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, $5.00 Par Value-7,146,105 shares outstanding as of November 1,
1999.
Sterling Financial Corporation and Subsidiaries
Index
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets
as of September 30, 1999, December 31, 1998,
and September 30, 1998. 3
Consolidated Statements of Income
for the Three and Nine Months ended September 30, 1999
and 1998. 4
Consolidated Statements of Cash Flows
for the Nine Months ended
September 30, 1999 and 1998. 5
Notes to Consolidated Financial
Statements. 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 - Quantitative and Qualitative Disclosures about Market
Risk 21
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 23
Item 6 - Exhibits and Reports on Form 8-K 23
Signature Page 24
<TABLE>
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Part I - Financial Information
Sterling Financial Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
September 30, December 31, September 30,
(Dollars in thousands) 1999 1998 1998
<S> <C> <C> <C>
ASSETS
Cash and due from banks......................$ 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>
<CAPTION>
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>
<CAPTION>
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.
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:
John E. Stefan
Chairman of the Board, President
and Chief Executive Officer
Date: November 15, 1999 By:
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:
1. Term of Agreement.
a. 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.
b. 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:
(i) 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.
(c) 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).
(d) 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.
2. 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:
(i) 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;
(ii) 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;
(iii) 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
(iv) 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:
(i) the involuntary termination of the Executive,
other than an involuntary termination permitted in
Sections 1(b) and (d);
(ii) 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;
(iii) 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);
(iv) a reduction in the Executive's annual
base salary in effect immediately prior
to the Change in Control;
(v) reassignment of the Executive to a principal
office which is more than 30 miles from
the Executive's principal office in
Lancaster, Pennsylvania;
(vi) 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
(vii) 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.
3. 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:
a. Basic Payments. The Executive will be paid an amount equal to two and
ninety-nine hundredths (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 the date on which the Change of Control
occurred. The Executive at his election, will be paid the Basic Payments in
either (i) 24 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.
b. 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.
c. 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.
d. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. Successors; Binding Agreement.
a. 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.
b. 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.
10. 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.
ll. 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.
12. 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.
13. 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.
14. 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.
15. Number. Words used herein in the singular will be construed as being used
in the plural, as the context requires, and vice versa.
16. 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.
17. 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.
18. 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.
19. Withholding For Taxes. All amounts and benefits paid or provided
hereunder will be subject to withholding for taxes as required by law.
20. 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:
1. Term of Agreement.
a. 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.
b. 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:
(i) prior to a Change in Control, termination for any reason;
and
(ii) 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.
c. 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).
d. 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.
2. 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:
(i)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;
(ii)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;
(iii)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
(iv)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:
(i)the involuntary termination of the Executive,
other than an involuntary termination permitted in
Sections 1(b) and (d);
(ii) 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;
(iii)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);
(iv)a reduction in the Executive's annual
base salary in effect immediately prior
to the Change in Control;
(v)reassignment of the Executive to a principal
office which is more than 30 miles from
the Executive's principal office in
Lancaster, Pennsylvania;
(vi)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
(vii)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.
3. 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:
a. Basic Payments. The Executive will be paid an amount equal to two and
one-half (2.50) 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 the
date on which the Change of Control occurred. The Executive at his election,
will be paid the Basic Payments in either (i) 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.
b. 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.
c. 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.
d. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. Successors; Binding Agreement.
a. 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.
b. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. Number. Words used herein in the singular will be construed as being used
in the plural, as the context requires, and vice versa.
16. 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.
17. 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.
18. 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.
19. Withholding For Taxes. All amounts and benefits paid or provided
hereunder will be subject to withholding for taxes as required by law.
20. 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:
1. Term of Agreement.
a. 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.
b. 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:
(i) prior to a Change in Control, termination for any reason;
and
(ii) 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.
c. 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).
d. 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.
2. 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:
(i)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;
(ii)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;
(iii)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
(iv)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:
(i)the involuntary termination of the Executive,
other than an involuntary termination permitted in
Sections 1(b) and (d);
(ii)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;
(iii)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);
(iv)a reduction in the Executive's annual
base salary in effect immediately prior
to the Change in Control;
(v)reassignment of the Executive to a principal
office which is more than 30 miles from
the Executive's principal office in
Lancaster, Pennsylvania;
(vi)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
(vii)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.
