<PAGE> 1
As filed with the Securities and Exchange Commission on April __, 2000
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
STERLING FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Pennsylvania 6021 23-2449551
- ----------------------------------- ------------------------------------ ----------------------------------
(State or other jurisdiction of Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
John E. Stefan, President J. Bradley Scovill, President
Sterling Financial Corporation Hanover Bancorp, Inc.
101 North Pointe Boulevard Post Office Box 513
Lancaster, Pennsylvania 17601 33 Carlisle Street
(717) 581-6030 Hanover, Pennsylvania 17331-2404
(Address, including ZIP Code, and (717) 637-2201
telephone number, including area code, (Name, address, including ZIP Code, and
of registrant's principal executive offices) telephone number, including area code,
of agent for service)
With a Copy to: With a Copy to:
Nicholas Bybel, Jr., Esquire Paul G. Mattaini, Esquire
B. Tyler Lincoln, Esquire BARLEY, SNYDER, SENFT & COHEN, LLC
SHUMAKER WILLIAMS, P.C. 126 East King Street
Post Office Box 88 Lancaster, Pennsylvania 17602
Harrisburg, Pennsylvania 17108 (717)399-1519
(717)763-1121
</TABLE>
Approximate date of commencement of the proposed sale of the securities
to the public: As soon as practicable after the effective date of the
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. _____
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
registration statement for the same offering. _____
If this form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _____
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to to be Offering Price Aggregate Registration
be Registered Registered(1) Per Share Offering Price(2) Fee
<S> <C> <C> <C> <C>
Common Stock,
par value 3,733,342 $16.94 $63,342,815.46 $16,696.10
$5.00 per share
</TABLE>
(1) Based on maximum number of shares of Registrant's common stock that may
be issued in connection with the proposed transaction, including the
conversion of all outstanding common stock and stock options of Hanover
Bancorp, Inc. into shares of common stock of Sterling Financial
Corporation. In accordance with Rule 416, this Registration Statement
shall also register any additional shares of Registrant's common stock
that may become issuable to prevent dilution resulting from stock
splits, stock dividends or similar transactions as provided by the
Agreement relating to the transaction.
(2) Shares to be issued in the merger (as defined herein) computed in
accordance with Rule 457(f)(1), solely for the purpose of calculating
the registration fee, at March 27, 2000, the latest practicable date
prior to the date of filing of this Registration Statement, with respect
to 3,884,189 shares of Hanover common stock to be exchanged in the
merger and unexercised options to purchase for 130,157 shares of Hanover
common stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION
8(a), MAY DETERMINE.
<PAGE> 2
PROXY/STATEMENT PROSPECTUS
STERLING FINANCIAL CORPORATION
Proxy Statement
and
Prospectus for 3,733,342 Shares of Common Stock
Trading Symbol: SLFI
HANOVER BANCORP, INC.
Proxy Statement
Trading Symbol: HOVB
JOINT PROXY STATEMENT/PROSPECTUS
The Boards of Directors of Sterling Financial Corporation and Hanover
Bancorp, Inc. provide this proxy statement/prospectus to you to solicit your
vote on the merger of Hanover Bancorp, Inc. into Sterling Financial Corporation,
the election of directors and other matters discussed in this proxy
statement/prospectus.
If the merger takes place, shareholders of Hanover Bancorp, Inc. will
receive .93 shares of common stock of Sterling Financial Corporation for each
share of Hanover Bancorp, Inc. capital stock they own, subject to adjustment, as
we describe in this proxy statement/prospectus. Sterling common stock is quoted
on the National Market System of the NASDAQ. On March 31, 2000, the closing
price of Sterling common stock was $_____, making the trading value of .93
shares of Sterling common stock $_____ on that date.
Neither the Securities and Exchange Commission, the Office of the
Comptroller of the Currency, the Federal Deposit Insurance Corporation, the
Board of Governors of the Federal Reserve System, the Pennsylvania Department of
Banking nor any state securities commission has approved or disapproved these
securities or passed upon the accuracy or adequacy of this proxy
statement/prospectus. Any representation to the contrary is a criminal offense.
