantee
or any subsidiary of the Grantee) shall have acquired actual ownership or
control, or any "group" (as such term is defined under the Exchange Act)
shall have been formed which shall have acquired actual ownership or
control, of 24.9% or more of the then outstanding shares of Grantor Common
Stock, or (ii) any Purchase Event shall be consummated.
"Takeover Proposal" shall mean any tender or exchange offer, bona fide
written offer for a merger, consolidation or other business combination
involving Grantor or any of its Subsidiaries or any bona fide written offer
to acquire in any manner 20% or more of the outstanding shares of any class
of voting securities, or 20% or more of the consolidated assets, of the
Grantor or any of its Subsidiaries, other than the transactions contemplated
by the Merger Agreement. If Grantor receives an unsolicited Takeover
Proposal and it is determined by the Grantor to be consistent with its
fiduciary duties, it shall notify Grantee promptly of the receipt of such
Takeover Proposal, it being understood, however, that the giving of such
notice by Grantor shall not be a condition to the right of Grantee to
exercise the Option.
2. GRANT OF OPTION.
Subject to the terms and conditions set forth herein, Grantor hereby grants
to Grantee an unconditional, irrevocable Option to purchase up to 81,655 shares
of Grantor Common Stock as of the date of this Agreement (or such number
equaling 19.9% of Grantor Common Stock) at an exercise price of $47.00 per share
payable in cash as provided in Section 4. In the event that the Grantor issues
or agrees to issue any shares of Grantor Common Stock (other than as permitted
under the Merger Agreement) at a price less than the exercise price per share
set forth in this section (as adjusted pursuant to Section 6), the exercise
price of the Option shall be such lesser price.
3. EXERCISE OF OPTION.
(a) Unless the Grantee shall have breached in any material respect any
material covenant, representation or warranty contained in this Agreement or
the Merger Agreement and such breach shall not have been cured, the Grantee
may exercise the Option, in whole or part, at any time or from time to time
if a Purchase Event shall have occurred with respect to the Grantor and be
continuing; provided that to the extent the Option shall not have been
exercised, it shall terminate and be of no further force and effect (i) on
the effective date of the transaction contemplated by the Merger Agreement,
or (ii) upon termination of the Merger Agreement in accordance with the
provisions thereof (other than a termination resulting from a willful breach
by the Grantor of the Merger Agreement or following the occurrence of a
Purchase Event, failure of the Grantor's shareholders to approve the Merger
Agreement by the vote required under applicable law or under the respective
Grantor's articles), or (iii) 9 months after termination of the Merger
Agreement due to a willful breach by the Grantor of the Merger Agreement or,
following the occurrence of a Purchase Event, failure of the Grantor's
shareholders to approve the Merger Agreement by the vote required under
applicable law or under the Grantor's articles. Any exercise of the Option
shall be subject to compliance with applicable provisions of law.
(b) In the event the Grantee wishes to exercise the Option, it shall
send to the Grantor a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares
it will purchase pursuant to such exercise, and (ii) a place and date not
earlier than
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<PAGE>
three (3) business days nor later than 60 business days after the Notice
Date for the closing of such purchase ("Closing Date"). If prior
notification to or approval of any federal or state regulatory agency is
required in connection with such purchase, the Grantee shall promptly file
the required notice or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this section shall run instead from the date on which any required
notification period has expired or been terminated or any requisite approval
has been obtained and any requisite waiting period shall have passed.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) At the closing referred to in Section 3, the Grantee shall pay to
the Grantor the aggregate purchase price for the shares of Grantor Common
Stock purchased pursuant to the exercise of the Option in immediately
available funds by a wire transfer to a bank account designated by the
Grantor. Grantor 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
under this Section 4 in the name of the Grantee or its assignee, transferee
or designee.
(b) At such closing, simultaneously with the delivery of funds as
provided in Section 4(a), the Grantor shall deliver to the Grantee a
certificate or certificates representing the number of shares of Grantor
Common Stock purchased by the Grantee, and the Grantee shall deliver to the
Grantor a letter agreeing that Grantee will not offer to sell or otherwise
dispose of such shares in violation of applicable law or the provisions of
this Agreement or federal or state laws.
(c) Certificates for Grantor Common Stock delivered at a closing
hereunder shall be endorsed with a restrictive legend which shall read
substantially as follows:
The transfer of the shares represented by this certificate
is subject to certain provisions of a Stock Option
Agreement dated ____________, 2000, between the registered
holder hereof and [Grantor] (a copy of which agreement is
on file at the principal office of [Grantor]). A copy of
such agreement will be provided to the holder hereof
without charge within five days after receipt by [Grantor]
of a written request therefor. The shares evidenced by
this certificate have not been registered under the
Securities Act of 1933 and may not be sold, pledged,
transferred, or hypothecated except pursuant to an opinion
of counsel satisfactory to the corporation that such
transfer is lawful.
