FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission file number 0-16276
STERLING FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2449551
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
101 North Pointe Boulevard
Lancaster, Pennsylvania 17601-4133
(Address of principal executive offices) (Zip Code)
(717) 581-6030
(Registrant's telephone number including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common Stock, $5.00 Par Value-7,146,105 shares outstanding as of November
1, 1999.
Sterling Financial Corporation and Subsidiaries
Index
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets
as of September 30, 1999, December 31, 1998,
and September 30, 1998. 3
Consolidated Statements of Income
for the Three and Nine Months ended September 30, 1999
and 1998. 4
Consolidated Statements of Cash Flows
for the Nine Months ended
September 30, 1999 and 1998. 5
Notes to Consolidated Financial
Statements. 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 - Quantitative and Qualitative Disclosures about Market
Risk 21
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 23
Item 6 - Exhibits and Reports on Form 8-K 23
Signature Page 24
<TABLE>
Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
September 30, December 31, September 30,
(Dollars in thousands) 1999 1998 1998
<S> <C> <C> <C>
ASSETS
Cash and due from banks......................$ 45,020 $ 38,716 $ 36,340
Interest-bearing deposits in other banks..... 1,095 557 44
Federal funds sold........................... 3,830 31,830 20,255
Mortgage loans held for sale................. 1,839 6,005 1,581
Investment Securities::
Securities held to maturity (fair value-
$53,619; $66,290; $70,152)................. 53,461 64,408 68,239
Securities available for sale............... 207,328 189,300 174,923
Loans........................................ 645,556 592,362 588,314
Less: Unearned income...................... (29) (110) (157)
Allowance for loan losses............ (8,196) (8,070) (8,296)
--------- --------- ---------
Loans, Net................................... 637,331 584,182 579,861
--------- --------- ---------
Premises and equipment....................... 24,077 24,722 24,520
Other real estate owned...................... 85 180 189
Accrued interest receivable.................. 7,317 6,524 6,518
Other assets................................. 59,020 54,630 49,116
--------- --------- ---------
TOTAL ASSETS................................$1,040,403 $1,001,054 $ 961,586
========= ========= =========
LIABILITIES
Deposits:
Noninterest-bearing.......................$ 120,020 $ 108,709 $ 105,637
Interest-bearing.......................... 769,059 746,347 722,949
--------- --------- ---------
TOTAL DEPOSITS.............................. 889,079 855,056 828,586
--------- --------- ---------
Interest-bearing demand notes issued to
U.S. Treasury............................ 3,731 1,558 4,454
Other liabilities for borrowed money........ 42,089 34,103 25,473
Accrued interest payable.................... 4,340 4,357 4,484
Other liabilities........................... 11,232 16,995 11,607
--------- --------- ---------
TOTAL LIABILITIES........................... 950,471 912,069 874,604
STOCKHOLDERS' EQUITY --------- --------- ---------
Common Stock - (Par Value: $5.00)
No. Shares authorized: 35,000,000
No. Shares issued:
8,935,851; 7,148,681; 7,149,681
No. Shares outstanding:
8,908,591; 7,117,795; 7,118,407......... 44,679 35,743 35,748
Capital Surplus.............................. 13,695 23,380 23,408
Retained Earnings............................ 32,425 26,308 24,831
Accumulated other comprehensive income(loss). (24) 4,738 4,193
Less: Treasury Stock
(27,260; 30,886; 31,274) - at cost......... (843) (1,184) (1,198)
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY................... 89,932 88,985 86,982
TOTAL LIABILITIES AND STOCKHOLDERS' --------- --------- ---------
EQUITY....................................$1,040,403 $ 1,001,054 $ 961,586
========= ========== ==========
</TABLE>
See accompanying notes to financial statements
<TABLE>
Part 1 - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands, except per share data) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans......................$ 13,456 $ 12,894 $ 38,846 $ 38,545
Interest on deposits in other banks.............. 88 1 104 2
Interest on federal funds sold................... 173 366 620 956
Interest and dividends on investment securities:
Taxable...................................... 2,507 2,499 7,694 7,195
Tax-exempt................................... 1,026 900 2,983 2,595
Dividends on stock........................... 87 64 219 187
--------- --------- --------- ---------
TOTAL INTEREST INCOME............................. 17,337 16,724 50,466 49,480
--------- --------- --------- ---------
INTEREST EXPENSE
Interest on time certificates of deposit of
$100,000 or more............................... 450 486 1,253 1,559
Interest on all other deposits.................. 6,417 6,814 18,850 19,652
Interest on demand notes issued to the
U.S. Treasury....... ......................... 35 45 88 105
Interest on other borrowed money................ 631 447 1,639 1,427
--------- --------- --------- ---------
TOTAL INTEREST EXPENSE............................ 7,533 7,792 21,830 22,743
--------- --------- --------- ---------
NET INTEREST INCOME............................... 9,804 8,932 28,636 26,737
Provision for loan losses....................... 142 205 382 941
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES.................................... 9,662 8,727 28,254 25,796
--------- --------- --------- ---------
OTHER OPERATING INCOME
Income from fiduciary activities............... 579 455 1,700 1,395
Service charges on deposit accounts............ 866 815 2,520 2,372
Other service charges, commissions and fees.... 538 539 1,509 1,431
Mortgage banking income........................ 200 478 1,088 1,599
Income from sales of assets.................... none 138 none 1,339
Other operating income......................... 1,257 1,127 3,796 3,372
Gains (Losses) on securities transactions...... 50 none 576 none
--------- --------- --------- ---------
TOTAL OTHER OPERATING INCOME..................... 3,490 3,552 11,189 11,508
--------- --------- --------- ---------
OTHER OPERATING EXPENSES
Salaries and employee benefits................ 5,094 4,682 14,935 14,341
Net occupancy expense......................... 530 602 1,645 1,774
Furniture and equipment expense............... 824 762 2,405 2,221
Other operating expenses...................... 2,173 2,206 6,932 6,178
--------- --------- --------- ---------
TOTAL OTHER OPERATING EXPENSES................... 8,621 8,252 25,917 24,514
--------- --------- --------- ---------
Income before income taxes.................... 4,531 4,027 13,526 12,790
Applicable income taxes....................... 1,249 1,022 3,472 3,364
--------- --------- --------- ---------
NET INCOME.......................................$ 3,282 $ 3,005 $ 10,054 $ 9,426
========= ========= ========= =========
Earnings per common share:
Net Income (basic)..............................$ .37 $ .34 $ 1.13 $ 1.06
Net Income (diluted)............................ .37 .34 1.13 1.05
Cash dividends declared per common share.........$ .18 $ .17 $ .54 $ .50
Consolidated Statements of Comprehensive Income (Unaudited)
Net Income.......................................$ 3,282 $ 3,005 $ 10,054 $ 9,426
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities
available-for-sale arising during period...... (700) 698 (4,382) 1,301
Reclassification adjustment for (gains) losses
included in net income........................ (33) none (380) none
--------- --------- --------- ---------
Other comprehensive income (loss)............... (733) 698 (4,762) 1,301
--------- --------- --------- ---------
COMPREHENSIVE INCOME............................ $ 2,549 $ 3,703 $ 5,292 $ 10,727
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements
<TABLE>
Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30,
(Dollars in thousands) 1999 1998
<S> <C> <C>
Cash Flows from Operating Activities
Net Income.................................................$ 10,054 $ 9,426
Adjustments to reconcile net income to net cash
provided by/(used in) operating activities:
Depreciation............................................ 1,851 1,695
Accretion and amortization of investment securities..... 470 250
Provision for possible loan and lease losses............ 382 941
(Gain) loss on disposition of property and equipment.... (7) (3)
(Gain) loss on sales of securities...................... (576) none
(Gain) loss on sale of mortgage loans................... (360) (434)
Proceeds from sales of mortgage loans................... 50,866 59,996
Origination of mortgage loans held for sale............. (46,340) (60,351)
Change in operating assets and liabilities:
(Increase) decrease in accrued interest receivable.... (793) (552)
(Increase) decrease in other assets................... (4,067) (4,635)
Increase (decrease) in accrued interest payable...... (17) 449
Increase (decrease) in other liabilities............. (3,285) (3,184)
--------- --------
Net cash provided by/(used in) operating activities........ 8,178 3,598
Cash Flows from Investing Activities
Proceeds from interest-bearing deposits in other banks...... 310 332
Purchase of interest-bearing deposits in other banks........ (848) (361)
Proceeds from sale of investment securities ................ 589 none
Proceeds from maturities of investment securities........... 36,488 42,262
Purchase of investment securities........................... (51,292) (66,877)
Federal funds sold, net..................................... 28,000 8,695
Net loans and leases made to customers...................... (53,759) (22,744)
Purchases of premises and equipment......................... (1,231) (1,929)
Proceeds from sale of premises and equipment................ 32 14
--------- ---------
Net cash provided by/(used in) investing activities........ (41,711) (40,608)
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits,
NOW and savings accounts................................... 10,319 15,789
Net increase (decrease) in time deposits.................... 23,704 29,500
Net increase (decrease) in interest-bearing demand
notes issued to the U.S. Treasury.......................... 2,173 1,454
Proceeds from borrowings.................................... 28,130 6,280
Repayments of borrowings.................................... (20,144) (13,119)
Proceeds from issuance of common stock...................... none 83
Cash dividends paid......................................... (4,710) (4,209)
Cash paid in lieu of fractional shares...................... none (40)
Acquisition of treasury stock............................... none (2,508)
Proceeds from issuance of treasury stock.................... 365 1,743
--------- ---------
Net cash provided by/(used in) financing activities....... 39,837 34,973
Increase (decrease) in cash and due from banks............. 6,304 (2,037)
Cash and due from banks::
Beginning................................................... 38,716 38,377
--------- ---------
Ending......................................................$ 45,020 $ 36,340
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash payments for:
Interest paid to depositors and on borrowed money..........$ 21,847 $ 22,294
Income taxes............................................... 3,613 3,374
Supplemental Schedule of Noncash Investing
and Financing Activities
Other Real Estate acquired in settlement of loans............ 228 319
</TABLE>
See accompanying notes to financial statement
Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of Sterling
Financial Corporation have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
The consolidated financial statements of Sterling Financial Corporation
include the accounts of its wholly owned subsidiaries, Bank of Lancaster
County, N.A. and its wholly owned subsidiary, Town & Country, Inc., T & C
Leasing, Inc., Northeast Bancorp, Inc. and its subsidiary, The First National
Bank of North East and Sterling Mortgage Services, Inc. Sterling Mortgage
Services, Inc. is presently inactive. All significant intercompany
transactions are eliminated in the consolidation.
Note 2 - Earnings Per Share
Basic earnings per share were computed by dividing net income by the
weighted average number of shares of common stock outstanding which were
8,906,628 and 8,930,960 for 1999 and 1998. Diluted earnings per share were
computed by dividing net income by the weighted average number of shares of
common stock outstanding plus all dilutive potential common shares outstanding
during the period which were 8,928,892 and 8,956,762 for 1999 and 1998.
All earnings per share information has been restated to reflect the
effect of a 5% stock dividend paid in June 1998 and the 5-for-4 stock split
effected in the form of a 25% stock dividend declared in August 1999 and
payable November 15, 1999.
Note 3 - Dividends Declared
The cash dividend declared for the third quarter of 1999 amounted to
$.18 per share while the cash dividend for the third quarter of 1998 amounted
to $.17 per share. Per share dividend amounts have been restated to reflect
the effect of the 5% stock dividend paid in June 1998 and the 5 for 4 stock
split effected in the form of a 25% stock dividend declared in August 1999 and
payable November 15, 1999.
Note 4 - Segment Information
In 1998, Sterling Financial Corporation adopted Statement of Financial
Accounting Standards No. 131 - "Disclosures about Segments of an Enterprise
and Related Information". Statement of Financial Accounting Standards No. 131
requires disclosure of segment information on the basis used internally by
management to evaluate segment performance.
Sterling Financial Corporation's segments are commercial and retail
banking, leasing, mortgage banking, and trust and investment services. The
accounting policies of each segment are the same as described in Note 2 of the
Form 10-K for the period ended December 31, 1998. Intersegment income or
expense is based upon commercial and retail bank funding of the leasing and
mortgage banking segments and of trust funding of the commercial and retail
bank segment.
The commercial and retail bank segment consists of all the general
banking of Sterling Financial Corporation. Leasing includes the vehicle and
equipment leasing of Town and Country, Inc. and T & C Leasing, Inc. Mortgage
banking includes the origination, sales and servicing of mortgages. The trust
and investment services segment is the trust department of Bank of Lancaster
County, N.A.
Segment Information - September 30, 1999
(In thousands)
Commercial Town & Trust & Total
& Retail Country Mortgage Investment Sterling
Banking Leasing Banking Services Financial
Interest Income......$ 42,927 $ 4,655 $ 2,883 $ none $ 50,466
Interest Expense..... 19,440 1,566 none 824 21,830
Intersegment Revenue. 4,446 (3,067) (2,364) 985 none
Direct Revenue....... 5,252 3,214 1,106 1,617 11,189
Direct Expense....... 22,352 2,376 291 1,280 26,299
------- ------- ------- ------- --------
Profit before tax.... 10,834 860 1,334 498 13,525
Total Assets......... 869,829 117,286 53,287 576,278 1,616,681
Expeditures for long-
lived assets........ 1,145 55 2 29 1,231
Depreciation and
amortization........ 1,652 154 14 32 1,851
Income taxes......... 2,505 344 453 169 3,472
Not included in the above information under the leasing segment are
expenditures for long-lived assets consisting of operation leases of
$13,024,880 and depreciation of $10,174,528.
The following is a reconcilement of total assets as reported on the
accompanying financial statements.
ASSETS (In thousands)
Reportable segments...............................$ 1,616,681
Less: Trust assets not included on
consolidated financial statements............. 576,278
Total assets......................................$ 1,040,403
===========
Note 5 - Merger and Acquisition Activity
On June 15, 1999, Sterling Financial Corporation completed the
acquisition of Northeast Bancorp, Inc., the parent company of The First
National Bank of North East, based in Maryland. Northeast Bancorp is an $84
million bank holding company for The First National Bank of North East, with 4
branches located in Cecil County, Maryland. The First National Bank of North
East will continue to operate as a separate bank.
Under the terms of the agreement, Northeast Bancorp shareholders received
2 shares of Sterling Financial Corporation common stock for each share of
Northeast Bancorp's common stock in a tax-free exchange. The transaction was
accounted for under the pooling-of-interests method of accounting.
Accordingly, the consolidated financial statements have been restated to
include the consolidated accounts of Northeast Bancorp for all periods
presented.
Financial data for Sterling Financial Corporation and Northeast Bancorp,
Inc. from January 1, 1999 to June 30, 1999 is presented below. Although the
date of consummation was June 15, 1999, the financial information presented is
for the nearest interim period, which is June 30, 1999.
June 30, 1999
(In thousands, except per share data) Sterling
Sterling Northeast Consolidated
Net interest income $16,945 $1,887 $18,832
Net income $ 6,437 $ 335 $ 6,772
Dividends declared $ 2,986 $ 85 $ 3,071
Earnings per share - basic $ .80 $ .79 $ .76
Earnings per share - diluted $ .80 $ .79 $ .76
The effect of the Northeast merger on the corporation's previously
reported revenue, net income, dividends declared and earnings per share for
the nine months ended September 30, 1998 follows:
September 30, 1998
(In thousands, except per share data) Sterling
Sterling Northeast Consolidated
Net interest income $23,995 $2,742 $26,737
Net income $ 8,888 $ 538 $ 9,426
Dividends declared $ 4,004 $ 205 $ 4,209
Earnings per share - basic $ 1.10 $ 1.27 $ 1.06
Earnings per share - diluted $ 1.10 $ 1.27 $ 1.05
Per share amounts have been restated to reflect the impact of the 5-for-4
stock split effected in the form of a 25% stock dividene in August 1999 and
payable November 15, 1999.
<PAGE>
Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion provides management's analysis of the
consolidated financial conditions and results of operations of Sterling
Financial Corporation and its subsidiaries, Bank of Lancaster County, N.A. and
its subsidiary, Town & County, Inc., T & C Leasing, Inc., Northeast Bancorp,
Inc. and its subsidiary, The First National Bank of North East and Sterling
Mortgage Services, Inc., which is presently inactive.
In addition to historical information, this Quarterly Report on Form
10-Q contains forward-looking statements. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected in the forward-
looking statements. Important factors that might cause such a difference
include, but are not limited to, those discussed in the section entitled
"Managements's Discussion and Analysis of Financial Condition and Results of
Operations." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. Sterling Financial Corporation undertakes no obligation to
publicly revise or update these forward-looking statements to reflect events
or circumstances that arise after the date hereof. Readers should carefully
review the risk factors described in other documents Sterling Financial
Corporation files from time to time with the Securities and Exchange
Commission, including Quarterly Reports on Form 10-Q and the Annual Report on
Form 10-K Annual Report to be filed by Sterling Financial Corporation, and any
Current Reports on Form 8-K filed by Sterling Financial Corporation.