The shares of Sterling Financial Corporation common stock offered in
this proxy statement/prospectus are not savings accounts, deposits, or other
obligations of a bank or savings association and are not insured by the FDIC or
any other governmental agency.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS APRIL __, 2000, AND WAS FIRST
MAILED TO SHAREHOLDERS ON OR ABOUT APRIL __, 2000.
<PAGE> 3
This proxy statement/prospectus incorporates important business and
financial information about Sterling Financial Corporation and Hanover Bancorp,
Inc. that we have not included or delivered with this document. This information
is available without charge to shareholders. Please direct requests for this
information to Ronald L. Bowman, Vice President/Secretary, Sterling Financial
Corporation, at 101 North Pointe Boulevard, Lancaster, Pennsylvania 17601-4133,
telephone number (717) 735-5608 or to Thomas J. Paholsky, Secretary, Hanover
Bancorp, Inc., at 33 Carlisle Street, Hanover, Pennsylvania 17331, telephone
number (717) 637-2201. In order to ensure timely delivery of the documents in
advance of the meeting, you should make your request no later than May 15, 2000.
We have not authorized any person to give any information or to make any
representation not contained in this proxy statement/prospectus, and if given or
made, you should not rely on any such information or representation as having
been authorized. This proxy statement/prospectus does not constitute an offer to
any person to exchange or sell, or a solicitation from any person of an offer to
exchange or purchase, the securities offered by this proxy statement/prospectus,
or the solicitation of a proxy from any person, in any jurisdiction in which it
is unlawful to make such an offer or solicitation.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER........................................................
SUMMARY.......................................................................................
The Merger............................................................................
No Federal Income Tax on Shares Received in Merger....................................
Hanover and Sterling Boards Recommend Shareholder Approval............................
Copy of Agreement and Plan of Merger Attached.........................................
Exchange Ratio Fair From a Financial Point of View According to Financial
Advisor of Sterling ...........................................................
Exchange Ratio Fair From a Financial Point of View According to Financial
Advisor of Hanover.............................................................
Vote Required to Approve the Merger...................................................
Sterling's Annual Meeting to be Held on May 22, 2000..................................
Hanover's Annual Meeting to be Held on May 23, 2000...................................
The Companies.........................................................................
Record Dates..........................................................................
Conditions that Must Be Satisfied for the Merger to Occur.............................
Termination and Amendment of the Agreement and Plan of Merger.........................
Dissenters Rights.....................................................................
Sterling to use Pooling-of-Interests Accounting Treatment.............................
Organization and Operation after the Merger...........................................
The Rights of Hanover Shareholders Will Change After the Merger.......................
Monetary Benefits to Management in the Merger.........................................
Share Information and Market Prices...................................................
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING
STATEMENTS............................................................................
COMPARATIVE PER SHARE DATA....................................................................
SELECTED FINANCIAL DATA .....................................................................
Sterling Financial Corporation........................................................
Hanover Bancorp, Inc..................................................................
PRO FORMA COMBINED FINANCIAL INFORMATION......................................................
THE MEETINGS..................................................................................
Date, Time and Place..................................................................
Matters To Be Considered at the Sterling Annual Meeting...............................
Matters To Be Considered at the Hanover Annual Meeting................................
Votes Required........................................................................
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Voting, Revocation and Solicitation of Proxies........................................
Record Date...........................................................................
MATTER NO. 1 - APPROVAL OF THE AGREEMENT AND PLAN OF MERGER...................................
Background of the Merger..............................................................
Sterling Reasons for the Merger.......................................................
Hanover Reasons for the Merger........................................................
Effect of the Merger..................................................................
Exchange Ratio........................................................................
Opinion of Sterling Independent Financial Advisor.....................................
Opinion of Hanover Independent Financial Advisor......................................