The above legend shall be removed or modified as appropriate by delivery
of substitute certificate(s) without such legend if the Grantee shall have
delivered to the Grantor a copy of a letter from the staff of the
Commission, or an opinion of counsel, in form and substance satisfactory to
Grantor, to the effect that such legend is not required for purposes of the
Securities Act of 1933, as amended.
5. REPRESENTATIONS.
The Grantor represents, warrants and covenants to the Grantee as
follows:
(a) Grantor agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock;
(ii) 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 by Grantor; (iii) in the event, under the Bank Holding Company Act
of 1956, as amended (the "BHCA"), or the Change in Bank Control Act of 1978,
as amended, or any state or other federal banking law, prior approval of or
notice of the
B-4
<PAGE>
Federal Reserve Board or to any state or other federal regulatory authority
is necessary before the Option may be exercised, cooperating fully with the
Grantee in preparing such applications or notices and providing such
information to the Federal Reserve Board or such state or other federal
regulatory authority as they may require in order to permit the Grantee to
exercise the Option and Grantor duly and effectively to issue shares of
Common Stock pursuant thereto; and (iv) promptly to take all action provided
herein to protect the rights of the Grantee against dilution.
(b) The shares to be issued upon due exercise, in whole or in part, of
the Option, when paid for as provided herein, will be duly authorized,
validly issued and fully paid.
(c) Grantor has full corporate power and authority to execute, deliver
and perform this Agreement and all corporate action necessary for execution,
delivery and performance of this Agreement has been duly taken by such
party.
(d) Neither the execution and delivery of this Agreement nor
consummation of the transactions contemplated hereby (assuming all
appropriate shareholder and regulatory approvals) will violate or result in
any violation of or be in conflict with or constitute a default under any
term of the articles, regulations or by-laws of such party or any agreement,
instrument, judgment, decree, statute, rule or order applicable to such
party.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
The Grantor agrees that, in the event of any change in its Grantor Common
Stock by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, exchanges of shares or the like, the type and number of shares
subject to the Option, and the purchase price per share, as the case may be,
shall be adjusted appropriately. The Grantor agrees that, in the event that any
additional shares of its Grantor Common Stock are issued or otherwise become
outstanding after the date of this Agreement (other than pursuant to this
Agreement), the number of shares of its Grantor Common Stock subject to the
Option shall be adjusted so that, after such issuance, it equals the same
percentage (as that on the date of this Agreement) of the number of shares of
Grantor Common Stock then issued and outstanding without giving effect to any
shares subject to or issued pursuant to the Option. Nothing contained in this
Section 6 shall be deemed to authorize the Grantor to breach any provision of
the Merger Agreement.
7. TERMINATION.
This Agreement may be terminated at any time prior to the effective date of
the transaction set forth in the Merger Agreement, by action taken or authorized
by the Board of Directors of the terminating party or parties, whether before or
after approval by the stockholders of the matters presented in connection with
the Merger Agreement:
(a) by mutual consent of Grantee and Grantor;
(b) by either Grantee or Grantor if the Federal Reserve Board shall have
issued an order denying approval of the transaction set forth in the Merger
Agreement or if any governmental entity of competent jurisdiction shall have
issued a final permanent order enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement or the
Merger Agreement, or imposing a Burdensome Condition, and in any such case
the time for appeal or petition for reconsideration of such order shall have
expired without such appeal or petition being granted;
(c) by either Grantee or Grantor if the transactions contemplated by the
Merger Agreement shall not have been consummated on or before December 31,
2000, unless such date is extended by mutual consent of the parties hereto;
(d) by either Grantee or Grantor if no Purchase Event has occurred and
if any approval of their shareholders required for the consummation of the
transactions set forth in the Merger Agreement
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shall not have been obtained by reason of the failure to obtain the required
vote at a duly called and held meeting of shareholders or at any adjournment
thereof;
8. EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by any party as
provided in Section 7, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party or their
respective officers or directors except (i) Sections 10, 11, 12, and 13 of
this Agreement shall survive the termination and (ii) with respect to any
liabilities or damages incurred or suffered by a party as a result of the
breach by another party of any of its representations, warranties, covenants
or agreements set forth in this Agreement.
(b) If a Purchase Event occurs with respect to the Grantor, then in such
event Grantor shall pay to the Grantee, within five business days after a
termination of this Agreement following such an event, the reasonable
expenses of Grantee incurred in connection with this Agreement and the
transactions set forth in the Merger Agreement, but not more than $250,000.