On June 15, 1999, Sterling Financial Corporation completed the
acquisition of Northeast Bancorp, Inc., the parent company of The First
National Bank of North East, based in Maryland. Northeast Bancorp is an $84
million bank holding company for The First National Bank of North East, with 4
branches located in Cecil County, Maryland. The First National Bank of North
East will continue to operate as a separate bank.
Under the terms of the agreement, Northeast Bancorp shareholders received
2 shares of Sterling Financial Corporation common stock for each share of
Northeast Bancorp's common stock in a tax-free exchange. The transaction was
accounted for under the pooling-of-interests method of accounting.
Accordingly, the consolidated financial statements have been restated to
include the consolidated accounts of Northeast Bancorp for all periods
presented.
Financial Condition
Total assets at September 30, 1999 amounted to $1,040,403,000 which
represents an increase of 8.2% over the $961,586,000 at September 30, 1998.
Total assets at September 30, 1999 increased $39,349,000 or 3.9% over the
$1,001,054,000 at December 31, 1998.
The investment securities portfolio reflects a 7.2% increase of
$17,627,000 during the twelve month period September 30, 1998 to September 30,
1999. Sterling Financial Corporation has segregated its investment securities
into two categories: those held-to-maturity and those available-for-sale.
During the first nine months of 1999, there was in increase in investment
securities in the amount of $7,081,000 or 2.8% from the $253,708,000 reported
at December 31, 1998. The amount of unrealized gains included in the
available-for-sale category at December 31, 1998 was $7,183,000, while at
September 30, 1998 it was $6,357,000. At September 30, 1999, there were
unrealized losses of $56,000.
Net loans have grown from $584,182,000 to $637,331,000 during the nine
month period ended September 30, 1999. This represents an increase of 9.1%
since December 31, 1998. Net loans increased from $579,861,000 at September
30, 1998 to $637,331,000 at September 30, 1999. This represents an increase
of $57,470,000 or 9.9%.
Federal funds sold amounted to $3,830,000 at September 30, 1999 compared
to $20,255,000 at September 30, 1998 and $31,830,000 at December 31, 1998.
Premises and equipment decreased $443,000, or 1.8%, from $24,520,000 at
September 30, 1998 to $24,077,000 at September 30, 1999. During the first
nine months of 1999, total premises and equipment decreased $645,000, or 2.6%,
from $24,722,000 at December 31, 1998. Depreciation expense for the period
September 30, 1998 to September 30, 1999 was greater than the net acquisition
of premises and equipment which resulted in the decrease in premises and
equipment for that period of time.
Total deposits increased $60,493,000 or 7.3% from $828,586,000 at
September 30, 1998 to $889,079,000 at September 30, 1999. During the first
nine months of 1999, total deposits increased $34,023,000 or 4% from the
$855,056,000 reported at December 31, 1998. Noninterest bearing deposits
increased $14,383,000, or 13.6%, from $105,637,000 at September 30, 1998 to
$120,020,000 at September 30, 1999. During the same period, interest bearing
deposits increased $46,110,000 or 6.4%. Noninterest bearing deposits
increased $11,311,000, or 10.4%, during the first nine months of 1999 while
interest bearing deposits increased $22,712,000, or 3%.
Stockholders' equity increased $2,950,000 or 3.4% from the $86,982,000
reported at September 30, 1998 to $89,932,000 at September 30, 1999. There
was an increase of $947,000 or 1.1% from the $88,985,000 reported at December
31, 1998. Although stockholders' equity increased in the period ended
September 30, 1999 compared to the other periods recorded, the increase was
modest due to net unrealized losses totalling $4,762,000 on available-for-sale
securities during the first nine months of 1999. Net unrealized gains or
losses on available-for-sale securities is included in accumulated other
comprehensive income. Regulatory authorities exclude the net unrealized
holding gains and losses on available-for-sale securities from the definition
of common stockholders' equity for regulatory capital purposes. The capital
ratios reflect that exclusion. Total stockholders' equity to total assets at
September 30, 1999 was 8.65% compared to 8.67% at September 30, 1998 and 8.48%
at December 31, 1998.
Federal regulatory authorities issued risk-based capital guidelines
applicable to banks and bank holding companies in an effort to make regulatory
capital more responsive to the risk exposure related to various categories of
assets and off-balance sheet items. These guidelines require that banking
organizations meet a minimum risk-based capital, define the components of
capital, categorize assets into different risk classes and include certain
off-balance sheet items in the calculation of capital requirements. The
components of total capital are called Tier 1 and Tier 2 capital. Tier 1
capital is the shareholders' equity and Tier 2 capital is the allowance for
loan losses. The risk-based capital ratios are computed by dividing the
components of capital by risk-weighted assets. Risk-weighted assets are
determined by assigning various levels of risk to different categories of
assets and off-balance sheet items. Regulatory authorities exclude the net
unrealized holding gains and losses on available-for-sale securities from the
definition of common stockholders' equity for regulatory capital purposes.
However, national banks will continue to deduct unrealized losses on equity
securities in their computation of Tier 1 capital. Therefore, national banks
will continue to report the net unrealized holding gains and losses on
available-for-sale securities in the reports of condition and income submitted
to federal regulators as required by Statement of Financial Accounting
Standards No. 115 and the financial reports prepared in accordance with
generally accepted accounting principles, but will exclude these amounts from
calculations of Tier 1 capital. In addition, national banks should use the
amortized cost of available-for-sale debt securities, as opposed to fair
value, to determine the average total assets as well as the risk-weighted
assets used in the calculations of the leverage and risk-based capital ratios.
The ratios below reflect the above definition of common stockholders' equity
which included common stock, capital surplus and retained earnings, less net
realized holding losses on available-for-sale equity securities with readily
determinable fair values. The guidelines require Tier 1 capital of at least 4%
and total capital of 8% of risk-weighted assets. The Tier 1 capital ratio was
10.33% and the total risk-based capital ratio was 11.29% at September 30, 1999
while the Tier 1 capital ratio was 9.90% and the total risk-based capital
ratio was 11.06% at September 30, 1998.
The following table reflects the various capital ratios for the periods
indicated:
September 30, 1999 December 31, 1998 September 30, 1998
"Statement"
Equity Capital 8.65% 8.48% 8.67%
Primary and
Total Capital 9.36% 9.21% 9.45%
"Risk-based"
Tier 1 Capital 10.33% 9.93% 9.90%
Total Capital 11.29% 11.12% 11.06%
Changes in the Allowance for Loan Losses for the nine months ended
September 30, 1999 and 1998 were as follows:
1999 1998
(In thousands)
Balance at January 1 $ 8,070 $ 8,142
Provision for loan losses
charged to operating expenses 382 941
------- -------
8,452 9,083
------- -------
Losses charged to allowance 429 1,004
Recoveries credited to allowance 173 217
------- -------
Net charge-offs 256 787
------- -------
Balance at September 30, $ 8,196 $ 8,296
======= =======
Allowance as a percent of
period-end loans 1.27% 1.41%
The net charge-offs for the first nine months of 1999 were within Sterling
Financial Corporation's expectations and management is of the opinion that the
allowance for loan losses is adequate. Management makes a determination at
least quarterly as to the appropriate provision necessary to maintain an
adequate allowance for potential loan losses. The amount of provision made is
based upon a variety of factors including a specific allocation by individual
credits, loss experience for classified loans using migration analysis, loss
experience for homogenous loan pools, levels and trends in delinquency,
specific non-accruing and problem loans, evaluation of economic conditions and
forecasts and other factors deemed appropriate by management. While there can
be no assurance that material amounts of additional loan loss provisions will
not be required in the future, management believes that, based upon
information presently available, the amount of the allowance for possible loan
losses is adequate.
The following table presents information concerning the aggregate amount
of nonaccrual, past due and restructured loans:
September 30, December 31, September 30,
(In thousands) 1999 1998 1998
Nonaccrual loans $ 454 $ 908 $1,170
Accruing loans, past
due 90 days or more $ 491 $ 655 $ 689
Restructured loans $1,969 $1,993 $2,001
Non-performing loans
to total loans .45% .60% .66%
Allowance for loan losses
to non-performing loans 281.3% 226.9% 214.9%
The general policy has been to cease accruing interest on loans when it
is determined that a reasonable doubt exists as to the collectibility of
additional interest. Interest income on these loans is only recognized to the
extent payments are received. If interest income had been recorded on such
loans for the periods indicated, such interest income would have been
increased by approximately $80,000 and $100,000 for the nine months ended
September 30, 1999 and 1998 respectively, and $87,000 for the year ended
December 31, 1998. Interest income recorded on the nonaccrual loans in 1998
was $500. There was no interest income recorded on the nonaccrual loans in
1999. Potential problem loans are loans which are included as performing
loans, but for which possible credit problems of the borrower causes
management to have doubts as to the ability of such borrower to comply with
present repayment terms and which may eventually result in disclosure as a
non-performing loan. At September 30, 1999, there were no such loans that had
to be disclosed as potential problem loans.
A loan is categorized as restructured if the original interest rate on
the loan, repayment terms or both are restructured due to a deterioration in
the financial condition of the borrower. The restructured loans listed is the
restructure of a series of loans to one borrower. There are no commitments to
lend additional funds to this borrower in relation to the restructured loans.
In the case of the above referenced loans, the loans are secured by real
estate. The loans are current and have performed in accordance with
contractual terms, both prior to and after the restructure. Accrual of
interest on these loans continues.
Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures", an
amendment of Statement of Financial Accounting Standards No. 114, was
implemented at the beginning of 1995. Impaired loans has been defined as all
loans on nonaccrual status and troubled debt restructured loans, except those
specifically excluded from the scope of Statement of Financial Accounting
Standards No. 114, regardless of the credit grade assigned by loan review.
All impaired loans were measured by utilizing the fair value of the collateral
for each loan. When the measure of an impaired loan is less than the recorded
investment in the loan, the Bank will compare the impairment to the existing
allowance assigned to the loan. If the impairment is greater than the
existing allowance, the Bank will adjust the existing allowance to reflect the
greater amount or take a corresponding charge to the provision for loan and
lease losses. If the impairment is less than the existing allowance for a
particular loan, no adjustments to the allowance or the provision for loan and
lease losses will be made. There was no adjustment necessary for the impaired
loans for the period indicated.
The average amount of impaired loans was $2,470,000 for the third quarter
of 1999 and $3,162,000 for the third quarter of 1998, while the average for
the year 1998 was $3,139,000. .
The following table presents information concerning impaired loans for the
periods indicated:
September 30, December 31, September 30,
1999 1998 1999
Gross impaired loans which have
allowances...........................$2,423 $2,901 $3,171
Less: Related allowances for
loan losses.......................... (116) (140) (151)
------ ------ ------
Net impaired loans.....................$2,307 $2,761 $3,020
====== ====== ======
At September 30, 1999, there were no concentrations exceeding 10% of
total loans. A concentration is defined as amounts loaned to a multiple
number of borrowers engaged in similar activities which would cause them to be
similarly affected by changes in economic or other conditions. There were no
foreign loans outstanding at September 30, 1999.
Liquidity is the ability to meet the requirements of customers for loans
and deposit withdrawals in the most economical manner. Some liquidity is
ensured by maintaining assets which may be immediately converted into cash at
minimal cost. Liquidity from asset categories is provided through cash,
noninterest-bearing and interest bearing deposits with banks, federal funds
sold and marketable investment securities maturing within one year. The loan
portfolio also provides an additional source of liquidity due to Bank of
Lancaster County participating in the secondary mortgage market. The loan
portfolio also provides significant liquidity by repayment of loans by
maturity or scheduled amortization payments. On the liability side, liquidity
is available through customer deposit growth and short term borrowings.
Liquidity must constantly be monitored because future customer demands for
funds are uncertain. The amount of liquidity needed is determined by the
changes in levels of deposits and in the demand for loans. Management
believes that the source of funds mentioned provide sufficient liquidity.
YEAR 2000
The following section contains forward-looking statements which involve
risks and uncertainties. The actual impact on Sterling Financial Corporation
of the Year 2000 issue could materially differ from that which is anticipated
in the forward-looking statements as a result of certain factors identified
below.
The Year 2000 issue ("Y2K") is the result of computer programs being
written using two digits rather than four to define the applicable year. It
is anticipated that most systems may recognize a date using "00" as the year
"1900" rather than "2000". This could result in system failures,
miscalculations, and disruptions of normal business operations including,
among other things, a temporary inability to process transactions, send
statements, or engage in similar day to day business activities. At Sterling
Financial Corporation, we recognize the Year 2000 problem is more than just a
systems issue. It is a business issue, and we are dealing with it in that
manner.
Corporation's State of Readiness
Sterling Financial Corporation is committed to ensuring that the daily
operations suffer little or no impact from the century date change. Sterling
Financial Corporation has applied due diligence throughout the Y2K process,
following the guidelines contained in the series of Federal Financial
Institutions Examination Council's Interagency Guidelines. These guidelines
include the following five phases:
awareness,
assessment,
renovation or remediation,
testing or validation and
implementation.
Management has initiated an enterprise-wide program to prepare Sterling
Financial Corporation's computer systems and applications for the Year 2000.
Sterling Financial Corporation has developed a comprehensive inventory of all:
mainframe and PC based applications,
third-party relationships,
environmental (bank vaults, VCRs, security systems, etc.) and
proprietary programs.
This assessment identified 231 systems or processes and 402 proprietary
programs, which could be impacted by the century date change.
The 402 proprietary programs consist of management reporting, interface
programs, and bridge programs. Previous disclosure indicated 493 proprietary
programs. It has been determined that 91 programs are obsolete and have been
removed. Therefore, as of September 30, 1999, Sterling Financial Corporation
has remediated 100% of these programs.
In January of 1997, Sterling Financial Corporation began converting its
computer systems to be Year 2000 ready. As of September 30, 1999, testing has
been completed and 100% of the systems are century-date ready.
Sterling Financial Corporation has acquired its core mission-critical
systems from a highly regarded third-party vendor. Thus, even though Sterling
Financial Corporation does not have direct control over the renovation
process, it is monitoring the progress of its third-party vendors to assess
the status of their Y2K readiness efforts. However, because most computer
systems are, by their very nature, independent, it is possible that
noncompliant third-party computers could impact Sterling Financial
Corporation's computer systems. Sterling Financial Corporation could be
adversely affected by the Y2K problem if it or unrelated parties fail to
successfully address the problem. Steps have been taken to communicate with
the unrelated parties with whom it deals to coordinate Year 2000 readiness.
Additionally, we are dependent on external suppliers, such as, wire transfer
systems, telephone systems, electric companies, and other utility companies
for continuation of service. Sterling Financial Corporation is also assessing
the impact, if any, the century date change may have on its credit risk.
Sterling Financial Corporation has contacting its large commercial loan
customers concerning their level of readiness for Year 2000. Formal
communications have been initiated with all of its vendors and large
commercial customers to determine the extent to which Sterling Financial
Corporation is vulnerable to those third-parties' failure to remedy their own
Year 2000 issues. The Y2K Project Manager has available each vendors' Y2K
readiness efforts which includes their remediation plan, renovation approach,
testing methodologies and target dates.
A comprehensive testing plan has been developed. Sterling Financial
Corporation has prioritized all mainframe and PC based applications,
third-party relationships, environmental and proprietary programs to be tested.
Separate environments for testing have been defined and established.
Beginning in the fourth quarter of 1998, Sterling Financial Corporation
performed a variety of testing to include limited unit testing (aging dates
forward on files), system testing (advancing the computer system date forward)
and combined system integration (running applications dependent on each other
together with the data files aged and computer system date advanced forward)
and acceptance testing (user review and validation). Test scripts have been
written which define the type of testing to be performed, the resources
necessary to perform the test, the transactions or files to be processed, and
expected results for each type of testing performed. Additionally, a testing
validation, certification and reporting process has been established.
Costs of Year 2000
As of September 30, 1999, $317,000 has been expended as Year 2000 costs.
Management expects to spend a total of approximately $352,000 for the entire
project. The estimated Year 2000 project costs include the costs and time
associated with the impact of third-parties' Year 2000 issues, and are based
on presently available information. The total cost of the project is being
funded through operating cash flows. Sterling Financial Corporation continues
to evaluate appropriate courses of corrective action, including replacement of
certain systems whose associated costs would be recorded as assets and
amortized. Accordingly, Sterling Financial Corporation does not expect the
amounts required to be expensed over the next 3 months to have a material
effect on the financial position or results of operations. However, if
readiness is not achieved in a timely manner by Sterling Financial Corporation
or any of its significant related third-parties, be it a supplier of services
or customer, the Y2K issue could possibly have a material effect on Sterling
Financial Corporation's operations and financial position.