Effective Date of the Merger..........................................................
Exchange of Hanover Stock Certificates................................................
Business Pending the Merger...........................................................
Materials Contracts...................................................................
Conditions to the Merger..............................................................
Investment Agreement..................................................................
Termination of the Merger Agreement...................................................
Change of Control Fee.................................................................
Employee Benefits.....................................................................
Management and Operations Following the Merger........................................
Federal Income Tax Consequences.......................................................
Accounting Treatment..................................................................
Expenses..............................................................................
Restriction on Resale of Stock Held by Affiliates.....................................
Financial Interests of Directors and Officers.........................................
Dissenter's Rights....................................................................
COMPARATIVE STOCK PRICES AND DIVIDENDS AND
RELATED SHAREHOLDER MATTERS...........................................................
Sterling Common Stock.................................................................
Hanover Sterling Stock................................................................
COMPARISON OF SHAREHOLDER RIGHTS..............................................................
INFORMATION ABOUT STERLING FINANCIAL CORPORATION..............................................
Incorporation of Certain Documents by Reference.......................................
INFORMATION ABOUT HANOVER BANCORP, INC........................................................
Description of Capital Stock..........................................................
Incorporation of Certain Documents by Reference.......................................
MATTER NO. 2 - ADJOURNMENT....................................................................
</TABLE>
ii
<PAGE> 6
<TABLE>
<S> <C>
MATTER NO. 3 - ELECTION OF DIRECTORS..........................................................
Nomination and Election of Directors - Sterling.......................................
Nomination and Election of Directors - Hanover........................................
STERLING ANNUAL MEETING - OTHER MATTERS.......................................................
MATTER NO. 4 - RATIFICATION OF SELECTION OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS....................................................................
MISCELLANEOUS ADDITIONAL INFORMATION..........................................................
Conduct of the Meeting................................................................
Shareholder Return Performance Graph..................................................
Shareholder Proposals for Next Annual Meeting.........................................
HANOVER ANNUAL MEETING - OTHER MATTERS........................................................
Shareholder Return Performance Graph..................................................
Shareholder Proposals.................................................................
Other Matters.........................................................................
Independent Certified Public Accountants..............................................
EXPERTS.......................................................................................
LEGAL OPINIONS................................................................................
WHERE YOU CAN FIND MORE INFORMATION...........................................................
</TABLE>
<TABLE>
<CAPTION>
ANNEXES
<S> <C> <C>
Annex A - Agreement and Plan of Merger
Annex B - Garland McPherson & Associates, Inc. Fairness Opinion
Annex C - McConnell, Budd & Downes, Inc. Fairness Opinion
Annex D - Statute Regarding Dissenters' Rights
</TABLE>
iii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. Why are we receiving these documents?
A. The Boards of Directors of Sterling Financial Corporation and Hanover
Bancorp, Inc. provide this proxy statement/prospectus, their Annual
Reports to Shareholders and their Annual Reports on Form 10-K to you to
solicit your vote on proxies at the annual meetings of shareholders to
be held at Willow Valley Family Resort and Conference Center, 2416
Willow Street Pike, Lancaster, Pennsylvania at 9:00 a.m., local time, on
Monday, May 22, 2000, for shareholders of Sterling and at Hanover
Country Club, Lincolnway East, R.D. 1, Abbottstown, Pennsylvania, at
9:30 a.m., on Tuesday, May 23, 2000, for shareholders of Hanover.
Q. Who are the parties to the merger?
A. Sterling and Hanover.
Q. How will the merger be effected?
A. Hanover will merge with and into Sterling. Sterling will survive the
merger. Shareholders of Hanover will receive shares of common stock of
Sterling in exchange for their shares in Hanover. Bank of Hanover and
Trust Company, Hanover's wholly owned Pennsylvania chartered bank
subsidiary and HOVB Investment Co., also a wholly owned subsidiary of
Hanover, will continue operations as wholly owned subsidiaries of
Sterling after the merger.