9. ACCESS TO INFORMATION.
During the term of this Agreement, each party will afford each of the other
parties full and free access during normal business hours to such party, its
personnel, properties, contracts, books and records, and all other documents and
data.
10. CONFIDENTIALITY.
Except as and to the extent required by law, no party will disclose or use,
and will direct its representatives not to disclose or use, any Confidential
Information (as defined below) with respect to the other parties furnished or to
be furnished by such other parties, or their respective representatives to the
party or its representatives at any time or in any manner other than in
connection with its evaluation of the transaction proposed in this Agreement.
For purposes of this section, "Confidential Information" means any information
about the Merger Agreement and this Agreement as well as any information about a
party stamped "confidential" or identified in writing as such promptly following
its disclosure, unless (i) such information is already known to the party or its
representatives or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of the party or its
representatives, (b) the use of such information is necessary in making any
filing or obtaining any consent or approval required for the consummation of the
transactions set forth in the Merger Agreement, or (c) the furnishing or use of
such information is required by or necessary in connection with legal
proceedings. Upon the written request of a party, each of the other parties will
promptly return or destroy any Confidential Information in its possession and
certify in writing to the disclosing party that it has done so.
11. DISCLOSURE.
Except as and to the extent required by law, without the prior written
consent of the other parties, no party will, and each will direct its
representatives not to, make directly or indirectly any public comment,
statement or communication with respect to, or otherwise to disclose or to
permit the disclosure of the existence of discussions regarding, a possible
transaction among the parties or any of the terms, conditions or other aspects
of the transaction proposed in this Agreement. If a party is required by law to
make any such disclosure, it must first provide to the other parties the content
of the proposed disclosure, the reasons that such disclosure is required by law,
and the time and place that the disclosure will be made.
12. COSTS.
Except as otherwise expressly agreed, each party will be responsible for and
bear all of its own costs and expenses (including any broker's or finder's fees
and the expenses of its representatives) incurred at any time in connection with
this Agreement and in pursuing or consummating the Merger Agreement.
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13. SEVERABILITY.
If any term, provision, covenant or restriction contained in this Agreement
is held by a court or a federal or state regulatory agency of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions contained in this Agreement shall remain
in full force and effect, and shall in no way be affected, impaired or
invalidated. If for any reason such court or regulatory agency determines that
applicable law will not permit the Grantee to acquire the full number of shares
of Grantor Common Stock provided in Section 2 (as adjusted pursuant to Section
6), it is the express intention of the Grantor to allow the Grantee to acquire
such lesser number of shares as may be permissible, without any amendment or
modification hereof.
14. MISCELLANEOUS.
(a) THIRD PARTIES. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective permitted successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
(b) ENTIRE AGREEMENT. Except as otherwise expressly provided herein,
this Agreement contains the entire agreement among the parties with respect
to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective permitted successors
and assigns.
(c) ASSIGNMENT. Neither of the parties hereto may assign any of its
rights or obligations under this Agreement or the Option created hereunder
to any other person, without the express written consent of the other party,
except that in the event a Purchase Event shall have occurred and be
continuing, the Grantee may assign in whole or in part its rights and
obligations hereunder; provided, however, that Grantee may not assign its
rights under the Option except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires the
right to purchase in excess of 2% of the Grantor Common Stock, (iii) an
assignment to a single party (e.g., a broker or investment banker) for the
purpose of conducting a widely dispersed public distribution on the
Grantee's behalf, or (iv) any other manner approved by applicable regulatory
authorities, so long as the Grantee is responsible for all costs associated
with the same and the assignment is in compliance with federal and state
law.
(d) NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by
registered or certified mail, postage prepaid, express service, personal
delivery, telecopy or telefacsimile to the following addresses:
If to Citizens & Northern Corporation, to:
Citizens & Northern Corporation
90-92 Main Street
P.O. Box 58
Wellsboro, PA 16901
Attn: Craig G. Litchfield, President
With a copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114
Attn: M. Patricia Donnelly Oliver
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If to Peoples Ltd., to:
Peoples Ltd.
201 Church Street
P.O. Box 217
Wyalusing, PA18853
Attn: Donald Abrey, President
With a copy to:
Shumaker Williams, PC
The Pennsylvania Center
3425 Simpson Ferry Road
Camp Hill, PA 17011
Attn: Nicholas Bybel
(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) SPECIFIC PERFORMANCE. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Agreement by any
party hereto and that this Agreement may be enforced by a party hereto
through injunctive or other equitable relief.