The cost of the projects and the date on which Sterling Financial
Corporation plans to complete both Year 2000 modifications and systems
conversions are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third-party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are
not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
Risks of Year 2000
At present, management believes it's progress in remediating the
proprietary programs and installing Y2K upgrades to the third-party vendor
mainframe and PC based computer applications is on target. The Year 2000
computer problem creates risk for Sterling Financial Corporation from
unforseen problems in its own computer systems and from third-party vendors
who provide the majority of the Corporation's mainframe and PC based computer
applications. Failures of third-party systems relative to the Y2K issue
could have a material impact on Sterling Financial Corporation's ability to
conduct business.
Continency Plans
A contingency plan has been developed for mission-critical and required
mainframe and PC based applications, third-party relationships, environmental
and proprietary programs. Sterling Financial Corporation's contingency plans
involve the use of manual labor and replacement or update of computer systems
to compensate for the loss or inconveniences caused by the disruption of
certain automated computer systems. The contingency plans define scheduled
completion dates, test dates and trigger dates. The trigger date being the
date Sterling Financial Corporation would implement the continency plan.
A detailed business resumption contingency plan was completed as of June
30, 1999. This detailed business resumption contingency plan calculates a
risk factor for each core business line and/or product. Based on the
calculated risk factor, a specific business resumption contingency plan was
written and tested.
Sterling Financial Corporation's senior management and Board of Directors
approved this Year 2000 Contingency Plan in July of 1999. We believe that the
approach and recovery scenarios are realistic options that will meet the
requirements of the institution and the market we serve.
Management has focused this plan on the mission critical business
processes and associated systems. Management believes that Sterling Financial
Corporation does not have the resources to address every potential failure
scenario in every process or system. Any specific systems not addressed in
this contingency plan will be addressed on a case-by-case basis at the time of
failure.
Sterling Financial Corporation's management is firmly committed to
testing as many systems as possible by year-end 1999. Management believes
that the best contingency plan is a thorough and well-executed test.
Results of Operations
The following discussion analyzes the specific components affecting the
changes in net income for the periods analyzed.
Three months ended September 30, 1999 compared to three months ended September
30, 1998
Net income for the third quarter of 1999 amounted to $3,282,000 compared
to $3,005,000 for the third quarter of 1998. This represents an increase of
$277,000 or 9.2%. On a per share basis, both basic and diluted, income was
$.37 compared to $.34.
Total interest income increased $613,000 or 3.7% while total interest
expense decreased $259,000 or 3.3%. Increased volumes in loans was primarily
responsible for an increase in interest and fees on loans of $562,000 or 4.4%
over 1998. Interest on deposits with banks reflects an increase of $87,000,
while interest on federal funds sold decreased $193,000 as a result of
decreased volumes. Income on investment securities increased $157,000 or 4.5%
in 1999 as a result of increased volumes in various investment securities.
Total interest expense amounted to $7,533,000 for this period compared
to $7,792,000 for the same period last year. This represents a decrease of
$259,000 or 3.3%. Interest paid on time certificates of deposit of $100,000
or more decreased $36,000 in 1999 over the same period in 1998, while interest
paid on all other deposits decreased $397,000 or 5.8%. Interest bearing
deposits increased over $46 million from the same period in 1998. However,
lower interest rates generated a decrease in interest expense on these
deposits. Interest expense on other interest bearing liabilities increased
$174,000 during the same period of time as a result of increased volumes.
Net interest income increased $872,000 in 1999 over 1998.
The provision for possible loan losses decreased $63,000 from a charge of
$205,000 in 1998 to $142,000 in 1999. The provision reflects the amount
deemed appropriate by management to provide an adequate reserve to meet the
present and foreseeable risk characteristics of the loan portfolio.
Total other operating income decreased $62,000 or 1.7%. Income from
fiduciary activities increased $124,000 or 27.3% as a result of increased
volumes of assets managed by the Trust and Investment Services Division.
Service charges on deposit accounts increased $51,000 or 6.3% while other
various service charges decreased $1,000. Mortgage banking income decreased
$278,000 as a result of decreased volumes of originations and subsequent sales
as interest rates increased during the period, resulting in less consumer
refinancings. Other operating income reflected an increase of $130,000 or
11.5%. Gains on securities transactions for 1999 was $50,000, versus no gains
in 1998. Included in total other operating income in 1998 was $138,000, an
additional gain from the sale of the Bank of Lancaster County's credit card
portfolio in the second quarter of 1998.
Total other operating expenses rose $369,000 or 4.5% over the same period
last year. There was an increase of $412,000 in salaries and employee
benefits over the same period in 1998, due primarily to increases in staff, as
well as increases in wages and increased costs of employee benefits.
Occupancy and furniture and equipment expense decreased $10,000 while other
operating expenses decreased $33,000.
Applicable income taxes increased $227,000. The effective tax rate was
27.6% for the third quarter of 1999 compared to 25.4% for 1998. The reason
for the increase in the effective tax rate was due to non-deductible merger
expenses associated with the Northeast merger, partially offset by higher
levels of the tax-exempt interest income.
Nine months ended September 30, 1999 compared to nine months ended
September 30, 1998
Net income increased from $9,426,000 in September 30, 1998 to $10,054,000
in September 30, 1999. This represents an increase of $628,000 or 6.7%. Net
income on a per share basis (basic) was $1.13 for nine months ended September
30, 1999 compared to $1.06 for the same period 1998. Diluted earnings per
share was $1.13 for 1999 and $1.05 for 1998. Sterling's return on average
assets was 1.32% for 1999 and return on average stockholders' equity was
15.35%.
Total interest income increased $986,000 or 2%. Earning assets increased
$59,753,000 or 7%. Loans increased over $57.2 million or 9.7%, while
securities increased over $17.6 million or 7.2% over the same period last
year. Increased volumes in loans and investment securities generated a major
portion of the increase in interest income. Interest and fees on loans
increased $301,000. Interest on deposits with banks increased $102,000 while
interest on federal funds sold decreased $336,000. Federal funds sold
decreased over $16 million during this time period. Interest on investment
securities increased $919,000 as a result of increased volumes.
Total interest expense amounted to $21,830,000 reflecting a decrease of
$913,000 or 4% from the $22,743,000 reported in 1998. Interest-bearing
deposits increased over $46 million or 6.4% from September 30, 1998 to
September 30, 1999. Although there were increased volumes in deposits, lower
interest rates generated a decrease of $1,108,000 in interest expense.
Interest paid on other interest-bearing liabilities increased $195,000
primarily as a result of increased volumes.
The provision for possible loan loss decreased $559,000 in 1999 over
1998. The provision for loan losses is based upon the monthly review of the
loan portfolio and reflects the amount deemed appropriate by management to
provide an adequate reserve to meet the present and foreseeable risk
characteristics of the loan portfolio.
Total other operating income decreased $319,000 or 2.8% during the first
nine months of 1999 over the same period in 1998. Income from fiduciary
activities increased $305,000 or 21.9% as a result on increased volumes of
assets managed by the Trust and Investment Services Division. Service charges
on deposit accounts increased $148,000 while other various service charges
increased $78,000. Other operating income increased $424,000 or 12.6%. A
major contributor to this increase was an increase in income on operating
leases. Mortgage banking income decreased $511,000 as a result of decreased
volumes of originations and subsequent sales. The major contributor to total
other operating income in 1998 was a one-time earnings gain of $1,339,000 as a
result of the sale of the Bank of Lancaster County's credit card portfolio.
Gains on securities transactions amounted to $576,000 in 1999 while there were
no gains in 1998.
Total other operating expenses rose $1,403,000 or 5.7% over the same
period last year. Increases of $594,000 in salaries and employee benefits,
$55,000 in occupancy and furniture and equipment expense, and $754,000 in
other operating expenses constitute the total increase. The increase in
salaries and employee benefits was primarily due to increases in staff as well
as increases in wages and increased costs of employee benefits. The expenses
related to the acquisition of Northeast Bancorp, Inc. by Sterling Financial
Corporation is reflected in the increase over 1998. Also contributing to the
increase in other operating expenses were increases in education and training
expense, MAC fees, professional services, PA Shares Tax, telephone expense and
postage expense. The remaining increase during 1999 was due to normal
increases in expenses related to the overall growth of Sterling Financial
Corporation.
Applicable income taxes amounted to $3,472,000 in 1999 compared to
$3,364,000 in 1998. The increase in taxes is due in part to increases in
taxable income. The effective tax rate was 25.7% and 26.3% respectively for
1999 and 1998.
Part I - Financial Information
Quantitative and Qualitative Disclosures About Market Risk
Discussion of Market Risk and Interest Rate Sensitivity
As a financial institution, the primary component of the Sterling
Financial Corporation's market risk is interest rate volatility. Changes in
interest rates will ultimately impact interest income from earning assets and
the interest expense from funding sources, deposits and debt.
Based upon Sterling Financial Corporation's nature of operations, it is
not subject to foreign currency exchange or commodity price risk. Sterling
Financial Corporation's market area for loans and deposits is concentrated in
Lancaster County, Pennsylvania and Cecil County, Maryland and as such is
subject to risks associated with the local economy in those market areas.
Sterling Financial Corporation does not own any trading assets. Sterling
Financial Corporation does not have any hedging transactions in place such as
interest rate swaps and caps.
Management endeavors to control the exposure of earnings to changes in
interest rates. The asset/liability committee reviews interest rate risk by
various means including '"Gap" management and internally developed models and
reports. The Bank of Lancaster County also utilizes Sheshunoff Interest Rate
Risk management services and IBAA investment portfolio valuation services to
enhance risk exposure review. Interest repricing of assets and liabilities is
measured over future time periods, interest rate sensitivity gaps. While all
time gaps are measured, management's primary focus is the cumulative gap
through one year, as this time frame directly impacts net interest income in
the near term time horizon and is most difficult to make reactive adjustment
to actual rate movements.
Sterling Financial Corporation has various investments structured to
change investment yield with current market conditions. Assets subject to
repricing include federal funds sold (repricing daily), loans floating to
"treasury bill" indexes (repricing monthly) and loans tied to "prime" or other
indexes subject to immediate change. Other factors effecting income are
maturing and contracted repayments and prepayments of existing loans and
investments. These cash flows will be re-invested at current market yields.
Sterling Financial Corporation's funding liabilities, customer deposits
and borrowed funds, have more complex repricing characteristics, since
interest bearing deposits are subject to rate change but are not specifically
indexed to "prime" or "treasury" indexes. Time certificates and borrowed
money are subject to interest rate change at maturity. Deposit funding is
essentially comprised of "core" deposits that have been historically loyal and
stable, and these deposits, with the exception of certificates of deposit,
have not been rate sensitive. All interest rates do not move in full and
equal amounts for loans and deposits. Deposit rates historically lag loans in
rate movement, and rate movement occurs to a smaller degree for deposits than
loans. Modeling is used to forecast projected impact to the net interest
margin as a result of rate movements, either increasing or decreasing.
Historic pricing correlations are calculated for all interest-bearing deposit
products for rate change repricing impact as - immediate, monthly, and
annually over a five year time period. Management's view of interest rate
sensitivity reflects a calculated interpretation of net interest margin
exposure to rate changes. Pricing correlations are constantly refined by
management. There is no guarantee that past history will accurately reflect
future changes.
Although the make-up of the balance sheet is subject to change from time
to time, management is of the opinion that there have been no material changes
in reported market risks faced by the company since the end of the most recent
fiscal year. Quantitative and qualitative disclosures about market risk was
listed in Part II, Item 7A, of the Form 10-K for the fiscal year ended
December 31, 1998.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.
As of September 30, 1999, there were no material pending legal
proceedings, other than ordinary routine litigation incidental to business, to
which the Corporation or its subsidiaries are a party or of which any of their
property is the subject.
Item 6 - Exhibits and Reports on Form 8-K
(a) EXHIBITS
10.1 Change in Control Agreement, dated July 27, 1999
between Sterling Financial Corporation and Bank of
Lancaster County and John E. Stefan
10.2 Change in Control Agreement, dated August 4, 1999
between Sterling Financial Corporation and Bank of
Lancaster County and J. Roger Moyer, Jr.
10.3 Change in Control Agreement, dated July 30, 1999
between Sterling Financial Corporation and Bank of
Lancaster County and Jere L. Obetz
10.4 Change in Control Agreement, dated July 7, 1999
between Sterling Financial Corporation and Bank of
Lancaster County and Thomas P. Dautrich
10.5 Employment Agreement, dated July 27, 1999
between Sterling Financial Corporation and Bank of
Lancaster County and John E. Stefan
21. Subsidiaries of the Registrant
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K -
A report on Form 8-K dated August 24, 1999 was filed August 24, 1999
pursuant to Item 5 and Item 7 on Form 8-K filing, as Exhibit 99, a copy of a
Sterling Financial Corporation press release announcing the declaration of a 5
for 4 stock split effected in the form of a 25% stock dividend to shareholders
of record November 1, 1999 and payable on November 15, 1999. Also included in
the press release was the announcement of the declaration of a $.23 per share
cash dividend payable October 1, 1999, to shareholders of record September 16,
1999.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Sterling Financial Corporation
Date: November 15, 1999 By:/s/ John E. Stefan
John E. Stefan
Chairman of the Board, President
and Chief Executive Officer
Date: November 15, 1999 By:/s/ Jere L. Obetz
Jere L. Obetz
Executive Vice President/Treasurer
Chief Financial Officer
EXHIBIT 10.1
Change in Control Agreement, dated July 27, 1999
between Sterling Financial Corporation and Bank of Lancaster County
and John E. Stefan
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT ("Agreement") made as of the 27th day of July, 1999,
between Sterling Financial Corporation, a Pennsylvania business corporation
(the "Corporation"), Bank of Lancaster County, N.A., a national banking
association (the "Bank" and, with the Corporation, the "Employers") and John
E. Stefan, an individual (the "Executive").
WITNESSETH:
WHEREAS, the Executive is serving as a President & CEO of the Employers;
and
WHEREAS, the Employers consider the continued services of the Executive
to be in the best interest of the Employers and the shareholders of the
Corporation; and
WHEREAS, the Employers desire to induce the Executive to remain in the
employ of their Employers on an impartial and objective basis in the event of
a transaction pursuant to which a Change in Control (as defined in Section
2(c)) of the Employers occurs.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
Term of Agreement. The term of this Agreement shall commence on the date
hereof and terminate on December 31, 2002 unless the Executive's employment is
sooner terminated as provided herein (as may be extended pursuant to this
Agreement, the "Term"). On each December 31st hereafter, the Term shall
automatically be extended for an additional calendar year unless either party
gives written notice to the other, by no later than the preceding November
30th, that he or she does not concur in such extension. For the purposes of
the preceding sentence, the Employers shall be considered one party.
Termination for Cause. Notwithstanding the provisions of Section 1(a), this
Agreement will terminate automatically upon termination of the Executive's
employment by his/her Employer for Cause. As used in this Agreement, the term
"Cause" means:
prior to a Change in Control, termination for any reason;
and concurrent with or following a Change in Control, termination following
(A) the Executive's conviction or plea of guilty or nolo contendere to a
felony, a crime of falsehood, or a crime involving fraud or moral turpitude,
or the actual incarceration of the Executive for a period of 45 consecutive
days, (B) the Executive's failure to follow the lawful instructions of the
Employers after receipt of written notice of such instructions from an
appropriate corporate official, other than a failure resulting from the
Executive's incapacity because of physical or mental illness, or (C) a
government regulatory agency recommends or orders in writing that the
employment of the Executive be so terminated.
If the Executive's employment is terminated for Cause, his/her rights under
this Agreement will cease as of the effective date of such termination.
Voluntary Termination, Retirement, or Death. Notwithstanding the provisions
of Section 1(a), this Agreement will terminate automatically upon the
voluntary termination of the Executive's employment (other than in accordance
with Section 2), his/her retirement or his/her death. In any such event, the
Executive's rights under this Agreement will cease as of the effective date of
such termination; provided, however, that if the Executive dies after a Notice
of Termination (as defined in Section 2(b)) is delivered by him/her in
accordance with such section, the payments described in Section 3 will
nonetheless be made to the person or persons determined pursuant to Section
9(b).