Q. What do I need to do now?
A. Just indicate on your proxy card how you want to vote your shares, then
sign and mail your proxy card in the enclosed prepaid return envelope as
soon as possible, so that your shares may be represented and voted at
the Sterling annual meeting or the Hanover annual meeting.
Your vote is very important. Approval of the merger agreement by
Sterling shareholders requires the affirmative vote of 66 2/3 % of the
outstanding shares entitled to vote at the Sterling annual meeting,
present in person or by proxy. Hanover shareholder approval requires the
affirmative vote of at least a majority of the outstanding shares of
voting stock, present in person or by proxy, at the Hanover annual
meeting. You should return your signed proxy card as soon as possible.
Both the Sterling and Hanover Boards of Directors unanimously recommend
voting "FOR" the agreement.
Q&A-1
<PAGE> 8
Q. If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A. Your broker will vote your shares with respect to the merger only if you
provide instructions on how to vote. You should follow the directions
provided by your broker. Without instructions, your shares will not be
voted on the merger agreement.
Q. Can I change my vote after I have mailed my signed proxy card?
A. Yes. There are three ways for you to revoke your proxy and change your
vote.
- You may send a written notice to the person to whom you
submitted your proxy stating that you would like to revoke your
proxy.
- You may complete and submit a new proxy card with a later date.
- You may vote in person at the annual meeting.
If you have instructed a broker to vote your shares you must follow
directions received from your broker to change your vote.
Q. Who will be sending in their stock certificates?
A. Only Hanover shareholders will be required to send in their stock
certificates after approval of the merger.
Q. Should I send in my stock certificates now?
A. No. Shortly after the merger is completed, Sterling's transfer agent,
American Stock Transfer & Trust Company, will send you written
instructions for exchanging your Hanover stock certificates. They will
request that you return your Hanover stock certificates at that time.
Q. When do you expect to merge?
A. We are working towards completing the merger as quickly as possible. In
addition to the approval of Sterling and Hanover shareholders, we must
also obtain regulatory approvals. We expect to receive all necessary
approvals and complete the merger by June 30, 2000.
Q&A-2
<PAGE> 9
Q. Who should I call with questions or to obtain additional copies of this
proxy statement?
A. You should contact:
- Ronald L. Bowman
Vice President/Secretary
Sterling Financial Corporation
101 North Pointe Boulevard
Lancaster, PA 17601
(717) 735-5608
- Thomas J. Paholsky
Secretary
Hanover Bancorp, Inc.
33 Carlisle Street
Hanover, PA 17331
(717) 637-2201
Q&A-3
<PAGE> 10
SUMMARY
This summary highlights selected information from this proxy statement.
It may not contain all of the information that is important to you. You should
read carefully this entire proxy statement and the attached annexes. See "Where
You Can Find More Information" on page __ for reference to additional
information available to you regarding Sterling Financial Corporation and
Hanover Bancorp, Inc.
THE MERGER
If the merger is completed, shareholders of Hanover will receive shares
of Sterling common stock, plus cash instead of any fractional share, in exchange
for their Hanover common stock. Sterling shareholders will continue to hold
their shares of Sterling common stock. Hanover shareholders will receive .93
shares of Sterling for each share of Hanover common stock.
Because the market price of Sterling stock fluctuates, you will not know
when you vote exactly what the Sterling shares will be worth when issued in the
merger.
NO FEDERAL INCOME TAX ON SHARES RECEIVED IN MERGER
Hanover shareholders generally will not recognize gain or loss for
federal income tax purposes upon receipt of shares of Sterling common stock
received in the merger. Sterling's attorneys have issued a legal opinion to this
effect, which Sterling has included as an exhibit to the registration statement
filed with the Commission. Hanover shareholders will be taxed on cash received
instead of any fractional share. Tax matters are complicated, and tax results
may vary among shareholders. We urge you to contact your own tax advisor to
understand fully how the merger will affect you.