(g) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and entirely to be performed within such state and such
federal laws as may be applicable.
15. REPURCHASE AT THE OPTION OF GRANTEE.
(a) At the request of the Grantee at any time commencing upon the first
occurrence of a Repurchase Event and ending 9 months immediately thereafter,
Grantor shall repurchase from Grantee (i) the Option and (ii) all shares of
Grantor Common Stock purchased by Grantee pursuant hereto with respect to
which Grantee then has beneficial ownership. The date on which Grantee
exercises its rights under this Section 17 is referred to as the "Request
Date." Such repurchase shall be at an aggregate price (the "Repurchase
Consideration") equal to the sum of:
(i) the aggregate purchase price paid by Grantee for any shares of
Grantor Common Stock acquired pursuant to the Option with respect to
which Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price for each share
of Grantor Common Stock over (y) the purchase price (subject to
adjustment pursuant to Section 6 hereof), multiplied by the number of
shares of Grantor Common Stock with respect to which the Option has not
been exercised; and
(iii) the excess, if any, of the Applicable Price over the purchase
price (subject to adjustment pursuant to Section 6 hereof paid (or, in
the case of Option Shares with respect to which the Option has been
exercised but the Closing Date has not occurred, payable) by Grantee for
each share of Grantor Common Stock with respect to which the Option has
been exercised and with respect to which Grantee then has beneficial
ownership, multiplied by the number of such shares.
(b) If Grantee exercises its rights under this section, Grantor shall,
within 10 business days after the Request Date, pay the Grantor Repurchase
Consideration to Grantee in immediately available funds, and
contemporaneously with such payment Grantee shall surrender to Grantor the
Option and the certificates evidencing the shares of Grantor Common Stock
purchased thereunder with respect to which Grantee then has beneficial
ownership, and Grantee shall warrant that it has sole record and
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beneficial ownership of such shares and that the same are then free and
clear of all liens, claims, charges and encumbrances of any kind whatsoever.
Notwithstanding the foregoing, to the extent that prior notification to or
approval of the Federal Reserve Board or other regulatory authority is
required in connection with the repayment of all or any portion of the
Repurchase Consideration Grantee shall have the ongoing option to revoke its
request for repurchase pursuant to this section, in whole or in part, or to
require that Grantor deliver from time to time that portion of the
Repurchase Consideration that it is not then so prohibited from paying and
promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate with the
other in the filing of any such notice or application and the obtaining of
any such approval). If the Federal Reserve Board or any other regulatory
authority disapproves of any part of Grantor's proposed repurchase pursuant
to the section, Grantor shall promptly give notice of such fact to Grantee.
If the Federal Reserve Board or other agency prohibits the repurchase in
part but not in whole, then Grantee shall have the right (i) to revoke the
repurchase request, or (ii) to the extent permitted by the Federal Reserve
Board or other agency, determine whether the purchase should apply to the
Option and or Option shares and to what extent to each, and Grantee shall
thereupon have the right to exercise the Option as to the number of Option
shares for wich the Option was exercisable at the Request Date less the sum
of the number of shares covered by the Option in respect of which payment
has been made pursuant to this section and the number of shares covered by
the portion of the Option (if any) that has been repurchased. Grantee shall
notify Grantor of its determination under the preceding sentence within five
(5) business days of receipt of notice of disapproval of the purchase.
Notwithstanding anything herein to the contrary, all of Grantee's rights
under this section shall terminate on the date of termination of this Option.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
to be effective as of the day and year set forth in the first paragraph above.
<TABLE>
<S> <C> <C>
CITIZENS & NORTHERN CORPORATION
By: /s/ CRAIG G. LITCHFIELD
-----------------------------------------
Craig G. Litchfield, President and Chief
Executive Officer
PEOPLES LTD.
By: /s/ DONALD E. ABREY
-----------------------------------------
Donald E. Abrey, President and Chief
Executive Officer
</TABLE>
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ANNEX C
September , 2000
The Board of Directors
Peoples, LTD.
201 Church Street
Wyalusing, PA 18853
Members of the Board:
You have requested our opinion as investment bankers that the Exchange Ratio
to be received in the Merger (the "Merger") between Peoples, LTD. ("Peoples")
and Citizens & Northern Corporation ("CZNC"), pursuant to the Agreement and Plan
of Reorganization Merger dated June 22, 2000 ("Merger Agreement") is fair to the
holders of Peoples Common Stock from a financial point of view. We have assumed
that the Merger will be a tax-free exchange and will be accounted for as a
pooling of interests by CZNC.