Disability. Notwithstanding the provisions of Section 1(a), this Agreement
will terminate automatically upon the termination of the Executive's
employment by reason of his/her Disability. In such event, the Executive's
rights under this Agreement will cease as of the effective date of such
termination; provided, however, that if the Executive becomes disabled after a
Notice of Termination is delivered by him/her in accordance with Section 2(b),
he/she will nonetheless be entitled to receive the payments described in
Section 3. As used in this Agreement, the term "Disability" means
incapacitation, by accident, sickness or other wise, such that the Executive
is rendered unable to perform the services required of his/her by him/her then
position with the Employers for a period of six consecutive months.
Termination Following a Change in Control
(a) Termination For Good Reason After a Change in Control.
If a Change in Control occurs and, in anticipation
thereof, concurrently therewith or thereafter during the
Term an event constituting Good Reason also occurs with
respect to the Executive, he/she may terminate
his/her employment in accordance with the provisions
of Section 2(b) and, thereupon, will become entitled
to the payments described in Section 3.
(b) Notice of Termination. Upon the occurrence of a
Change in Control and an event of Good Reason,
the Executive may, within 90 days of the occurrence
of any such event, resign from employment by a
notice in writing ("Notice of Termination") delivered
to the Bank, whereupon he/she will become
entitled to the payments described in Section 3.
In the case of a termination described in
Clause (i) of Section 2(d), the Executive will
confirm his/her involuntary termination, in writing,
within 90 days of the date of such termination,
and such confirmation will be deemed a Notice of
Termination.
(c) Change in Control Defined. As used in this Agreement,
the term "Change in Control" means any of the following:
any "person" (as such term is used in Sections
13(d) and 14(d) (2) of the Securities and
Exchange Act of 1934 (the "Exchange Act")),
other than the Employers, a subsidiary of the
Employers, an employee benefit plan of the
Employers or a subsidiary of the Employers
(including a related trust), becomes the
beneficial owner (as determined pursuant to Rule
13d-3 under the Exchange Act), directly or
indirectly, of securities of the Employers
representing more than 20% of the combined voting
power of the Employers' then outstanding securities;
the occurrence of, or execution of an agreement
providing for, a sale of all or substantially
all of the assets of the Employers to an entity
which is not a direct or indirect subsidiary of
the Employers;
the occurrence of, or execution of an agreement
providing for, a reorganization, merger,
consolidation or similar transaction involving
the Employers, unless (A) the shareholders of
the Corporation immediately prior to the
consummation of any such transaction will
initially own securities representing a majority
of the voting power of the surviving or
resulting corporation, and (B) the directors
of the Employers immediately prior to the
consummation of such transaction will initially
represent a majority of the directors of
the surviving or resulting corporation; or
any other event which is at any time irrevocably
designated as a "Change in Control" for
purposes of this Agreement by resolution adopted
by a majority of the then non-employee
directors of the Employers.
(d) Good Reason Defined. As used in this Agreement, the
term "Good Reason" means any of the following events:
the involuntary termination of the Executive,
other than an involuntary termination permitted in
Sections 1(b) and (d);
a reduction in the Executive's title,
responsibility (including reporting responsibility)
or authority as in effect immediately prior to
the Change in Control; provided, however, that the
assignment of the Executive to a position with
a reasonably similar title, responsibility and
authority will not constitute an event of Good
Reason if the Executive's actual or targeted
compensation in such new position is not
less than the Executive's actual and targeted
compensation immediately prior to the Change in
Control;
the assignment to the Executive of duties
inconsistent with his/her position immediately
prior to the Change in Control, except for an
assignment of duties consistent with a position
permitted in Clause (ii);
a reduction in the Executive's annual
base salary in effect immediately prior
to the Change in Control;
reassignment of the Executive to a principal
office which is more than 30 miles from
the Executive's principal office in
Lancaster, Pennsylvania;
the failure to provide the Executive with
welfare, pension, incentive compensation,
fringe and other benefits to which
he/she was entitled immediately prior to the
Change in Control, unless such failure occurs
by reason of a reduction or change in
such benefits for employees generally or
similarly situated executive employees of the
corporation which is the acquiring, resulting
or successor corporation in the Change in
Control (or an affiliate thereof); or
any material breach of this Agreement by
the Employers which is not cured within 30
days after receipt of written notice of such
breach from the Executive.
Rights in the Event of Certain Terminations Following Change in Control. In
the event the Executive validly and timely delivers a Notice of Termination to
the Bank, he/she will be entitled to receive the following payments and
benefits:
Basic Payments. The Executive will be paid an amount equal to two and
ninety-nine hundredths (2.99) times the Base Amount [depending upon the
Employee's
level]. "Base Amount" shall mean an amount equal to the average annual
compensation payable by the Employers to the Executive and includable by the
Executive
in gross income for the most recent five (5) taxable years, or such shorter
period as the Executive shall have been employed by the Employers, ending
before the date on which the Change of Control occurred. The Executive at his
election, will be paid the Basic Payments in either (i) 24 [or 30] equal
monthly installments, or (ii) a lump sum equal to the present value of the
amounts payable under this subsection; commencing within 30 days after his
termination of employment. For purposes of the preceding sentence, present
value will be determined by using the short-term applicable federal rate under
Section 1274 of the Internal Revenue Code of 1986, as amended (the "Code"), in
effect on the date of termination of employment. For purposes of this
subsection, to the extent necessary, base salary and bonuses with any
predecessor of the Employers or an affiliate thereof shall be taken into
account.
Supplemental Payment in Lieu of Certain Benefits. In lieu of continued
pension, welfare and other benefits, a one-time lump sum cash payment equaling
25% of the Base Amount calculated above will be paid to the Executive within
30 days following the date of termination
Stock Options. Upon a Change in Control, all stock options theretofore
granted to the Executive by the Corporation and not previously exercisable
shall become fully exercisable to the same extent and in the same manner as if
they had become exercisable by passage of time or by virtue of the Employers
achieving certain performance objectives in accordance with the relevant
provisions of any plan and any agreement.
Section 280G. Notwithstanding any other provisions of this Agreement or any
other agreement entered into by the Executive and the Employers ("Other
Agreement"), and notwithstanding any formal or informal plan or other
arrangement heretofore or hereafter adopted by the Company for the direct or
indirect provision of compensation to the Executive (including groups of
participants or beneficiaries of which the Executive is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit
to or for the Executive (a "Benefit Plan"), the Executive shall not have any
right to receive any payment or other benefit under this Agreement, any Other
Agreement, or any Benefit Plan if such payment or benefit, taking into account
all other payments or benefits to or for the Executive under this Agreement,
all Other Agreements, and all Benefit Plans, would cause any payment to the
Executive under this Agreement to be considered a "parachute payment" within
the meaning of Section 280G of the Code as then in effect (a "Parachute
Payment"). In the event that the receipt of any such payment or benefit under
this Agreement, any Other Agreement, or any Benefit Plan would cause the
Executive to be considered to have received a Parachute Payment under this
Agreement, then the Executive shall have the right, in the Executive's sole
discretion, to designate those payments or benefits under this Agreement, any
Other Agreements and/or any Benefit Plans, which should be reduced or
eliminated so as to avoid having the payment to the Executive under this
Agreement to be deemed to be a Parachute Payment.
Attorney's Fees and Costs. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorney's fees, costs, and necessary disbursements
in addition to any other relief that may be proper; provided, however, that
the Executive shall not be responsible for the Employers' attorney's fees and
costs if the Executive's action is brought in good faith.
Notices. Any notice required or permitted to be given under this Agreement
will, to be effective hereunder, be given to the Employers, in the case of
notices given by the Executive, and will, to be effective hereunder, be given
by the Employers, in the case of notices given to the Executive. Any such
notice will be deemed properly given if in writing and if mailed by registered
or certified mail, postage prepaid with return receipt requested, to the
residence of the Executive, in the case of notices to the Executive, and to
the principal office of the Employers, in the case of notices to the
Employers.
Waiver. No provision of this Agreement may be modified, waived, or discharged
unless such waiver, modification, or discharge is agreed to in writing and
signed by the Executive and an executive officer of the Employers specifically
designated by the Boards of Directors of the Employers. No waiver by any
party hereto at any time of any breach by another party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party will be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
Assignment. This Agreement is not assignable by any party hereto; the
Employers provided, however, that the Employers may assign their rights
hereunder, including, without limitation, the restrictive covenants in
Sections 9 and 10, to any successor in interest to the respective businesses
of the Employers.
Entire Agreement. This Agreement contains the entire agreement of the parties
relating to the subject matter of this Agreement and, in accordance with the
provisions of Section 18, supersedes any prior agreement of the parties.
Successors; Binding Agreement. The Employers will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Employers to
expressly assume and agree to perform this Agreement (or cause it to be
performed) in the same manner and to the same extent that the Employers, or
any affiliated company of either would be required to perform it if no such
succession had taken place. Failure by the Employers to obtain such
assumption and agreement prior to the effectiveness of any such succession
will constitute a material breach of this Agreement. As used in this
Agreement, the "Employers" means the Employers as herein before defined and
any successor to the business and/or assets of the Employers as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or
otherwise.
This Agreement will inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
heirs, distributees, devisees, and legatees. If the Executive should die
while any amount is payable to the Executive under this Agreement if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, will be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee, or, if there is no such
designee, to the Executive's estate.
Continuation of Certain Provisions. Any termination of the Executive's
employment under this Agreement or of this Agreement shall be subject to the
provisions of Section 3 or 4, which will, if relevant, survive any such
termination and remain in full force and effect in accordance with their
respective terms.
Other Rights. Except as provided in Section 18, nothing herein will be
construed as limiting, restricting or eliminating any rights the Executive may
have under any plan, contract or arrangement to which he/she is a party or in
which he/she is a vested participant; provided, however, that any termination
payments required hereunder will be in lieu of any severance benefits to which
she may be entitled under a severance plan or arrangement of the Employers or
any affiliated company of either; and provided further, that if the benefits
under any such plan or arrangement may not legally be eliminated, then the
payments hereunder will be correspondingly reduced in such equitable manner as
the Board of Directors of the Employers may determine.
No Mitigation or Offset. The Executive will not be required to mitigate the
amount of any payment provided for in this Agreement by seeking employment or
otherwise; nor will any amounts or benefits payable or provided hereunder be
reduced in the event he/she does secure employment.
Validity. The invalidity or unenforceability of any provisions of this
Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect.
Applicable Law. Except to the extent preempted by federal law, this Agreement
will be governed by and construed in accordance with the domestic internal law
of the Commonwealth of Pennsylvania.
Number. Words used herein in the singular will be construed as being used in
the plural, as the context requires, and vice versa.
Headings. The headings of the sections and subsections of this Agreement are
for convenience only and will not control or affect the meaning or
construction or limit the scope or intent of any of the provisions of this
Agreement.
References to Entities. All references to the Employers will be deemed to
include a reference to the Employers and/or the Corporation, individually or
collectively, as appropriate in the relevant context.
Effective Date; Termination of Prior Agreement. This Agreement will become
effective immediately upon the execution and delivery of this Agreement by the
parties hereto. Upon the execution and delivery of this Agreement, any prior
agreement relating to the subject matter hereof will be deemed automatically
terminated and be of no further force or effect.
Withholding For Taxes. All amounts and benefits paid or provided hereunder
will be subject to withholding for taxes as required by law.
Individual Agreement. This Agreement is an agreement solely between and among
the parties hereto. It is intended to constitute a nonqualified unfunded
arrangement for the benefit of a key management employee and will be construed
and interpreted in a manner consistent with such intention.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Sterling Financial Corporation
By /s/ J. Robert Hess
Attest: /s/ J. Roger Moyer, Jr.
Bank of Lancaster County, N.A.
By /s/ J. Robert Hess
Attest:/s/ J. Roger Moyer, Jr.
Witness:
/s/ Beverly Wise Hill /s/ John E. Stefan
John E. Stefan ("Executive")
EXHIBIT 10.2
Change in Control Agreement, dated August 4, 1999
between Sterling Financial Corporation and Bank of Lancaster County
and J. Roger Moyer, Jr.
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT ("Agreement") made as of the 4th day of August, 1999,
between Sterling Financial Corporation, a Pennsylvania business corporation
(the "Corporation"), Bank of Lancaster County, N.A., a national banking
association (the "Bank" and, with the Corporation, the "Employers") and J.
Roger Moyer, Jr., an individual (the "Executive").
WITNESSETH:
WHEREAS, the Executive is serving as a EVP Corporate Planning and Finance
of the Employers; and
WHEREAS, the Employers consider the continued services of the Executive
to be in the best interest of the Employers and the shareholders of the
Corporation; and
WHEREAS, the Employers desire to induce the Executive to remain in the
employ of their Employers on an impartial and objective basis in the event of
a transaction pursuant to which a Change in Control (as defined in Section
2(c)) of the Employers occurs.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
Term of Agreement. The term of this Agreement shall commence on the date
hereof and terminate on December 31, 2002 unless the Executive's employment is
sooner terminated as provided herein (as may be extended pursuant to this
Agreement, the "Term"). On each December 31st hereafter, the Term shall
automatically be extended for an additional calendar year unless either party
gives written notice to the other, by no later than the preceding November
30th, that he or she does not concur in such extension. For the purposes of
the preceding sentence, the Employers shall be considered one party.
Termination for Cause. Notwithstanding the provisions of Section 1(a), this
Agreement will terminate automatically upon termination of the Executive's
employment by his/her Employer for Cause. As used in this Agreement, the term
"Cause" means:
prior to a Change in Control, termination for any reason;
and concurrent with or following a Change in Control, termination following
(A) the Executive's conviction or plea of guilty or nolo contendere to a
felony, a crime of falsehood, or a crime involving fraud or moral turpitude,
or the actual incarceration of the Executive for a period of 45 consecutive
days, (B) the Executive's failure to follow the lawful instructions of the
Employers after receipt of written notice of such instructions from an
appropriate corporate official, other than a failure resulting from the
Executive's incapacity because of physical or mental illness, or (C) a
government regulatory agency recommends or orders in writing that the
employment of the Executive be so terminated.
If the Executive's employment is terminated for Cause, his/her rights under
this Agreement will cease as of the effective date of such termination.
Voluntary Termination, Retirement, or Death. Notwithstanding the provisions
of Section 1(a), this Agreement will terminate automatically upon the
voluntary termination of the Executive's employment (other than in accordance
with Section 2), his/her retirement or his/her death. In any such event, the
Executive's rights under this Agreement will cease as of the effective date of
such termination; provided, however, that if the Executive dies after a Notice
of Termination (as defined in Section 2(b)) is delivered by him/her in
accordance with such section, the payments described in Section 3 will
nonetheless be made to the person or persons determined pursuant to Section
9(b).
Disability. Notwithstanding the provisions of Section 1(a), this Agreement
will terminate automatically upon the termination of the Executive's
employment by reason of his/her Disability. In such event, the Executive's
rights under this Agreement will cease as of the effective date of such
termination; provided, however, that if the Executive becomes disabled after a
Notice of Termination is delivered by him/her in accordance with Section 2(b),
he/she will nonetheless be entitled to receive the payments described in
Section 3. As used in this Agreement, the term "Disability" means
incapacitation, by accident, sickness or other wise, such that the Executive
is rendered unable to perform the services required of his/her by him/her then
position with the Employers for a period of six consecutive months.
Termination Following a Change in Control
(a) Termination For Good Reason After a Change in Control.
If a Change in Control occurs and, in anticipation
thereof, concurrently therewith or thereafter during the
Term an event constituting Good Reason also occurs with
respect to the Executive, he/she may terminate
his/her employment in accordance with the provisions
of Section 2(b) and, thereupon, will become entitled
to the payments described in Section 3.
(b) Notice of Termination. Upon the occurrence of a
Change in Control and an event of Good Reason,
the Executive may, within 90 days of the occurrence
of any such event, resign from employment by a
notice in writing ("Notice of Termination") delivered
to the Bank, whereupon he/she will become
entitled to the payments described in Section 3.
In the case of a termination described in
Clause (i) of Section 2(d), the Executive will
confirm his/her involuntary termination, in writing,
within 90 days of the date of such termination,
and such confirmation will be deemed a Notice of
Termination.
(c) Change in Control Defined. As used in this Agreement,
the term "Change in Control" means any of the following:
any "person" (as such term is used in Sections
13(d) and 14(d) (2) of the Securities and
Exchange Act of 1934 (the "Exchange Act")),
other than the Employers, a subsidiary of the
Employers, an employee benefit plan of the
Employers or a subsidiary of the Employers
(including a related trust), becomes the
beneficial owner (as determined pursuant to Rule
13d-3 under the Exchange Act), directly or
indirectly, of securities of the Employers
representing more than 20% of the combined voting
power of the Employers' then outstanding securities;
the occurrence of, or execution of an agreement
providing for, a sale of all or substantially
all of the assets of the Employers to an entity
which is not a direct or indirect subsidiary of
the Employers;
the occurrence of, or execution of an agreement
providing for, a reorganization, merger,
consolidation or similar transaction involving
the Employers, unless (A) the shareholders of
the Corporation immediately prior to the
consummation of any such transaction will
initially own securities representing a majority
of the voting power of the surviving or
resulting corporation, and (B) the directors
of the Employers immediately prior to the
consummation of such transaction will initially
represent a majority of the directors of
the surviving or resulting corporation; or
any other event which is at any time irrevocably
designated as a "Change in Control" for
purposes of this Agreement by resolution adopted
by a majority of the then non-employee
directors of the Employers.