HANOVER AND STERLING BOARDS RECOMMEND SHAREHOLDER APPROVAL
The Hanover and Sterling Boards believe that the merger is in the best
interests of Hanover, Sterling and their respective shareholders. Each Board
unanimously recommends that you vote "FOR" approval of the merger.
COPY OF AGREEMENT AND PLAN OF MERGER ATTACHED
We have attached the Agreement and Plan of Merger, including all
exhibits, as Annex A at the back of this proxy statement. We incorporate the
agreement into this proxy
1
<PAGE> 11
statement/prospectus by reference. We encourage you to read this agreement,
because it is the legal document that governs the merger.
EXCHANGE RATIO FAIR FROM A FINANCIAL POINT OF VIEW ACCORDING TO FINANCIAL
ADVISOR OF STERLING
Garland McPherson & Associates, Inc. has given an opinion to the
Sterling Board that, as of the date of this proxy statement, the exchange ratio
in the merger is fair from a financial point of view to Sterling shareholders.
Sterling has attached the full text of this opinion as Annex B to this proxy
statement. Sterling encourages you to read the opinion carefully.
EXCHANGE RATIO FAIR FROM A FINANCIAL POINT OF VIEW ACCORDING TO FINANCIAL
ADVISOR OF HANOVER
McConnell, Budd & Downes, Inc. has given an opinion to the Hanover Board
that, as of the date of this proxy statement, the exchange ratio is fair from a
financial point of view to Hanover shareholders. Hanover has attached the full
text of this opinion as Annex C to this proxy statement. Hanover encourages you
to read the opinion carefully.
VOTE REQUIRED TO APPROVE THE MERGER
Approval for the merger agreement by Hanover shareholders requires the
affirmative vote of at least a majority of the outstanding shares of Hanover
entitled to vote at the meeting. Approval of the merger agreement by Sterling
shareholders requires the affirmative vote of 66 2/3% of the outstanding shares
of Sterling entitled to vote at the meeting. A shareholder's failure to vote
will have the effect of a vote against approval of the merger agreement. As of
March 31, 2000, directors and executive officers of Sterling and of Hanover
together own about __% and __% respectively, of the shares entitled to be cast
at the meetings. Sterling and Hanover expect the officers and directors of
Sterling and Hanover to vote their shares in favor of the merger agreement
because they have each agreed to do so.
Brokers who hold shares of Sterling and Hanover common stock as nominees
will not have authority to vote these shares with respect to the merger
agreement unless shareholders provide voting instructions.
STERLING'S ANNUAL MEETING TO BE HELD MAY 22, 2000
Sterling will hold its annual meeting of shareholders on May 22, 2000,
at 9:00 a..m., local time, at Willow Valley Family Resort and Conference Center,
2416 Willow Street Pike, Lancaster, Pennsylvania.
2
<PAGE> 12
At the annual meeting, Sterling shareholders will vote on the merger
agreement, the proposal to adjourn the meeting to solicit additional proxies, if
necessary, the election of directors and to consider the additional matters
contained in the proxy. If necessary, shareholders may conduct any other
business that properly arises.
HANOVER ANNUAL MEETING TO BE HELD ON MAY 23, 2000
Hanover will hold its annual meeting of shareholders on May 23, 2000, at
9:30 a.m., local time, at the Hanover Country Club, Lincolnway East, R.D. 1,
Abbottstown, Pennsylvania.
At the annual meeting, Hanover shareholders will vote on the merger
agreement, the proposal to adjourn the meeting to solicit additional proxies, if
necessary, and the election of directors. If necessary, shareholders may conduct
any other business that properly arises.
THE COMPANIES
Sterling Financial Corporation
101 North Pointe Boulevard
Lancaster, Pennsylvania 17601
(717) 735-5608
Sterling Financial Corporation is a Pennsylvania business corporation
and a bank holding company, based in Lancaster, Pennsylvania. At December 31,
1999, Sterling and its subsidiaries, had total consolidated assets of $1,059
million, deposits of $892 million and shareholders' equity of $90 million. The
corporation provides a wide variety of commercial banking, leasing and trust
services through its wholly owned subsidiary banks, Bank of Lancaster County,
N.A. and The First National Bank of North East.