Pursuant to the Merger Agreement, at the Effective Time, Peoples, a
Pennsylvania corporation, will merge with and into CZNC, with CZNC as the
surviving corporation. Each share of Peoples' issued and outstanding shares of
common stock will be converted into and become the right to receive 2.5 shares
of CZNC common stock.
Ryan, Beck & Co., Inc. as a customary part of its investment banking
business, is engaged in the valuation of financial institutions and their
securities in connection with mergers and acquisitions and other corporate
transactions. In conducting our investigation and analysis of the Merger, we
have met with members of senior management of Peoples and CZNC to discuss their
respective operations, historical financial statements, strategic plans and
future prospects. We have reviewed and analyzed material prepared in connection
with the Merger, including but not limited to the following: (i) the Merger
Agreement and related documents; (ii) CZNC's Annual Reports to Shareholders and
Annual Reports on Form 10-K for the years ended December 31, 1999, 1998 and
1997, and CZNC's Quarterly Reports on Form 10-Q for the periods ended June 30,
2000, March 31, 2000, September 30, 1999, June 30, 1999 and March 31, 1999;
(iii) Peoples' Annual Reports to Shareholders for the years ended December 31,
1999, 1998 and 1997 and Peoples' Quarterly Call Reports for the periods ended
June 30, 2000, March 31, 2000, September 30, 1999, June 30, 1999 and March 31,
1999; (iv) Peoples' Proxy Statements dated April 3, 2000, April 2 , 1999,
April 3, 1998 and April 3, 1997; (v) certain operating and financial information
provided to Ryan, Beck by the management of Peoples and CZNC relating to their
respective businesses and prospects; (vi) the publicly available financial data
of commercial banking organizations which Ryan, Beck deemed generally comparable
to Peoples; (viii) the publicly available financial data of commercial banking
organizations which Ryan, Beck deemed generally comparable to CZNC; (ix) the
historical and current market data for CZNC common stock; (x) the terms of
recent acquisitions of commercial banking organizations which Ryan, Beck deemed
generally comparable in whole or in part to Peoples; and (xi) the proxy
statement/prospectus from CZNC related to the Merger. 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 management of Peoples
and CZNC as to the reasonableness and achievability of the financial and
operating forecasts and projections (and the assumptions and bases therefor)
provided to us and in certain instances we have made certain adjustments to such
financial and operating forecasts which in our judgment were appropriate under
the circumstances. In addition, we have assumed with your consent that such
forecasts and projections reflect the best currently
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available estimates and judgments of management. Ryan, Beck is not an expert in
evaluating loan and lease portfolios for purposes of assessing the adequacy of
the allowances for losses. Therefore, Ryan, Beck has not assumed any
responsibility for making an independent evaluation of the adequacy of the
allowance for loan losses set forth in the balance sheets of CZNC and Peoples at
June 30, 2000, and Ryan, Beck assumed such allowances were adequate and complied
fully with applicable law, regulatory policy, sound banking practice and
policies of the Securities and Exchange Commission as of the date of 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
CZNC and Peoples. We have not made or obtained any independent evaluations or
appraisals of the assets and liabilities of either CZNC or Peoples or their
respective subsidiaries, nor have we reviewed any individual loan files of CZNC
or Peoples or their respective subsidiaries.
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. Our opinion is necessarily based on economic,
market and other conditions and projections as they exist and can be evaluated
on the date hereof.
We have been retained by the Board of Directors of Peoples as an independent
contractor to act as financial advisor to Peoples with respect to the Merger and
will receive a fee for our services, a significant portion of which is
contingent upon consummation of the Merger. Ryan Beck has not had an investment
banking relationship with CZNC and our research department does not provide
published investment analysis on CZNC. However, Ryan Beck does make a market in
CZNC's common stock. Prior to this engagement, Ryan, Beck has not had an
investment banking relationship with Peoples and Ryan, Beck's research
department does not provide published investment analysis on Peoples. Ryan, Beck
does not make a market in Peoples' common stock.
In the ordinary course of our business as a broker-dealer, we may actively
trade equity securities of Peoples and CZNC for our own account and the account
of our customers and, accordingly, may at any time hold a long or short position
in such securities.
Our opinion is directed to the Board of Directors of Peoples and does not
constitute a recommendation to any shareholder of Peoples as to how such
shareholder should vote at any shareholder meeting held in connection with the
Merger. Our opinion may not be used or circulated for any purpose or used in any
proxy statement without our consent.
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
Merger Agreement is fair to the holders of Peoples common stock from a financial
point of view.
Very truly yours,
Ryan, Beck & Co., Inc.
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<PAGE>
ANNEX D
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, AS AMENDED
SUBCHAPTER 15D AND EXCERPT FROM SUBCHAPTER 19C
SUBCHAPTER 15D
DISSENTERS RIGHTS
Section:
<TABLE>
<CAPTION>
<S> <C>
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.