(d) Good Reason Defined. As used in this Agreement, the
term "Good Reason" means any of the following events:
the involuntary termination of the Executive,
other than an involuntary termination permitted in
Sections 1(b) and (d);
a reduction in the Executive's title,
responsibility (including reporting responsibility)
or authority as in effect immediately prior to
the Change in Control; provided, however, that the
assignment of the Executive to a position with
a reasonably similar title, responsibility and
authority will not constitute an event of Good
Reason if the Executive's actual or targeted
compensation in such new position is not
less than the Executive's actual and targeted
compensation immediately prior to the Change in
Control;
the assignment to the Executive of duties
inconsistent with his/her position immediately
prior to the Change in Control, except for an
assignment of duties consistent with a position
permitted in Clause (ii);
a reduction in the Executive's annual
base salary in effect immediately prior
to the Change in Control;
reassignment of the Executive to a principal
office which is more than 30 miles from
the Executive's principal office in
Lancaster, Pennsylvania;
the failure to provide the Executive with
welfare, pension, incentive compensation,
fringe and other benefits to which
he/she was entitled immediately prior to the
Change in Control, unless such failure occurs
by reason of a reduction or change in
such benefits for employees generally or
similarly situated executive employees of the
corporation which is the acquiring, resulting
or successor corporation in the Change in
Control (or an affiliate thereof); or
any material breach of this Agreement by
the Employers which is not cured within 30
days after receipt of written notice of such
breach from the Executive.
Rights in the Event of Certain Terminations Following Change in Control. In
the event the Executive validly and timely delivers a Notice of Termination to
the Bank, he/she will be entitled to receive the following payments and
benefits:
Basic Payments. The Executive will be paid an amount equal to two and
ninety-nine hundredths (2.99) times the Base Amount [depending upon the
Employee's
level]. "Base Amount" shall mean an amount equal to the average annual
compensation payable by the Employers to the Executive and includable by the
Executive
in gross income for the most recent five (5) taxable years, or such shorter
period as the Executive shall have been employed by the Employers, ending
before the date on which the Change of Control occurred. The Executive at his
election, will be paid the Basic Payments in either (i) 24 [or 30] equal
monthly installments, or (ii) a lump sum equal to the present value of the
amounts payable under this subsection; commencing within 30 days after his
termination of employment. For purposes of the preceding sentence, present
value will be determined by using the short-term applicable federal rate under
Section 1274 of the Internal Revenue Code of 1986, as amended (the "Code"), in
effect on the date of termination of employment. For purposes of this
subsection, to the extent necessary, base salary and bonuses with any
predecessor of the Employers or an affiliate thereof shall be taken into
account.
Supplemental Payment in Lieu of Certain Benefits. In lieu of continued
pension, welfare and other benefits, a one-time lump sum cash payment equaling
25% of the Base Amount calculated above will be paid to the Executive within
30 days following the date of termination
Stock Options. Upon a Change in Control, all stock options theretofore
granted to the Executive by the Corporation and not previously exercisable
shall become fully exercisable to the same extent and in the same manner as if
they had become exercisable by passage of time or by virtue of the Employers
achieving certain performance objectives in accordance with the relevant
provisions of any plan and any agreement.
Section 280G. Notwithstanding any other provisions of this Agreement or any
other agreement entered into by the Executive and the Employers ("Other
Agreement"), and notwithstanding any formal or informal plan or other
arrangement heretofore or hereafter adopted by the Company for the direct or
indirect provision of compensation to the Executive (including groups of
participants or beneficiaries of which the Executive is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit
to or for the Executive (a "Benefit Plan"), the Executive shall not have any
right to receive any payment or other benefit under this Agreement, any Other
Agreement, or any Benefit Plan if such payment or benefit, taking into account
all other payments or benefits to or for the Executive under this Agreement,
all Other Agreements, and all Benefit Plans, would cause any payment to the
Executive under this Agreement to be considered a "parachute payment" within
the meaning of Section 280G of the Code as then in effect (a "Parachute
Payment"). In the event that the receipt of any such payment or benefit under
this Agreement, any Other Agreement, or any Benefit Plan would cause the
Executive to be considered to have received a Parachute Payment under this
Agreement, then the Executive shall have the right, in the Executive's sole
discretion, to designate those payments or benefits under this Agreement, any
Other Agreements and/or any Benefit Plans, which should be reduced or
eliminated so as to avoid having the payment to the Executive under this
Agreement to be deemed to be a Parachute Payment.
Attorney's Fees and Costs. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorney's fees, costs, and necessary disbursements
in addition to any other relief that may be proper; provided, however, that
the Executive shall not be responsible for the Employers' attorney's fees and
costs if the Executive's action is brought in good faith.
Notices. Any notice required or permitted to be given under this Agreement
will, to be effective hereunder, be given to the Employers, in the case of
notices given by the Executive, and will, to be effective hereunder, be given
by the Employers, in the case of notices given to the Executive. Any such
notice will be deemed properly given if in writing and if mailed by registered
or certified mail, postage prepaid with return receipt requested, to the
residence of the Executive, in the case of notices to the Executive, and to
the principal office of the Employers, in the case of notices to the
Employers.
Waiver. No provision of this Agreement may be modified, waived, or discharged
unless such waiver, modification, or discharge is agreed to in writing and
signed by the Executive and an executive officer of the Employers specifically
designated by the Boards of Directors of the Employers. No waiver by any
party hereto at any time of any breach by another party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party will be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
Assignment. This Agreement is not assignable by any party hereto; the
Employers provided, however, that the Employers may assign their rights
hereunder, including, without limitation, the restrictive covenants in
Sections 9 and 10, to any successor in interest to the respective businesses
of the Employers.
Entire Agreement. This Agreement contains the entire agreement of the parties
relating to the subject matter of this Agreement and, in accordance with the
provisions of Section 18, supersedes any prior agreement of the parties.
Successors; Binding Agreement. The Employers will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Employers to
expressly assume and agree to perform this Agreement (or cause it to be
performed) in the same manner and to the same extent that the Employers, or
any affiliated company of either would be required to perform it if no such
succession had taken place. Failure by the Employers to obtain such
assumption and agreement prior to the effectiveness of any such succession
will constitute a material breach of this Agreement. As used in this
Agreement, the "Employers" means the Employers as herein before defined and
any successor to the business and/or assets of the Employers as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or
otherwise.
This Agreement will inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
heirs, distributees, devisees, and legatees. If the Executive should die
while any amount is payable to the Executive under this Agreement if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, will be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee, or, if there is no such
designee, to the Executive's estate.
Continuation of Certain Provisions. Any termination of the Executive's
employment under this Agreement or of this Agreement shall be subject to the
provisions of Section 3 or 4, which will, if relevant, survive any such
termination and remain in full force and effect in accordance with their
respective terms.
Other Rights. Except as provided in Section 18, nothing herein will be
construed as limiting, restricting or eliminating any rights the Executive may
have under any plan, contract or arrangement to which he/she is a party or in
which he/she is a vested participant; provided, however, that any termination
payments required hereunder will be in lieu of any severance benefits to which
she may be entitled under a severance plan or arrangement of the Employers or
any affiliated company of either; and provided further, that if the benefits
under any such plan or arrangement may not legally be eliminated, then the
payments hereunder will be correspondingly reduced in such equitable manner as
the Board of Directors of the Employers may determine.
No Mitigation or Offset. The Executive will not be required to mitigate the
amount of any payment provided for in this Agreement by seeking employment or
otherwise; nor will any amounts or benefits payable or provided hereunder be
reduced in the event he/she does secure employment.
Validity. The invalidity or unenforceability of any provisions of this
Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect.
Applicable Law. Except to the extent preempted by federal law, this Agreement
will be governed by and construed in accordance with the domestic internal law
of the Commonwealth of Pennsylvania.
Number. Words used herein in the singular will be construed as being used in
the plural, as the context requires, and vice versa.
Headings. The headings of the sections and subsections of this Agreement are
for convenience only and will not control or affect the meaning or
construction or limit the scope or intent of any of the provisions of this
Agreement.
References to Entities. All references to the Employers will be deemed to
include a reference to the Employers and/or the Corporation, individually or
collectively, as appropriate in the relevant context.
Effective Date; Termination of Prior Agreement. This Agreement will become
effective immediately upon the execution and delivery of this Agreement by the
parties hereto. Upon the execution and delivery of this Agreement, any prior
agreement relating to the subject matter hereof will be deemed automatically
terminated and be of no further force or effect.
Withholding For Taxes. All amounts and benefits paid or provided hereunder
will be subject to withholding for taxes as required by law.
Individual Agreement. This Agreement is an agreement solely between and among
the parties hereto. It is intended to constitute a nonqualified unfunded
arrangement for the benefit of a key management employee and will be construed
and interpreted in a manner consistent with such intention.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Sterling Financial Corporation
By: /s/ John E. Stefan
Attest: /s/ Anne C. Lohr
Bank of Lancaster County, N.A.
By: /s/ John E. Stefan
Attest: /s/ Anne C. Lohr
Witness:
/s/ Grace E. Moyer /s/ J. Roger Moyer, Jr.
J. Roger Moyer, Jr.
("Executive")
EXHIBIT 10.3
Change in Control Agreement, dated July 30, 1999
between Sterling Financial Corporation and Bank of Lancaster County
and Jere L. Obetz
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT ("Agreement") made as of the 30th day of July, 1999, between
Sterling Financial Corporation, a Pennsylvania business corporation (the
"Corporation"), Bank of Lancaster County, N.A., a national banking association
(the "Bank" and, with the Corporation, the "Employers") and Jere L. Obetz, an
individual (the "Executive").
WITNESSETH:
WHEREAS, the Executive is serving as a EVP Chief Financial Officer of the
Employers; and
WHEREAS, the Employers consider the continued services of the Executive
to be in the best interest of the Employers and the shareholders of the
Corporation; and
WHEREAS, the Employers desire to induce the Executive to remain in the
employ of their Employers on an impartial and objective basis in the event of
a transaction pursuant to which a Change in Control (as defined in Section
2(c)) of the Employers occurs.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
Term of Agreement. The term of this Agreement shall commence on the date
hereof and terminate on December 31, 2002 unless the Executive's employment is
sooner terminated as provided herein (as may be extended pursuant to this
Agreement, the "Term"). On each December 31st hereafter, the Term shall
automatically be extended for an additional calendar year unless either party
gives written notice to the other, by no later than the preceding November
30th, that he or she does not concur in such extension. For the purposes of
the preceding sentence, the Employers shall be considered one party.
Termination for Cause. Notwithstanding the provisions of Section 1(a), this
Agreement will terminate automatically upon termination of the Executive's
employment by his/her Employer for Cause. As used in this Agreement, the term
"Cause" means:
prior to a Change in Control, termination for any reason;
and concurrent with or following a Change in Control, termination following
(A) the Executive's conviction or plea of guilty or nolo contendere to a
felony, a crime of falsehood, or a crime involving fraud or moral turpitude,
or the actual incarceration of the Executive for a period of 45 consecutive
days, (B) the Executive's failure to follow the lawful instructions of the
Employers after receipt of written notice of such instructions from an
appropriate corporate official, other than a failure resulting from the
Executive's incapacity because of physical or mental illness, or (C) a
government regulatory agency recommends or orders in writing that the
employment of the Executive be so terminated.
If the Executive's employment is terminated for Cause, his/her rights under
this Agreement will cease as of the effective date of such termination.
Voluntary Termination, Retirement, or Death. Notwithstanding the provisions
of Section 1(a), this Agreement will terminate automatically upon the
voluntary termination of the Executive's employment (other than in accordance
with Section 2), his/her retirement or his/her death. In any such event, the
Executive's rights under this Agreement will cease as of the effective date of
such termination; provided, however, that if the Executive dies after a Notice
of Termination (as defined in Section 2(b)) is delivered by him/her in
accordance with such section, the payments described in Section 3 will
nonetheless be made to the person or persons determined pursuant to Section
9(b).
Disability. Notwithstanding the provisions of Section 1(a), this Agreement
will terminate automatically upon the termination of the Executive's
employment by reason of his/her Disability. In such event, the Executive's
rights under this Agreement will cease as of the effective date of such
termination; provided, however, that if the Executive becomes disabled after a
Notice of Termination is delivered by him/her in accordance with Section 2(b),
he/she will nonetheless be entitled to receive the payments described in
Section 3. As used in this Agreement, the term "Disability" means
incapacitation, by accident, sickness or other wise, such that the Executive
is rendered unable to perform the services required of his/her by him/her then
position with the Employers for a period of six consecutive months.
Termination Following a Change in Control
(a) Termination For Good Reason After a Change in Control.
If a Change in Control occurs and, in anticipation
thereof, concurrently therewith or thereafter during the
Term an event constituting Good Reason also occurs with
respect to the Executive, he/she may terminate
his/her employment in accordance with the provisions
of Section 2(b) and, thereupon, will become entitled
to the payments described in Section 3.
(b) Notice of Termination. Upon the occurrence of a
Change in Control and an event of Good Reason,
the Executive may, within 90 days of the occurrence
of any such event, resign from employment by a
notice in writing ("Notice of Termination") delivered
to the Bank, whereupon he/she will become
entitled to the payments described in Section 3.
In the case of a termination described in
Clause (i) of Section 2(d), the Executive will
confirm his/her involuntary termination, in writing,
within 90 days of the date of such termination,
and such confirmation will be deemed a Notice of
Termination.
(c) Change in Control Defined. As used in this Agreement,
the term "Change in Control" means any of the following:
any "person" (as such term is used in Sections
13(d) and 14(d) (2) of the Securities and
Exchange Act of 1934 (the "Exchange Act")),
other than the Employers, a subsidiary of the
Employers, an employee benefit plan of the
Employers or a subsidiary of the Employers
(including a related trust), becomes the
beneficial owner (as determined pursuant to Rule
13d-3 under the Exchange Act), directly or
indirectly, of securities of the Employers
representing more than 20% of the combined voting
power of the Employers' then outstanding securities;
the occurrence of, or execution of an agreement
providing for, a sale of all or substantially
all of the assets of the Employers to an entity
which is not a direct or indirect subsidiary of
the Employers;
the occurrence of, or execution of an agreement
providing for, a reorganization, merger,
consolidation or similar transaction involving
the Employers, unless (A) the shareholders of
the Corporation immediately prior to the
consummation of any such transaction will
initially own securities representing a majority
of the voting power of the surviving or
resulting corporation, and (B) the directors
of the Employers immediately prior to the
consummation of such transaction will initially
represent a majority of the directors of
the surviving or resulting corporation; or
any other event which is at any time irrevocably
designated as a "Change in Control" for
purposes of this Agreement by resolution adopted
by a majority of the then non-employee
directors of the Employers.
(d) Good Reason Defined. As used in this Agreement, the
term "Good Reason" means any of the following events:
the involuntary termination of the Executive,
other than an involuntary termination permitted in
Sections 1(b) and (d);
a reduction in the Executive's title,
responsibility (including reporting responsibility)
or authority as in effect immediately prior to
the Change in Control; provided, however, that the
assignment of the Executive to a position with
a reasonably similar title, responsibility and
authority will not constitute an event of Good
Reason if the Executive's actual or targeted
compensation in such new position is not
less than the Executive's actual and targeted
compensation immediately prior to the Change in
Control;
the assignment to the Executive of duties
inconsistent with his/her position immediately
prior to the Change in Control, except for an
assignment of duties consistent with a position
permitted in Clause (ii);
a reduction in the Executive's annual
base salary in effect immediately prior
to the Change in Control;
reassignment of the Executive to a principal
office which is more than 30 miles from
the Executive's principal office in
Lancaster, Pennsylvania;
the failure to provide the Executive with
welfare, pension, incentive compensation,
fringe and other benefits to which
he/she was entitled immediately prior to the
Change in Control, unless such failure occurs
by reason of a reduction or change in
such benefits for employees generally or
similarly situated executive employees of the
corporation which is the acquiring, resulting
or successor corporation in the Change in
Control (or an affiliate thereof); or
any material breach of this Agreement by
the Employers which is not cured within 30
days after receipt of written notice of such
breach from the Executive.