Hanover Bancorp, Inc.
33 Carlisle Street
Hanover, Pennsylvania 17331
(717) 637-2201
Hanover Bancorp, Inc. is a Pennsylvania business corporation and a bank
holding company based in Hanover, Pennsylvania. The corporation provides a wide
variety of commercial banking and trust services through its wholly owned
subsidiary, Bank of Hanover and Trust Company, a Pennsylvania banking
institution. At December 31, 1999, Hanover had total consolidated assets of $504
million, deposits of $397 million and shareholders' equity of $33 million.
3
<PAGE> 13
RECORD DATES
If you owned shares of Sterling common stock at the close of business on
March 31, 2000, or if you owned Hanover common stock at the close of business on
March 31, 2000, you are entitled to vote on the agreement, the adjournment
proposal and for the election of directors. In addition, Sterling shareholders
are entitled to vote on the additional matters contained in the section of this
proxy statement entitled "STERLING ANNUAL MEETING - other matters."
On their respective record dates, there were 8,931,568 shares of
Sterling common stock outstanding and 3,884,189 shares of Hanover common stock
outstanding. You will have one vote at the Sterling annual meeting or at the
Hanover annual meeting for each share of Sterling or Hanover common stock you
owned on the company's record date.
CONDITIONS THAT MUST BE SATISFIED FOR THE MERGER TO OCCUR
The following conditions must be met for us to complete the merger, in
addition to other customary conditions:
- Approval of the merger agreement by Sterling and Hanover
shareholders;
- Receipt of a legal opinion concerning the tax consequences of
the merger; and
- Receipt of letters from Ernst & Young LLP that the merger meets
the requirements for pooling-of-interests under generally
accepted accounting principles.
The merger also cannot be completed unless we obtain the approval of the
Board of Governors of the Federal Reserve System and the Pennsylvania Department
of Banking. Sterling filed the required applications or notices relating to the
merger on April __, 2000 and April __, 2000. Although we believe the regulatory
approvals will be received in a timely manner, we cannot be certain when or if
we will obtain them.
TERMINATION AND AMENDMENT OF THE AGREEMENT AND PLAN OF MERGER
Sterling and Hanover can mutually agree at any time to terminate the
agreement without completing the merger. There are a number of other
circumstances and conditions under which either Sterling or Hanover can
terminate or amend the agreement. For a detailed discussion of the termination
provisions of the agreement, see the section of this proxy entitled "Termination
of the Agreement."
4
<PAGE> 14
DISSENTERS RIGHTS
In addition to voting "no" at the annual meeting, under Pennsylvania
law, Sterling and Hanover shareholders have the right to dissent from the merger
and receive cash equal to the "fair value" of their shares. See "Dissenters
Rights" on page __ for additional information.
STERLING TO USE POOLING-OF-INTERESTS ACCOUNTING TREATMENT
Sterling will account for the merger as a pooling-of-interests for
financial reporting purposes.
ORGANIZATION AND OPERATION AFTER THE MERGER
In the acquisition of Hanover by Sterling, Bank of Hanover and Trust
Company, Hanover's wholly owned operating subsidiary, will become a wholly owned
operating subsidiary of Sterling. Sterling expects that the senior executive
officers of Bank of Hanover will be employed by and retain their current
management positions with Bank of Hanover. John E. Stefan, President and Chief
Executive Officer of Sterling, will join the Bank of Hanover Board of Directors.
In addition, three people, as Sterling and Hanover will agree, will be appointed
to the Sterling Board of Directors and one individual will be appointed to the
Board of Directors of the Bank of Lancaster County. Sterling's Board of
Directors will elect J. Bradley Scovill, President and Chief Executive Officer
of Hanover, as President and Chief Executive Officer of Bank of Hanover and an
Executive Vice President of Sterling. Sterling's Board of Directors will also
appoint Chad M. Clabaugh as Executive Vice President of Bank of Hanover and a
Vice President of Sterling. Messrs. Scovill and Clabaugh will also be members of
the Sterling Management Committee.