3. 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:
a. Basic Payments. The Executive will be paid an amount equal to two (2)
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 the date on which the
Change of Control occurred. The Executive at his election, will be
paid the Basic Payments in either (i) 24 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.
b. 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
c. 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.
d. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. Successors; Binding Agreement.
a. 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.
b. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. Number. Words used herein in the singular will be construed as being used
in the plural, as the context requires, and vice versa.
16. 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.
17. 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.
18. 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.
19. Withholding For Taxes. All amounts and benefits paid or provided hereunder
will be subject to withholding for taxes as required by law.
20. 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:
1. Term of Agreement.
a. 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.
b. 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:
(i) prior to a Change in Control, termination for any reason;
and
(ii)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.
c. 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).
d. 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.
2. 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:
(i)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;
(ii)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;
(iii)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
(iv)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:
(i)the involuntary termination of the Executive,
other than an involuntary termination permitted in
Sections 1(b) and (d);
(ii)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;
(iii)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);
(iv)a reduction in the Executive's annual
base salary in effect immediately prior
to the Change in Control;
(v)reassignment of the Executive to a principal
office which is more than 30 miles from
the Executive's principal office in
Lancaster, Pennsylvania;
(vi)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
(vii)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.
3. 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:
a. Basic Payments. The Executive will be paid an amount equal to two and
one-half (2.5) 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 the date on which the Change of Control occurred. The
Executive at his election, will be paid the Basic Payments in either (i) 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.
b. 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
c. 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.
d. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. Successors; Binding Agreement.
a. 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.
b. 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.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. Number. Words used herein in the singular will be construed as being
used in the plural, as the context requires, and vice versa.
16. 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.
17. 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.
18. 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.
19. Withholding For Taxes. All amounts and benefits paid or provided hereunder
will be subject to withholding for taxes as required by law.
20. 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:
1. 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.
2. 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.
3. Employment Period Compensation and Related Matters.
a. 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.
b. 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.
c. 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.
d. Fringe Benefits.
(i) 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.
(ii) 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.
(iii) 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.
(iv) 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.
e. 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.
4. Term of Employment.
a. 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.
b. 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.
c. 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.
d. 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.
5. Termination.
a. 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:
(i) 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;
(ii) 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;
(iii) 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.
b. 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.
c. 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.
d. 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)).
6. Resignation of the Executive for Good Reason.
(a) 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:
(i) 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;
(ii) any reassignment of the Executive to a principal office
which is more than 30 miles from the Executive's
principal office in Lancaster, Pennsylvania;
(iii) 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);
(iv) any reduction in the Executive's annual Base Salary as in
effect on the date hereof or as the same may be
increased from time to time;
(v) 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
(vi) 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:
(i) 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;
(ii) 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;
(iii) 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
(iv) 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.
7.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.
a. 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.
b. 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.
c. 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.
d. 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.
8. 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.
9. Covenant Not to Compete.
a. 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:
(i) be engaged, directly or indirectly, either for his own account
or as agent, consultant, employee, partner, officer, director,
proprietor, investor (except as an investor owning less than 5%
of the stock of a publicly owned company) or otherwise of,
any person, firm, corporation, or enterprise engaged, in (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
(ii) 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.
b. 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.
c. The provisions of this section will be applicable commencing on the
date of this Agreement and ending as follows:
(i) 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;
(ii) 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
(iii) in all other cases, the date of Executive's termination of employment.
10. 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.
b. 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.
c. 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.
d. 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.
e. 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.
f. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
18. 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.
19. Successors; Binding Agreement.
a. 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.
b. 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.
21. 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.
22. 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.
23. Number. Words used herein in the singular will be construed as being used
in the plural, as the context requires, and vice versa.
24. 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.
25. 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.
26. 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.
27. Withholding For Taxes. All amounts and benefits paid or provided
hereunder will be subject to withholding for taxes as required by law.
28. 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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