</TABLE>
SECTION 1571. APPLICATION AND EFFECT OF SUBCHAPTER.
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a busine ss corporation shall have the right to dissent from,
and to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where
this part expressly provides that a shareholder shall have the rights and
remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on transfer
of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the holders of the shares
of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the
meeting at which a plan specified in any of section 1930, 1931(d),
1932(c) or 1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
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<PAGE>
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in
the case of:
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles, the
plan or the terms of the transaction entitle all shareholders of
the class to vote thereon and require for the adoption of the plan
or the effectuation of the transaction the affirmative vote of a
majority of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares,
property or assets of another corporation by the issuance of shares,
obligations or otherwise, with or without assuming the liabilities of the
other corporation and with or without the intervention of another
corporation or other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this subchapter
regardless of the fact, if it be the case, that the acquisition was
accomplished by the issuance of voting shares of the corporation to be
outstanding immediately after the acquisition sufficient to elect a
majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights. The bylaws or a resolution of the board
of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under
this subpart is submitted to a vote at a meeting of shareholders, there
shall be included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the shareholders
have a right to dissent and obtain payment of the fair value of their
shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be applicable
to any transaction described in any statute other than this part that makes
reference to this subchapter for the purpose of granting dissenters rights.
(f) Certain provisions of articles ineffective. This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction on equitable
relief), 1904 (relating to de facto transaction doctrine abolished) and 2512
(relating to dissenters rights procedure).
SECTION 1572. DEFINITIONS.
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of
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<PAGE>
division may designate which of the resulting corporations is the successor
corporation for the purposes of this subchapter. The successor corporation
in a division shall have sole responsibility for payments to dissenters and
other liabilities under this subchapter except as otherwise provided in the
plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every
act required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account
all relevant factors, but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all of the
circumstances, taking into account all relevant factors, including the
average rate currently paid by the corporation on its principal bank loans.
SECTION 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares 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.
SECTION 1574. NOTICE OF INTENTION TO DISSENT.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the
corporation, prior to the vote, a written notice of intention to demand that
he be paid the fair value 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.
SECTION 1575. NOTICE TO DEMAND PAYMENT.
(a) General rule. If the proposed corporate action is approved by the required
vote at a meeting of shareholders of a business corporation, the corporation
shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the
corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption of
the plan or other corporate action. In either case, the notice shall:
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<PAGE>
(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.
SECTION 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) Effect of failure of shareholder to act. A shareholder who fails to timely
demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are not represented by
certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all other rights
of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
SECTION 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.
(a) Failure to effectuate corporate action. Within 60 days after the date set
for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall
return any certificates that have been deposited and release uncertificated
shares from any transfer restrictions imposed by reason of the demand for
payment.
(b) Renewal of notice to demand payment. When 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-4
<PAGE>
(d) Failure to make payment. If the corporation does not remit the amount of its
estimate of the fair value of the shares as provided by subsection (c), it
shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of
the demand for payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any such
uncertificated shares that such demand has been made. If shares with respect
to which notation has been so made shall be transferred, each new
certificate issued therefor or the records relating to any transferred
uncertificated shares shall bear a similar notation, together with the name
of the original dissenting holder or owner of such shares. A transferee of
such shares shall not acquire by such transfer any rights in the corporation
other than those that the original dissenter had after making demand for
payment of their fair value.
SECTION 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.
(a) General rule. If the business corporation gives notice of its estimate of
the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares)
and the dissenter believes that the amount stated or remitted is less than
the fair value of his shares, he may send to the corporation his own
estimate of the fair value of the shares, which shall be deemed a demand for
payment of the amount or the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does not file his
own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to
no more than the amount stated in the notice or remitted to him by the
corporation.
SECTION 1579. VALUATION PROCEEDINGS GENERALLY.
(a) General rule. Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under Section 1575 (relating
to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may
file in court an application for relief requesting that the fair value of
the shares be determined by the court.
(b) Mandatory joinder of dissenters. All, dissenters, wherever residing, whose
demands have not been settled shall be made parties to the proceeding as in
an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served
on him in the manner provided or prescribed by or pursuant to 42 Pa.C.S. Ch.
53 (relating to bases of jurisdiction and interstate and international
procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be plenary
and exclusive. The court may appoint an appraiser to receive evidence and
recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or
in any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be entitled to
recover the amount by which the fair value of his shares is found to exceed
the amount, if any, previously remitted, plus interest.