Rights in the Event of Certain Terminations Following Change in Control. In
the event the Executive validly and timely delivers a Notice of Termination to
the Bank, he/she will be entitled to receive the following payments and
benefits:
Basic Payments. The Executive will be paid an amount equal to two and ninety-
nine hundredths (2.99) times the Base Amount [depending upon the Employee's
level]. "Base Amount" shall mean an amount equal to the average annual
compensation payable by the Employers to the Executive and includable by the
Executive
in gross income for the most recent five (5) taxable years, or such shorter
period as the Executive shall have been employed by the Employers, ending
before the date on which the Change of Control occurred. The Executive at his
election, will be paid the Basic Payments in either (i) 24 [or 30] equal
monthly installments, or (ii) a lump sum equal to the present value of the
amounts payable under this subsection; commencing within 30 days after his
termination of employment. For purposes of the preceding sentence, present
value will be determined by using the short-term applicable federal rate under
Section 1274 of the Internal Revenue Code of 1986, as amended (the "Code"), in
effect on the date of termination of employment. For purposes of this
subsection, to the extent necessary, base salary and bonuses with any
predecessor of the Employers or an affiliate thereof shall be taken into
account.
Supplemental Payment in Lieu of Certain Benefits. In lieu of continued
pension, welfare and other benefits, a one-time lump sum cash payment equaling
25% of the Base Amount calculated above will be paid to the Executive within
30 days following the date of termination
Stock Options. Upon a Change in Control, all stock options theretofore
granted to the Executive by the Corporation and not previously exercisable
shall become fully exercisable to the same extent and in the same manner as if
they had become exercisable by passage of time or by virtue of the Employers
achieving certain performance objectives in accordance with the relevant
provisions of any plan and any agreement.
Section 280G. Notwithstanding any other provisions of this Agreement or any
other agreement entered into by the Executive and the Employers ("Other
Agreement"), and notwithstanding any formal or informal plan or other
arrangement heretofore or hereafter adopted by the Company for the direct or
indirect provision of compensation to the Executive (including groups of
participants or beneficiaries of which the Executive is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit
to or for the Executive (a "Benefit Plan"), the Executive shall not have any
right to receive any payment or other benefit under this Agreement, any Other
Agreement, or any Benefit Plan if such payment or benefit, taking into account
all other payments or benefits to or for the Executive under this Agreement,
all Other Agreements, and all Benefit Plans, would cause any payment to the
Executive under this Agreement to be considered a "parachute payment" within
the meaning of Section 280G of the Code as then in effect (a "Parachute
Payment"). In the event that the receipt of any such payment or benefit under
this Agreement, any Other Agreement, or any Benefit Plan would cause the
Executive to be considered to have received a Parachute Payment under this
Agreement, then the Executive shall have the right, in the Executive's sole
discretion, to designate those payments or benefits under this Agreement, any
Other Agreements and/or any Benefit Plans, which should be reduced or
eliminated so as to avoid having the payment to the Executive under this
Agreement to be deemed to be a Parachute Payment.
Attorney's Fees and Costs. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorney's fees, costs, and necessary disbursements
in addition to any other relief that may be proper; provided, however, that
the Executive shall not be responsible for the Employers' attorney's fees and
costs if the Executive's action is brought in good faith.
Notices. Any notice required or permitted to be given under this Agreement
will, to be effective hereunder, be given to the Employers, in the case of
notices given by the Executive, and will, to be effective hereunder, be given
by the Employers, in the case of notices given to the Executive. Any such
notice will be deemed properly given if in writing and if mailed by registered
or certified mail, postage prepaid with return receipt requested, to the
residence of the Executive, in the case of notices to the Executive, and to
the principal office of the Employers, in the case of notices to the
Employers.
Waiver. No provision of this Agreement may be modified, waived, or discharged
unless such waiver, modification, or discharge is agreed to in writing and
signed by the Executive and an executive officer of the Employers specifically
designated by the Boards of Directors of the Employers. No waiver by any
party hereto at any time of any breach by another party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party will be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
Assignment. This Agreement is not assignable by any party hereto; the
Employers provided, however, that the Employers may assign their rights
hereunder, including, without limitation, the restrictive covenants in
Sections 9 and 10, to any successor in interest to the respective businesses
of the Employers.
Entire Agreement. This Agreement contains the entire agreement of the parties
relating to the subject matter of this Agreement and, in accordance with the
provisions of Section 18, supersedes any prior agreement of the parties.
Successors; Binding Agreement. The Employers will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Employers to
expressly assume and agree to perform this Agreement (or cause it to be
performed) in the same manner and to the same extent that the Employers, or
any affiliated company of either would be required to perform it if no such
succession had taken place. Failure by the Employers to obtain such
assumption and agreement prior to the effectiveness of any such succession
will constitute a material breach of this Agreement. As used in this
Agreement, the "Employers" means the Employers as herein before defined and
any successor to the business and/or assets of the Employers as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or
otherwise.
This Agreement will inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
heirs, distributees, devisees, and legatees. If the Executive should die
while any amount is payable to the Executive under this Agreement if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, will be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee, or, if there is no such
designee, to the Executive's estate.
Continuation of Certain Provisions. Any termination of the Executive's
employment under this Agreement or of this Agreement shall be subject to the
provisions of Section 3 or 4, which will, if relevant, survive any such
termination and remain in full force and effect in accordance with their
respective terms.
Other Rights. Except as provided in Section 18, nothing herein will be
construed as limiting, restricting or eliminating any rights the Executive may
have under any plan, contract or arrangement to which he/she is a party or in
which he/she is a vested participant; provided, however, that any termination
payments required hereunder will be in lieu of any severance benefits to which
she may be entitled under a severance plan or arrangement of the Employers or
any affiliated company of either; and provided further, that if the benefits
under any such plan or arrangement may not legally be eliminated, then the
payments hereunder will be correspondingly reduced in such equitable manner as
the Board of Directors of the Employers may determine.
No Mitigation or Offset. The Executive will not be required to mitigate the
amount of any payment provided for in this Agreement by seeking employment or
otherwise; nor will any amounts or benefits payable or provided hereunder be
reduced in the event he/she does secure employment.
Validity. The invalidity or unenforceability of any provisions of this
Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect.
Applicable Law. Except to the extent preempted by federal law, this Agreement
will be governed by and construed in accordance with the domestic internal law
of the Commonwealth of Pennsylvania.
Number. Words used herein in the singular will be construed as being used in
the plural, as the context requires, and vice versa.
Headings. The headings of the sections and subsections of this Agreement are
for convenience only and will not control or affect the meaning or
construction or limit the scope or intent of any of the provisions of this
Agreement.
References to Entities. All references to the Employers will be deemed to
include a reference to the Employers and/or the Corporation, individually or
collectively, as appropriate in the relevant context.
Effective Date; Termination of Prior Agreement. This Agreement will become
effective immediately upon the execution and delivery of this Agreement by the
parties hereto. Upon the execution and delivery of this Agreement, any prior
agreement relating to the subject matter hereof will be deemed automatically
terminated and be of no further force or effect.
Withholding For Taxes. All amounts and benefits paid or provided hereunder
will be subject to withholding for taxes as required by law.
Individual Agreement. This Agreement is an agreement solely between and among
the parties hereto. It is intended to constitute a nonqualified unfunded
arrangement for the benefit of a key management employee and will be construed
and interpreted in a manner consistent with such intention.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Sterling Financial Corporation
By: /s/ John E. Stefan
Attest: /s/ Anne C. Lohr
Bank of Lancaster County, N.A.
By: /s/ John E. Stefan
Attest: /s/ Anne C. Lohr
Witness:
J. Roger Moyer, Jr. /s/ Jere l. Obetz
Jere L. Obetz ("Executive")
EXHIBIT 10.4
Change in Control Agreement, dated July 7, 1999
between Sterling Financial Corporation and Bank of Lancaster County
and Thomas P. Dautrich
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT ("Agreement") made as of the 7th day of July, 1999,
between Sterling Financial Corporation, a Pennsylvania business corporation
(the "Corporation"), Bank of Lancaster County, N.A., a national banking
association (the "Bank" and, with the Corporation, the "Employers") and Thomas
P. Dautrich, an individual (the "Executive").
WITNESSETH:
WHEREAS, the Executive is serving as a EVP Banking Services Officer of
the Employers; and
WHEREAS, the Employers consider the continued services of the Executive
to be in the best interest of the Employers and the shareholders of the
Corporation; and
WHEREAS, the Employers desire to induce the Executive to remain in the
employ of their Employers on an impartial and objective basis in the event of
a transaction pursuant to which a Change in Control (as defined in Section
2(c)) of the Employers occurs.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
Term of Agreement. The term of this Agreement shall commence on the date
hereof and terminate on December 31, 2002 unless the Executive's employment is
sooner terminated as provided herein (as may be extended pursuant to this
Agreement, the "Term"). On each December 31st hereafter, the Term shall
automatically be extended for an additional calendar year unless either party
gives written notice to the other, by no later than the preceding November
30th, that he or she does not concur in such extension. For the purposes of
the preceding sentence, the Employers shall be considered one party.
Termination for Cause. Notwithstanding the provisions of Section 1(a), this
Agreement will terminate automatically upon termination of the Executive's
employment by his/her Employer for Cause. As used in this Agreement, the term
"Cause" means:
prior to a Change in Control, termination for any reason;
and concurrent with or following a Change in Control, termination following
(A) the Executive's conviction or plea of guilty or nolo contendere to a
felony, a crime of falsehood, or a crime involving fraud or moral turpitude,
or the actual incarceration of the Executive for a period of 45 consecutive
days, (B) the Executive's failure to follow the lawful instructions of the
Employers after receipt of written notice of such instructions from an
appropriate corporate official, other than a failure resulting from the
Executive's incapacity because of physical or mental illness, or (C) a
government regulatory agency recommends or orders in writing that the
employment of the Executive be so terminated.
If the Executive's employment is terminated for Cause, his/her rights under
this Agreement will cease as of the effective date of such termination.
Voluntary Termination, Retirement, or Death. Notwithstanding the provisions
of Section 1(a), this Agreement will terminate automatically upon the
voluntary termination of the Executive's employment (other than in accordance
with Section 2), his/her retirement or his/her death. In any such event, the
Executive's rights under this Agreement will cease as of the effective date of
such termination; provided, however, that if the Executive dies after a Notice
of Termination (as defined in Section 2(b)) is delivered by him/her in
accordance with such section, the payments described in Section 3 will
nonetheless be made to the person or persons determined pursuant to Section
9(b).
Disability. Notwithstanding the provisions of Section 1(a), this Agreement
will terminate automatically upon the termination of the Executive's
employment by reason of his/her Disability. In such event, the Executive's
rights under this Agreement will cease as of the effective date of such
termination; provided, however, that if the Executive becomes disabled after a
Notice of Termination is delivered by him/her in accordance with Section 2(b),
he/she will nonetheless be entitled to receive the payments described in
Section 3. As used in this Agreement, the term "Disability" means
incapacitation, by accident, sickness or other wise, such that the Executive
is rendered unable to perform the services required of his/her by him/her then
position with the Employers for a period of six consecutive months.
Termination Following a Change in Control
(a) Termination For Good Reason After a Change in Control.
If a Change in Control occurs and, in anticipation
thereof, concurrently therewith or thereafter during the
Term an event constituting Good Reason also occurs with
respect to the Executive, he/she may terminate
his/her employment in accordance with the provisions
of Section 2(b) and, thereupon, will become entitled
to the payments described in Section 3.
(b) Notice of Termination. Upon the occurrence of a
Change in Control and an event of Good Reason,
the Executive may, within 90 days of the occurrence
of any such event, resign from employment by a
notice in writing ("Notice of Termination") delivered
to the Bank, whereupon he/she will become
entitled to the payments described in Section 3.
In the case of a termination described in
Clause (i) of Section 2(d), the Executive will
confirm his/her involuntary termination, in writing,
within 90 days of the date of such termination,
and such confirmation will be deemed a Notice of
Termination.
(c) Change in Control Defined. As used in this Agreement,
the term "Change in Control" means any of the following:
any "person" (as such term is used in Sections
13(d) and 14(d) (2) of the Securities and
Exchange Act of 1934 (the "Exchange Act")),
other than the Employers, a subsidiary of the
Employers, an employee benefit plan of the
Employers or a subsidiary of the Employers
(including a related trust), becomes the
beneficial owner (as determined pursuant to Rule
13d-3 under the Exchange Act), directly or
indirectly, of securities of the Employers
representing more than 20% of the combined voting
power of the Employers' then outstanding securities;
the occurrence of, or execution of an agreement
providing for, a sale of all or substantially
all of the assets of the Employers to an entity
which is not a direct or indirect subsidiary of
the Employers;
the occurrence of, or execution of an agreement
providing for, a reorganization, merger,
consolidation or similar transaction involving
the Employers, unless (A) the shareholders of
the Corporation immediately prior to the
consummation of any such transaction will
initially own securities representing a majority
of the voting power of the surviving or
resulting corporation, and (B) the directors
of the Employers immediately prior to the
consummation of such transaction will initially
represent a majority of the directors of
the surviving or resulting corporation; or
any other event which is at any time irrevocably
designated as a "Change in Control" for
purposes of this Agreement by resolution adopted
by a majority of the then non-employee
directors of the Employers.
(d) Good Reason Defined. As used in this Agreement, the
term "Good Reason" means any of the following events:
the involuntary termination of the Executive,
other than an involuntary termination permitted in
Sections 1(b) and (d);
a reduction in the Executive's title,
responsibility (including reporting responsibility)
or authority as in effect immediately prior to
the Change in Control; provided, however, that the
assignment of the Executive to a position with
a reasonably similar title, responsibility and
authority will not constitute an event of Good
Reason if the Executive's actual or targeted
compensation in such new position is not
less than the Executive's actual and targeted
compensation immediately prior to the Change in
Control;
the assignment to the Executive of duties
inconsistent with his/her position immediately
prior to the Change in Control, except for an
assignment of duties consistent with a position
permitted in Clause (ii);
a reduction in the Executive's annual
base salary in effect immediately prior
to the Change in Control;
reassignment of the Executive to a principal
office which is more than 30 miles from
the Executive's principal office in
Lancaster, Pennsylvania;
the failure to provide the Executive with
welfare, pension, incentive compensation,
fringe and other benefits to which
he/she was entitled immediately prior to the
Change in Control, unless such failure occurs
by reason of a reduction or change in
such benefits for employees generally or
similarly situated executive employees of the
corporation which is the acquiring, resulting
or successor corporation in the Change in
Control (or an affiliate thereof); or
any material breach of this Agreement by
the Employers which is not cured within 30
days after receipt of written notice of such
breach from the Executive.
Rights in the Event of Certain Terminations Following Change in Control. In
the event the Executive validly and timely delivers a Notice of Termination to
the Bank, he/she will be entitled to receive the following payments and
benefits:
Basic Payments. The Executive will be paid an amount equal to two and ninety-
nine hundredths (2.99) times the Base Amount [depending upon the Employee's
level]. "Base Amount" shall mean an amount equal to the average annual
compensation payable by the Employers to the Executive and includable by the
Executive
in gross income for the most recent five (5) taxable years, or such shorter
period as the Executive shall have been employed by the Employers, ending
before the date on which the Change of Control occurred. The Executive at his
election, will be paid the Basic Payments in either (i) 24 [or 30] equal
monthly installments, or (ii) a lump sum equal to the present value of the
amounts payable under this subsection; commencing within 30 days after his
termination of employment. For purposes of the preceding sentence, present
value will be determined by using the short-term applicable federal rate under
Section 1274 of the Internal Revenue Code of 1986, as amended (the "Code"), in
effect on the date of termination of employment. For purposes of this
subsection, to the extent necessary, base salary and bonuses with any
predecessor of the Employers or an affiliate thereof shall be taken into
account.
Supplemental Payment in Lieu of Certain Benefits. In lieu of continued
pension, welfare and other benefits, a one-time lump sum cash payment equaling
25% of the Base Amount calculated above will be paid to the Executive within
30 days following the date of termination
Stock Options. Upon a Change in Control, all stock options theretofore
granted to the Executive by the Corporation and not previously exercisable
shall become fully exercisable to the same extent and in the same manner as if
they had become exercisable by passage of time or by virtue of the Employers
achieving certain performance objectives in accordance with the relevant
provisions of any plan and any agreement.
Section 280G. Notwithstanding any other provisions of this Agreement or any
other agreement entered into by the Executive and the Employers ("Other
Agreement"), and notwithstanding any formal or informal plan or other
arrangement heretofore or hereafter adopted by the Company for the direct or
indirect provision of compensation to the Executive (including groups of
participants or beneficiaries of which the Executive is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit
to or for the Executive (a "Benefit Plan"), the Executive shall not have any
right to receive any payment or other benefit under this Agreement, any Other
Agreement, or any Benefit Plan if such payment or benefit, taking into account
all other payments or benefits to or for the Executive under this Agreement,
all Other Agreements, and all Benefit Plans, would cause any payment to the
Executive under this Agreement to be considered a "parachute payment" within
the meaning of Section 280G of the Code as then in effect (a "Parachute
Payment"). In the event that the receipt of any such payment or benefit under
this Agreement, any Other Agreement, or any Benefit Plan would cause the
Executive to be considered to have received a Parachute Payment under this
Agreement, then the Executive shall have the right, in the Executive's sole
discretion, to designate those payments or benefits under this Agreement, any
Other Agreements and/or any Benefit Plans, which should be reduced or
eliminated so as to avoid having the payment to the Executive under this
Agreement to be deemed to be a Parachute Payment.
Attorney's Fees and Costs. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorney's fees, costs, and necessary disbursements
in addition to any other relief that may be proper; provided, however, that
the Executive shall not be responsible for the Employers' attorney's fees and
costs if the Executive's action is brought in good faith.
Notices. Any notice required or permitted to be given under this Agreement
will, to be effective hereunder, be given to the Employers, in the case of
notices given by the Executive, and will, to be effective hereunder, be given
by the Employers, in the case of notices given to the Executive. Any such
notice will be deemed properly given if in writing and if mailed by registered
or certified mail, postage prepaid with return receipt requested, to the
residence of the Executive, in the case of notices to the Executive, and to
the principal office of the Employers, in the case of notices to the
Employers.
Waiver. No provision of this Agreement may be modified, waived, or discharged
unless such waiver, modification, or discharge is agreed to in writing and
signed by the Executive and an executive officer of the Employers specifically
designated by the Boards of Directors of the Employers. No waiver by any
party hereto at any time of any breach by another party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party will be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
Assignment. This Agreement is not assignable by any party hereto; the
Employers provided, however, that the Employers may assign their rights
hereunder, including, without limitation, the restrictive covenants in
Sections 9 and 10, to any successor in interest to the respective businesses
of the Employers.
Entire Agreement. This Agreement contains the entire agreement of the parties
relating to the subject matter of this Agreement and, in accordance with the
provisions of Section 18, supersedes any prior agreement of the parties.
Successors; Binding Agreement. The Employers will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Employers to
expressly assume and agree to perform this Agreement (or cause it to be
performed) in the same manner and to the same extent that the Employers, or
any affiliated company of either would be required to perform it if no such
succession had taken place. Failure by the Employers to obtain such
assumption and agreement prior to the effectiveness of any such succession
will constitute a material breach of this Agreement. As used in this
Agreement, the "Employers" means the Employers as herein before defined and
any successor to the business and/or assets of the Employers as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or
otherwise.
This Agreement will inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
heirs, distributees, devisees, and legatees. If the Executive should die
while any amount is payable to the Executive under this Agreement if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, will be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee, or, if there is no such
designee, to the Executive's estate.
Continuation of Certain Provisions. Any termination of the Executive's
employment under this Agreement or of this Agreement shall be subject to the
provisions of Section 3 or 4, which will, if relevant, survive any such
termination and remain in full force and effect in accordance with their
respective terms.
Other Rights. Except as provided in Section 18, nothing herein will be
construed as limiting, restricting or eliminating any rights the Executive may
have under any plan, contract or arrangement to which he/she is a party or in
which he/she is a vested participant; provided, however, that any termination
payments required hereunder will be in lieu of any severance benefits to which
she may be entitled under a severance plan or arrangement of the Employers or
any affiliated company of either; and provided further, that if the benefits
under any such plan or arrangement may not legally be eliminated, then the
payments hereunder will be correspondingly reduced in such equitable manner as
the Board of Directors of the Employers may determine.
No Mitigation or Offset. The Executive will not be required to mitigate the
amount of any payment provided for in this Agreement by seeking employment or
otherwise; nor will any amounts or benefits payable or provided hereunder be
reduced in the event he/she does secure employment.
Validity. The invalidity or unenforceability of any provisions of this
Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect.
Applicable Law. Except to the extent preempted by federal law, this Agreement
will be governed by and construed in accordance with the domestic internal law
of the Commonwealth of Pennsylvania.
Number. Words used herein in the singular will be construed as being used in
the plural, as the context requires, and vice versa.
Headings. The headings of the sections and subsections of this Agreement are
for convenience only and will not control or affect the meaning or
construction or limit the scope or intent of any of the provisions of this
Agreement.
References to Entities. All references to the Employers will be deemed to
include a reference to the Employers and/or the Corporation, individually or
collectively, as appropriate in the relevant context.
Effective Date; Termination of Prior Agreement. This Agreement will become
effective immediately upon the execution and delivery of this Agreement by the
parties hereto. Upon the execution and delivery of this Agreement, any prior
agreement relating to the subject matter hereof will be deemed automatically
terminated and be of no further force or effect.
Withholding For Taxes. All amounts and benefits paid or provided hereunder
will be subject to withholding for taxes as required by law.
Individual Agreement. This Agreement is an agreement solely between and among
the parties hereto. It is intended to constitute a nonqualified unfunded
arrangement for the benefit of a key management employee and will be construed
and interpreted in a manner consistent with such intention.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Sterling Financial Corporation
By: /s/ John E. Stefan
Attest: /s/ Anne C. Lohr
Bank of Lancaster County, N.A.
By: /s/ John E. Stefan
Attest: /s/ Anne C. Lohr
Witness:
/s/ Beverly Wise Hill /s/ Thomas P. Dautrich
Thomas P. Dautrich
("Executive")
EXHIBIT 10.5
Employment Agreement, dated July 27, 1999
between Sterling Financial Corporation and Bank of Lancaster County
and John E. Stefan
EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement") made as of the 27th day of July, 1999,
between Sterling Financial Corporation, a Pennsylvania business corporation (
the "Corporation"), Bank of Lancaster County, N.A., a national banking
association (the "Bank and, with the Corporation, the "Employers"), and John
E. Stefan, an individual (the "Executive").
WITNESSETH:
WHEREAS, the Employers and the Executive entered into an agreement dated as of
April 30, 1983 (the "1983 Agreement"), regarding, among other things, the
employment of the Executive by the Bank; and
WHEREAS, the Employers and the Executive desire to enter into a new Agreement
regarding, among other things, the employment of the Executive by the
Employers and, concurrently therewith, to terminate the 1983 Agreement, all as
hereinafter set forth.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
Employment. The Employers hereby employ the Executive, and the Executive
hereby accepts employment with the Employers, on the terms and conditions set
forth in this Agreement.
Duties of Employee. The Executive will perform and discharge well and
faithfully such duties as an executive officer of the Employers as may be
assigned to him from time to time by the respective Boards of Directors of
the Employers. The Executive will be employed as Chairman, Chief Executive
Officer and President of the Employers, and will hold such other titles as may
be given to him from time to time by the respective Boards of Directors of the
Employers. The Executive will devote his full time, attention and energies to
the business of the Employers and will not, during the Employment Period (as
defined in Section 4 herein), be employed or involved in any other business
activity, whether or not such activity is pursued for gain, profit or other
pecuniary advantage; provided, however, that this section will not be
construed as preventing the Executive from (a) passively investing his
personal assets, (b) acting as a member of the Boards of Directors of the
Employers or any other corporation not in competition with either, or as a
member of the Board of Trustees of any other organization, (c) being involved
in any community, civic or similar activity, or (d) such other de minimus
activity provided it does not interfere or conflict with the Executive's
duties.
Employment Period Compensation and Related Matters.
Salary. For services performed by the Executive under this Agreement, the
Employers will pay the Executive a salary, during the Employment Period, at
the annualized rate of ____________( the "Base Salary"), payable at the same
times as salaries are payable to other executive employees of the Employers.
The Employers may, from time to time, increase (but not decrease) the
Executive's Base Salary, and any and all such increases will be deemed to
constitute amendments to this subsection to establish a new Base Salary,
effective as of the dates established for such increases by the Boards of
Directors of the Employers in the resolutions authorizing such increases.
Bonus. For services performed by the Executive under this Agreement, the Bank
may pay the Executive a bonus, annually during the Employment Period, in such
amounts (if any) and at such times as is provided in such incentive plan for
executive officers as may be approved by the Boards of Directors of the
Employers and in effect from time to time. In addition, the Employers; from
time to time, may pay such other bonus or bonuses to the Executive as, in
their sole discretion, deem appropriate. The payment of any such bonuses will
not reduce or otherwise affect any other obligation of the Bank to the
Executive provided for in this Agreement.
Pension and Welfare Benefits. The Employers will provide the Executive,
during the Employment Period, with pension and welfare benefits (within the
meaning of Section 3 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) in the aggregate not less favorable than those received
by other employees of the Employers.
Fringe Benefits.
In General. Except as otherwise provided in this subsection, the Employers
will provide the Executive, during the Employment Period, with such fringe
benefits as may be provided generally from time to time for their executive
officers.
Paid Time Off. The Executive will be entitled to not less than 33 days of
paid time off per calendar year. The right to carry over unused paid time off
will be subject to the executive personnel policies of the Employers from time
to time in effect.
Automobile. The Employers will provide the Executive with the use of a
purchased or leased automobile. The make and model of such automobile will be
reasonably consistent with the Executive's position with the Employers.
Expenses of the use of such automobile will be borne as provided from time to
time in policies approved by the Employers' Boards of Directors.
Stock Options. The Executive may be granted stock options from time to time
by the Board of Directors of the Corporation and/or the Compensation
Committees of such Board and as are consistent with the Executive's
responsibilities and performance subject to the terms of individual option
grants and the terms of any stock option or incentive plan(s) of the
Corporation.
Expense Reimbursement. The Executive will be entitled to reimbursement of all
expenses incurred by him in the discharge of his duties hereunder, or
otherwise in furtherance of the business of the Bank, provided he obtains
prior approval thereof and/or renders an accounting of such expenses in such
manner as may be required from time to time for employees generally.
Term of Employment.
The Executive's employment under this Agreement will be for a period (the
"Employment Period") commencing upon the date of this Agreement and ending at
the end of the term of this Agreement pursuant to this Section 4, unless the
Executive's employment is sooner terminated in accordance with Sections 5 or
6.
Unless the Executive's employment is terminated pursuant to the provisions of
Section 5 or Section 6, the term of this Agreement will be for a period
commencing on the date of this Agreement and ending on December 31, 2001;
provided, however, that this Agreement will be automatically renewed on
January 1, 2000 for the three-year period commencing on such date and ending
on December 31, 2002, unless either party gives written notice of nonrenewal
to the other party on or before November 1, 1999 (in which case this Agreement
will continue in effect through December 31, 2001); and provided further, that
if this Agreement is renewed on January 1, 2000, it will be automatically
renewed on January 1 of each subsequent year (the "Annual Renewal Date") for a
period ending three years from each Annual Renewal Date unless either party
gives written notice of nonrenewal to the other party at least 60 days prior
to an Annual Renewal (in which case this Agreement will continue in effect for
a term ending two years from the Annual Renewal Date immediately following
such notice). For purposes of the preceding sentence the Employers will be
considered one party.
Any termination of the Executive's employment under this Agreement or of this
Agreement shall be subject to the provisions of Section 7, 8, 9, 10 or 13,
which will, if relevant, survive any such termination and remain in full force
and effect in accordance with their respective terms.
Except as provided in Section 26, nothing herein will be construed as
limiting, restricting or eliminating any rights the Executive may have under
any plan, contract or arrangement to which he is a party or in which he is a
vested participant; provided, however, that any termination payments required
hereunder will be in lieu of any severance benefits to which he may be
entitled under a severance plan or arrangement of the Employers; and provided
further, that if the benefits under any such plan or arrangement may not
legally be eliminated, then the payments hereunder will be correspondingly
reduced in such equitable manner as the Boards of Directors of the Employers
may determine.
Termination.
Termination for Cause. The Executive's employment under this Agreement may be
terminated at any time during the Employment Period for "Cause" (as herein
defined), by action of the Boards of Directors of the Employers, upon giving
notice of such termination to the Executive at least 15 days prior to the date
upon which such termination is to take effect. As used in this Agreement,
"Cause" means any of the following events:
the Executive is convicted of or enters a plea of guilty or
nolo contendere to a felony, a crime of falsehood, or a
crime involving fraud or moral turpitude, or the actual
incarceration of the Executive for a period of 45
consecutive days;
the Executive fails to follow the lawful instructions of the
Boards of Directors of the Employers and fails to cure the
same within thirty (30) days after receipt of a written
notice of such failure from the Employers, other than a
failure resulting from the Executive's incapacity because
of physical or mental illness;
a government regulatory agency recommends or orders in
writing that the Employers terminate the employment of the
Executive with the Employers or relieve him of his
duties as such relate to the Employers; or
(iv) any material breach of this Agreement by the Employee which
is not cured within 30 days after receipt of a written
notice of such breach from the Employers.
If the Executive's employment is terminated under the provisions of this
subsection (a), then all rights of the Executive under Section 3 will cease as
of the effective date of such termination.
Termination Without Cause. The Executive's employment under this Agreement
may be terminated at any time during the Employment Period without "Cause" (as
defined in Section 5(a)), by action of the Boards of Directors of the
Employers, upon giving notice of such termination to the Executive at least 30
days prior to the date upon which such termination is to take effect. If the
Executive's employment is terminated under the provisions of this subsection,
then the Executive will be entitled to receive the compensation set forth in
Section 7.
Voluntary Termination, Retirement or Death. If the Executive voluntarily
terminates employment without Good Reason (as defined in Section 6), retires
or dies, the Executive's employment under this Agreement will be deemed
terminated as of the date of the Executive's voluntary termination, retirement
or death, and all rights of the Executive under Section 3 will cease as of the
date of such termination and any benefits payable to the Executive will be
determined in accordance with the retirement and insurance programs of the
Bank then in effect.
Disability. If the Executive is incapacitated by accident, sickness, or
otherwise so as to render the Executive mentally or physically incapable of
performing the services required of the Executive under Section 2 for a
continuous period of six months, then, upon the expiration of such period or
at any time thereafter, by action of the Boards of Directors of the Employers,
the Executive's employment under this Agreement may be terminated immediately
upon giving the Executive notice to that effect. If the Executive's
employment is terminated under the provisions of this subsection, then all
rights of the Executive under Section 3 will cease as of the last business day
of the week in which such termination occurs, and the Executive will
thereafter be entitled to the benefits to which he is entitled under any
disability plan of the Employers in which he is then a participant (including
the minimum benefit described in Section 3(d)(iv)).
Resignation of the Executive for Good Reason.
Termination for Good Reason. The Executive may resign for Good Reason (as
herein defined) at any time during the Employment Period.
(b) Notice of Termination. At the option of the Executive,
exercisable by the Executive within 90 days after the
occurrence of the event constituting Good Reason,
the Executive may resign from employment under this
Agreement by a notice in writing (the "Notice of
Termination") delivered to the Bank and the provisions
of Section 7 will thereupon apply
(c) Special Right of Termination. Notwithstanding anything herein
to the contrary, but subject to the provisions of
Section 3(a), within the one-year period
following the occurrence of a Change in Control
(as defined below), the Executive may terminate his
employment for any or noreason by delivering a
written notice, similar to a Notice of Termination,
to the Bank; and such termination will be deemed
for all purposes to constitute a resignation for
Good Reason. In such event, he will be entitled
to the payments and benefits described in Section 6.
(d) Good Reason Defined. As used in this Agreement, the term "Good
Reason" means any of the following:
any reduction in title or a material adverse
change in the Executive's responsibilities or authority
which are inconsistent with, or the assignment to the
Executive of duties inconsistent with, the
Executive's status as Chairman, Chief Executive Officer
and President of the Employers;
any reassignment of the Executive to a principal office
which is more than 30 miles from the Executive's
principal office in Lancaster, Pennsylvania;
any removal of the Executive from office except for any
termination of the Executive's employment
under the provisions of Section 5(a) or (d);
any reduction in the Executive's annual Base Salary as in
effect on the date hereof or as the same may be
increased from time to time;
any failure by the Employers to provide the Executive
with benefits at least as favorable as
those enjoyed by the Executive under any of the
pension or welfare plans (as such terms are
defined in ERISA Section 3) of the Employers in which
the Executive is participating on the date of this
Agreement, or the taking of any action that would materially
reduce any of such benefits, unless the change is part of a
change applicable in each case to employees generally; and
any material breach of this Agreement by the Employers which
is not cured within 30 days after receipt of a written
notice of such breach from the Executive.