D-5
<PAGE>
(e) Effect of corporation's failure to file application. If the corporation
fails to file an application as provided in subsection (a), any dissenter
who made a demand and who has not already settled his claim against the
corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file
an application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of
the shares and no more, and may bring an action to recover any amount not
previously remitted.
SECTION 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS.
(a) General rule. The costs and expenses of any proceeding under section 1579
(relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as
the court deems appropriate against all or some of the dissenters who are
parties and whose action in demanding supplemental payment under
section 1578 (relating to estimate by dissenter of fair value of shares) the
court finds to be dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith appears.
Fees and expenses of counsel and of experts for the respective parties may
be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any other party,
if the court finds that the party against whom the fees and expenses 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.
EXCERPT FROM SUBCHAPTER 19C
SECTION 1930. DISSENTERS RIGHTS
(a) General rule. If any shareholder of a domestic business corporation that is
to be a party to a merger or consolidation pursuant to a plan of merger or
consolidation objects to the plan of merger or consolidation and complies
with the provisions of Subchapter D of Chapter 15 (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).
D-6
<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. Sections 1101-4162) provides that a
business corporation has 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.
Articles 23 and 24 of Peoples' By-laws provide 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.
Article VIII of the Citizens & Northern By-Laws provide as follows:
Section 8.1. INDEMNIFICATION. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative by reason of the fact that such
person is or was a director, officer, employee, or agent of the Corporation,
or is or was serving at the request of the Corporation as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees), amounts paid in settlement, judgments, and fines actually and
reasonably incurred by such person in connection with such action, suit, or
proceeding; provided, however, that no indemnification shall be made in any
case where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful
misconduct or recklessness.
Section 8.2. ADVANCEMENT OF EXPENSES. Expenses (including attorneys'
fees) incurred in defending a civil or criminal action, suit, or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit, or proceeding upon receipt of an undertaking by or on behalf of
the director, officer, employee, or agent to repay such amount if it shall be
ultimately determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article VIII.
Section 8.3. NONEXCLUSIVITY. The indemnification provided by this
Article VIII shall not be deemed exclusive of any other right to which
persons seeking indemnification may be entitled under any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to
II-1
<PAGE>
actions in such persons' official capacity and as to their actions in another
capacity while holding office, and shall continue as to a person who has
ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such person.
Section 8.4. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, or other enterprise against any
liability asserted against such person and incurred by such person in any
such capacity, or arising out of such person's status as such, whether or not
the Corporation would have the power to indemnify such person against such
liability under the provisions of this Article VIII.
II-2
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2 Agreement and Plan of Merger, dated as of June 22, 2000
between Citizens & Northern Corporation and Peoples Ltd.
(included as Annex A to the proxy statement/prospectus).
3.1 Registrant's Articles of Incorporation (incorporated by
reference to Exhibit 3(i) to the Form 10-K of the
Registrant for the fiscal year ended December 31, 1999.)
3.2 Registrant's By-Laws (incorporated by reference to
Exhibit 3(ii) to the Form 10-K of the Registrant for the
fiscal year ended December 31, 1999.).
5* Opinion of Squire, Sanders & Dempsey L.L.P.
8 Opinion of Shumaker Williams, P.C. regarding tax matters.
10 First Amendment to Executive Employment Agreement between
Donald E. Abrey, Peoples Ltd. and Peoples State Bank of
Wyalusing, Pa.
12 Fairness Opinion of Ryan, Beck & Co. (included as Annex C
to the proxy statement/prospectus).
13.1 Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 2000 (incorporated by reference
to Exhibit 13 to Registrant's Form 10-K for the fiscal
year ended December 31, 1999)
13.2 Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000
13.3 Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000
21 Subsidiaries of the Registrant.
23.1* Consent of Squire, Sanders & Dempsey L.L.P. (included in
Exhibit 5).
23.2 Consent of Shumaker Williams, P.C. (included in Exhibit 8)
23.3 Consent of Ryan, Beck & Co.
23.4 Consent of Parente Randolph, PC
23.5 Consent of Parente Randolph, PC
99.1 Peoples Letter to Shareholders
99.2 Peoples Notice of Special Meeting
99.3 Peoples Form of Proxy.
99.4 Stock Option Agreement, dated as of June 23, 2000, by and
between Citizens & Northern Corporation and Peoples Ltd.
(included as Annex B to the proxy statement/prospectus).
*To be filed by amendment.
</TABLE>
II-3
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment of the registration statement) which, individually
or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered) and
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Securities
and Exchange Commission pursuant to rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time will be deemed to be the
initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement will be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time will be deemed to be the initial bona fide offering
thereof.