(e) Change in Control Defined. For purposes of this Agreement, the
term "Change in Control" means any of the following:
any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Securities and Exchange Act of 1934 (the
"Exchange Act")), other than the Employers, a
subsidiary of the Employers, an employee
benefit plan of the Employers, or a subsidiary of the
Employer (including a related trust), becomes
the beneficial owner (as determined
pursuant to Rule 13d-3 under the Exchange Act),
directly or indirectly of securities of the Employers
representing more than 20% of the
combined voting power of the Employers' then outstanding
securities;
the occurrence of, or execution of an agreement providing for,
a sale of all or substantially all of the assets of the
Employers to an entity which is not a direct or
indirect subsidiary of the Employers;
the occurrence of, or execution of an agreement providing
for, a reorganization, merger, consolidation or similar
transaction involving the Employers unless
(A) the shareholders of the Corporation immediately
prior to the consummation of any transaction
will initially own securities representing a
majority of the voting power
of the surviving or resulting corporation, and
(B) the directors of the Employers immediately prior
to the consummation of such transaction
will initially represent a majority of the
directors of the surviving or resulting
corporation; or
any other event which is at any time irrevocably
designated as a "Change in Control" for
purposes of this Agreement by resolution
adopted by a majority of the then non-employee
directors of the Employers.
Rights in Event of Certain Termination of Employment. In the event that the
Executive resigns from employment for Good Reason (including termination
following a Change in Control under Section 6(c) herein), by delivery of a
Notice of Termination or other permitted notice to the Employers, or the
Executive's employment is terminated by the Employers without Cause, the
Executive will be entitled to receive the amounts and benefits set forth in
this section.
Basic Payments. The Executive will be paid an amount equal to 2.99 times the
Base Amount. "Base Amount" shall mean an amount equal to the average annual
compensation payable by the Employers to the Executive and includable by the
Executive in gross income for the most recent five (5) taxable years, or such
shorter period as the Executive shall have been employed by the Employers,
ending before (i) the date on which the Change of Control occurred (if a
Change of Control has occurred and the Executive's average annual compensation
has declined since the Change of Control) or (ii) the date of termination of
employment (if a Change of Control has not occurred or the Executive's average
annual compensation has increased since a Change of Control). The Executive at
his election, will be paid the Base Amount in either (A) 36 equal monthly
installments (without interest), beginning 30 days following the date of
termination of employment or (B) a lump sum equal to the present value of the
amounts payable under this subsection 30 days following the date of
termination of employment. For purposes of the preceding sentence, present
value will be determined by using the short-term applicable federal rate under
Section 1274 of the Internal Revenue Code of 1986, as amended (the "Code"), in
effect on the date of termination of employment. For purposes of this
subsection, to the extent necessary, base salary and bonuses with any
predecessor of the Employers or an affiliate thereof shall be taken into
account.
Supplemental Payment in Lieu of Certain Benefits. In lieu of continued
pension, welfare and other benefits, a lump sum cash payment of 25% of the
above Basic Payments will be paid to the Executive within 30 days following
the date of termination of employment.
Stock Options. Upon a Change in Control (as such term is defined in Section
6(d) herein), all options theretofore granted to the Executive by the
Corporation and not previously exercisable shall become fully exercisable to
the same extent and in the same manner as if they had become exercisable by
passage of time or by virtue of the Company achieving certain performance
objectives in accordance with the relevant provisions of any plan and any
agreement.
Section 280G. Notwithstanding any other provisions of this Agreement or any
other agreement entered into by the Executive and the Employers ("Other
Agreement"), and notwithstanding any formal or informal plan or other
arrangement heretofore or hereafter adopted by the Company for the direct or
indirect provision of compensation to the Executive (including groups of
participants or beneficiaries of which the Executive is a member), whether or
not such compensation is deferred, is in cash, or is in the form of a benefit
to or for the Executive (a "Benefit Plan"), the Executive shall not have any
right to receive any payment or other benefit under this Agreement, any Other
Agreement, or any Benefit Plan if such payment or benefit, taking into account
all other payments or benefits to or for the Executive under this Agreement,
all Other Agreements, and all Benefit Plans, would cause any payment to the
Executive under this Agreement to be considered a "parachute payment" within
the meaning of Section 280G of the Code as then in effect (a "Parachute
Payment"). In the event that the receipt of any such payment or benefit under
this Agreement, any Other Agreement, or any Benefit Plan would cause the
Executive to be considered to have received a Parachute Payment under this
Agreement, then the Executive shall have the right, in the Executive's sole
discretion, to designate those payments or benefits under this Agreement, any
Other Agreements and/or any Benefit Plans, which should be reduced or
eliminated so as to avoid having the payment to the Executive under this
Agreement to be deemed to be a Parachute Payment.
Expiration of Agreement. In the event this Agreement expires by its terms in
accordance with the provisions of Section 4(b) and the Executive's employment
thereafter terminates prior to the attainment of age 65 and other than for
Cause, the Employers will pay or cause to be paid to him, in one lump sum
within 30 days following termination, an amount equal to 1.5 times the Base
Amount.
Covenant Not to Compete. The Executive hereby acknowledges and recognizes the
highly competitive nature of the business of the Employers and accordingly
agrees that, during and for the applicable period set forth in Subsection (c),
the Executive will not:
be engaged, directly or indirectly, either for his own account
or as agent, consultant, employee, partner, officer, director,
proprietor, investor (except as an investor owning less than 5%
of the stock of a publicly owned company) or otherwise of,
any person, firm, corporation, or enterprise engaged, in (A) the
banking or financial services industry, or (B) any other activity
in which the Employers or any of their subsidiaries are engaged
during the Employment Period, in any county in which, at any time
during the Employment Period or at the date of termination of the
Executive's employment, a branch, office or other facility of the
Employers or any of their subsidiaries are located, or in any county
contiguous to such a county, including contiguous counties located
outside of the Commonwealth of Pennsylvania (the "Non-Competition
Area"); and
provide financial or other assistance to any person, firm,
corporation, or enterprise engaged in (A) the banking or
financial services industry, or (B) any other activity in
which the Employers or any of their subsidiaries are engaged
during the Employment Period, in the Non-Competition Area.
It is expressly understood and agreed that, although the
Executive and the Employers consider the restrictions contained
in Subsection (a) reasonable for the purpose of preserving the
Employers and their subsidiaries their goodwill and other
proprietary rights, if a final judicial determination is made by a
court having jurisdiction that the time or territory or any other
restriction contained in Subsection (a) is an unreasonable or
otherwise unenforceable restriction against the Executive, the
provisions of Subsection (a) will not be rendered void but will
be deemed amended to apply as to such maximum time and territory
and to such other extent as such court may judicially determine or
indicate to be reasonable.
The provisions of this section will be applicable commencing on the date of
this Agreement and ending as follows:
three years in the case of termination by the Employers
for Cause under Section 5(a) or voluntary termination by
the Executive without Good Reason under Section 5(c)
provided, however, that this clause will not apply in the event
Executive's termination of employment occurs following a
Change in Control;
one year following the termination of Executive's employment,
in the case of termination without Cause by the Employers under
Section 5(b) or termination by the Executive under Section 6(c); or
in all other cases, the date of Executive's termination of employment.
Confidentiality. As used in this section, the term "Confidential Information"
means any and all information regarding the organization, business or finances
of the Employers or any of their subsidiaries and affiliates, including, but
not limited to, any and all business plans and strategies, financial
information, proposals, reports, marketing plans and information, cost
information, customer information, claims history and experience data, sales
volume and other sales statistics, personnel data, pricing information,
concepts and ideas, information respecting existing and proposed investments
and acquisitions, and information regarding customers and suppliers, but the
term "Confidential Information" will not include information which, (i)
becomes generally publicly available other than as a result of disclosure
thereof by the Executive, or (ii) comes into the Executive' possession free of
any restrictions on its use or disclosure and from a source other than the
Employers or any of their subsidiaries or affiliates.
The Executive acknowledges and agrees that his employment by the Bank will
afford him an opportunity to acquire Confidential Information and that the
misappropriation or disclosure of any Confidential Information would cause
irreparable harm to the Bank and its subsidiaries and affiliates.
During the Employment Period and thereafter, the Executive will not use for
the benefit of anyone other than the Employers and their subsidiaries and
affiliates or disclose any of the Confidential Information for any reason or
purpose whatsoever except to authorized representative of such business
entities or as directed or authorized by the Employers.
With respect to those items of Confidential Information which constitute trade
secrets under applicable law, the Executive's obligations of confidentiality
and nondisclosure as set forth in this section will continue and survive after
the Employment Period as provided in Subsection (c) to the greatest extent
permitted by applicable law.
The Executive will not remove any records, documents or any other tangible
items (excluding the Executive's personal property) from the premises of the
Employers or their subsidiaries or affiliates, in either original or duplicate
form, except as needed in the ordinary course of performing services
hereunder.
Upon termination of this Agreement, the Executive will immediately surrender
to the owner thereof all documents in his possession, custody or control
embodying the Confidential Information or any part thereof and will not
thereafter remove the same from the premises on which it is located.
Remedies. Executive acknowledges and agrees that the remedy at law of the
Bank for a breach or threatened breach of any of the provisions of Section 9
or 10 would be inadequate and, in recognition of this fact, in the event of a
breach or threatened breach by the Executive of any of the provisions of
Section 9 or 10, it is agreed that, in addition to the remedy at law, the
Employers will be entitled to, without posting any bond, and the Executive
agrees not to oppose any request of the Employers for, equitable relief in the
form of specific performance, a temporary restraining order, a temporary or
permanent injunction, or any other equitable remedy which may then be
available. Nothing herein contained will be construed as prohibiting the
Employers from pursuing any other remedies available to them for such breach
or threatened breach.
Arbitration. The Employers and Executive recognize that, in the event a
dispute should arise between them concerning the interpretation or
implementation of this Agreement, lengthy and expensive litigation will not
afford a practical resolution of the issues within a reasonable period of
time. Consequently, each party agrees that all disputes, disagreements and
questions of interpretation concerning this Agreement are to be submitted for
resolution to the American Arbitration Association ("Association") in
Lancaster, Pennsylvania. The Employers, or Executive, may initiate an
arbitration proceeding at any time by giving notice to the others in
accordance with the rules of the Association. The Association will designate
a single arbitrator to conduct the proceeding, but the Employers, and the
Executive, may, as a matter of right, require the substitution of a different
arbitrator chosen by the Association. Each such right of substitution may be
exercised only once. The arbitrator will not be bound by the rules of
evidence and procedure of the courts of the Commonwealth of Pennsylvania but
will be bound by the substantive law applicable to this Agreement. The
decision of the arbitrator, absent fraud, duress, incompetence or gross and
obvious error of fact, will be final and binding upon the parties and will be
enforceable in courts of proper jurisdiction. Following written notice of a
request for arbitration, the Employers and the Executive, will be entitled to
an injunction restraining all further proceedings in any pending or
subsequently filed litigation concerning this Agreement, except as otherwise
provided herein.
Attorney's Fees and Costs. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorney's fees, costs, and necessary disbursements
in addition to any other relief that may be proper; provided, however, that
the Executive shall not be responsible for the Employers' attorney's fees and
costs if the Executive's action is brought in good faith.
Indemnification. The Employers will indemnify the Executive, to the fullest
extent permitted under Pennsylvania and federal law, with respect to any
threatened, pending or completed legal or regulatory action, suit or
proceeding brought against him by reason of the fact that he is or was a
director, officer, employee or agent of the Employers, or is or was serving at
the request of the Employers as a director, officer, employee or agent of
another person or entity. To the fullest extent permitted by Pennsylvania and
federal law, the Employers will, in advance of final disposition, pay any and
all expenses incurred by the Executive in connection with any threatened,
pending or completed legal or regulatory action, suit or proceeding with
respect to which he may be entitled to indemnification hereunder. The
Employers will use their best efforts to obtain insurance coverage for the
Executive under a policy covering directors and officers thereof against
litigation, arbitrations and other legal and regulatory proceedings; provided,
however, that nothing herein is to be construed as requiring such action if
the Boards of Directors of the Employers determine that such insurance
coverage cannot be obtained at commercially reasonable rates.
Notices. Any notice required or permitted to be given under this Agreement
will, to be effective hereunder, be given to the Employers, in the case of
notices given by the Executive, and will, to be effective hereunder, be given
by the Employers, in the case of notices given to the Executive. Any such
notice will be deemed properly given if in writing and if mailed by registered
or certified mail, postage prepaid with return receipt requested, to the
residence of the Executive, in the case of notices to the Executive, and to
the respective principal offices of the Employers, in the case of notices to
the Employers.
Waiver. No provision of this Agreement may be modified, waived, or discharged
unless such waiver, modification, or discharge is agreed to in writing and
signed by the Executive and executive officers of the Employers, each such
officer specifically designated by the Boards of Directors of the Employers,
respectively. No waiver by any party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party will be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
Assignment. This Agreement is not assignable by any party hereto; the
Employers provided, however, that the Employers may assign their rights
hereunder, including, without limitation, the restrictive covenants in
Sections 9 and 10, to any successor in interest to the respective businesses
of the Employers.
Entire Agreement. This Agreement contains the entire agreement of the parties
relating to the subject matter of this Agreement and, in accordance with the
provisions of Section 26, supersedes any prior agreement of the parties.
Successors; Binding Agreement. The Employers will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Employers to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Employers would be required to perform it if no such
succession had taken place. Failure by the Employers to obtain such
assumption and agreement prior to the effectiveness of any such succession
will constitute a material breach of this Agreement. As used in this
Agreement, "the Employers" means the Employers as herein before defined and
any successor to the business and/or assets of the Employers as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or
otherwise.
This Agreement will inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
heirs, distributees, devisees, and legatees. If the Executive should die
while any amount is payable to the Executive under this Agreement if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, will be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee, or other designee, or, if there is no such
designee, to the Executive's estate.
20. No Mitigation or Offset. The Executive will not be required to mitigate
the amount of any payment provided for in this Agreement by seeking employment
or otherwise; nor will any amounts or benefits payable or provided hereunder
be reduced in the event he does secure employment, except as otherwise
provided herein.
Validity. The invalidity or unenforceability of any provisions of this
Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect.
Applicable Law. Except to the extent preempted by federal law, this Agreement
will be governed by and construed in accordance with the domestic internal law
of the Commonwealth of Pennsylvania.
Number. Words used herein in the singular will be construed as being used in
the plural, as the context requires, and vice versa.
Headings. The headings of the sections and subsections of this Agreement are
for convenience only and will not control or affect the meaning or
construction or limit the scope or intent of any of the provisions of this
Agreement.
References to Entities. All references to the Employers will be deemed to
include a reference to the Employers and/or the Corporation, individually or
collectively, as appropriate in the relevant context.
Effective Date; Termination of Prior Agreement. This Agreement will become
effective immediately upon the execution and delivery of this Agreement by the
parties hereto. Upon the execution and delivery of this Agreement, any prior
agreement relating to the subject matter hereof, including without limitation
the 1983 Agreement, will be deemed automatically terminated and be of no
further force or effect.
Withholding For Taxes. All amounts and benefits paid or provided hereunder
will be subject to withholding for taxes as required by law.
Individual Agreement. This Agreement is an agreement solely between and among
the parties hereto. It is intended to constitute a nonqualified unfunded
arrangement for the benefit of a key management employee and will be construed
and interpreted in a manner consistent with such intention.
IN WITNESS WEREOF, the parties have executed this Agreement as of the date
first above written.
Sterling Financial Corporation
By: /s/ J. Robert Hess
Attest:/s/ J. Roger Moyer, Jr.
(Assistant) Secretary
Bank of Lancaster County, N.A.
By: /s/ J. Robert Hess
Attest:/s/ J. Roger Moyer, Jr.
(Assistant) Secretary
Witness:
/s/ Beverly Wise Hill /s/ John E. Stefan
John E. Stefan ("Executive")
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following are the subsidiaries of Sterling Financial Corporation:
Subsidiary State of Incorporation or Organization
Bank of Lancaster County, N.A. Pennsylvania
1 East Main Street (National Banking Association)
P.O. Box 0300
Strasburg, PA 17579
Town & Country, Inc. (Wholly owned Pennsylvania
Subsidiary of Bank of Lancaster
County, N.A.)
1097 Commercial Avenue
East Petersburg, PA 17520
T & C Leasing, Inc. Pennsylvania
1097 Commercial Avenue
East Petersburg, PA 17520
Northeast Bancorp, Inc. Delaware
14 S. Main Street
North East, Maryland 21901
The First National Bank of North East Maryland
(Wholly-owned Subsidiary of Northeast
Bancorp, Inc.,)
14 S. Main Street
North East, Maryland 21901
Sterling Mortgage Services, Inc. Pennsylvania
101 North Pointe Boulevard
Lancaster, PA 17601-4133
(Presently inactive)
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