(c) (1) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934;
II-4
<PAGE>
and, where interim financial information required to be presented by Article
3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause
to be delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(2) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of rule
145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect
to reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(3) The undersigned registrant hereby undertakes that every
prospectus (i) that is filed pursuant to paragraph (1) immediately preceding,
or (ii) that purports to meet the requirements of section 10(a)(3) of the Act
and is used in connection with an offering of securities subject to rule 415,
will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment will be deemed to be a new registration statement
relating to the securities offered here, and the offering of such securities
at that time will be deemed to be the initial bona fide offering.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
II-5
<PAGE>
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved, that was not the subject of and included in
the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Wellsboro, Pennsylvania, on
September 6, 2000.
CITIZENS & NORTHERN CORPORATION
By:
/s/ Craig G. Litchfield
-------------------------------------
Craig G. Litchfield
Chairman, President and Chief Executive Officer
II-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person in so signing also makes,
constitutes and appoints Craig L. Litchfield, Chairman of the Board,
President and Chief Executive Officer, his or her true and lawful
attorney-in-fact, in his or her name, place and stead to execute and cause to
be filed with the Securities and Exchange Commission any and all further
amendments (including post-effective amendments) to this Registration
Statement.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Craig G. Litchfield Chairman, President, Chief Executive Officer and September 6, 2000
----------------------- Director (Principal Executive Officer)
Craig G. Litchfield
/s/ James W. Seipler Executive Vice President and Treasurer September 6, 2000
-------------------- (Principal Financial and Accounting Officer)
James W. Seipler
/s/ Dennis F. Beardslee Director September 6, 2000
-----------------------
Dennis F. Beardslee
/s/ J. Robert Bower Director September 6, 2000
-------------------
J. Robert Bower
/s/ R. Robert DeCamp Director September 6, 2000
--------------------
R. Robert DeCamp
/s/ R. Bruce Haner Director September 6, 2000
------------------
R. Bruce Haner
/s/ Susan E. Hartley Director September 6, 2000
--------------------
Susan E. Hartley
/s/ Karl W. Kroeck Director September 6, 2000
------------------
Karl W. Kroeck
/s/ Edward L. Learn Director September 6, 2000
-------------------
Edward L. Learn
/s/ Lawrence F. Mase Director September 6, 2000
--------------------
Lawrence F. Mase
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James E. Towner Director September 6, 2000
-------------------
James E. Towner
/s/ Edward H. Owlett, III Director September 6, 2000
-------------------------
Edward H. Owlett, III
/s/ F. David Pennypacker Director September 6, 2000
------------------------
F. David Pennypacker
/s/ Leonard Simpson Director September 6, 2000
---------------------
Leonard Simpson
/s/ Donald E. Treat Director September 6, 2000
-------------------
Donald E. Treat
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2 Agreement and Plan of Merger, dated as of June 22, 2000
between Citizens & Northern Corporation and Peoples Ltd.
(included as Annex A to the proxy statement/prospectus).
3.1 Registrant's Articles of Incorporation (incorporated by
reference to Exhibit 3(i) to the Form 10-K of the
Registrant for the fiscal year ended December 31, 1999.)
3.2 Registrant's By-Laws (incorporated by reference to
Exhibit 3(ii) to the Form 10-K of the Registrant for the
fiscal year ended December 31, 1999.).
5* Opinion of Squire, Sanders & Dempsey L.L.P.
8 Opinion of Shumaker Williams, P.C. regarding tax matters.
10 First Amendment to Executive Employment Agreement between
Donald E. Abrey, Peoples Ltd. and Peoples State Bank of
Wyalusing, Pa.
12 Fairness Opinion of Ryan, Beck & Co. (included as Annex C
to the proxy statement/prospectus).
13.1 Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 2000 (incorporated by reference
to Exhibit 13 to Registrant's Form 10-K for the fiscal
year ended December 31, 1999)
13.2 Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000
13.3 Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000
21 Subsidiaries of the Registrant.
23.1* Consent of Squire, Sanders & Dempsey L.L.P. (included in
Exhibit 5).
23.2 Consent of Shumaker Williams, P.C. (included in Exhibit 8)
23.3 Consent of Ryan, Beck & Co.
23.4 Consent of Parente Randolph, PC
23.5 Consent of Parente Randolph, PC
99.1 Peoples Letter to Shareholders
99.2 Peoples Notice of Special Meeting
99.3 Peoples Form of Proxy.
99.4 Stock Option Agreement, dated as of June 23, 2000, by and
between Citizens & Northern Corporation and Peoples Ltd.
(included as Annex B to the proxy statement/prospectus).
*To be filed by amendment.
</TABLE>