THE RIGHTS OF HANOVER SHAREHOLDERS WILL CHANGE AFTER THE MERGER
Upon completion of the merger, shareholders of Hanover will become
shareholders of Sterling. Sterling's articles of incorporation, bylaws and
Pennsylvania law determine the rights of Sterling's shareholders. The rights of
shareholders of Sterling differ in some respects from the rights of shareholders
of Hanover.
MONETARY BENEFITS TO MANAGEMENT IN THE MERGER
When considering the recommendation of the Sterling and Hanover Boards,
you should be aware that some directors and officers of Hanover have interests
in the merger in addition to their interests as shareholders. For a detailed
discussion of these benefits, see the section of this proxy entitled "Financial
Interest of Directors and Officers" on page __.
5
<PAGE> 15
SHARE INFORMATION AND MARKET PRICES
Sterling common stock trades on the National Market System of the NASDAQ
Stock Market. Hanover common stock trades in the over-the-counter market and is
quoted on the OTC Bulletin Board. The trading symbol for Sterling is "SLFI." The
trading symbol for Hanover is "HOVB." The following table shows the last sale
prices of Sterling common stock and Hanover common stock and the equivalent
price per share of Hanover common stock on January 24, 2000 and April __, 2000.
<TABLE>
<CAPTION>
Sterling Financial Hanover Equivalent
Corporation Bancorp, Inc. Market Price
Historical Historical Per Share
---------- ---------- ---------
<S> <C> <C> <C>
January 24, 2000 $27.56 $14.50 $25.63
April __, 2000
</TABLE>
The market prices of both Sterling and Hanover's common stock will
fluctuate prior to the merger. You should obtain current market quotations for
Sterling common stock and Hanover common stock.
6
<PAGE> 16
CAUTIONARY STATEMENTS CONCERNING
FORWARD - LOOKING STATEMENTS
This proxy statement may be deemed to contain "forward looking"
information. Examples of forward looking information include, but are not
limited to:
- Projections of or statements regarding future earnings, interest
income, other income, earnings per share, asset mix and quality,
growth prospects, capital structure, expense savings and other
financial terms;
- Statements of plans and objectives of management or the Board of
Directors;
- Statements of future economic or business performance; and
- Statements of assumptions, such as economic conditions in the
market areas served by Sterling and Hanover, underlying other
statements and statements about Sterling and Hanover or their
respective businesses.
The forward looking information can often be identified by the use of
forward looking terminology such as "believes," "expects," "may," "intends,"
"will," "should," "anticipates," "projects," or the negative of any of the
foregoing or other variations of these words or comparable terminology, or by
discussion or strategy. We cannot assure that we will achieve the future results
covered by the forward looking information. These statements are subject to
risks, uncertainties, and other factors that could cause actual results to
differ materially from future results expressed or implied by forward looking
information. Important factors that could impact operating results include, but
are not limited to:
- The effects of changing economic conditions in both the market
areas served by Sterling and Hanover and nationally;
- Credit risks of commercial, real estate, consumer and other
lending activities;
- Significant changes in interest rates;
- Changes in federal and state banking laws and regulations that
could affect operations;
- Sterling's ability to integrate Hanover;
- Funding costs; and
- Other external developments that could materially affect
business and operations.
7
<PAGE> 17
We have not authorized anyone to give any information or to make any
representations other than those contained in this proxy statement in connection
with the solicitation of proxies or the offering of securities made in this
proxy statement and, if given or made, you must not rely on any information or
representation as having been authorized by Sterling or Hanover. This proxy
statement does not constitute an offer to sell, or a solicitation of an offer to
buy, any securities, or the solicitation of a proxy, in any jurisdiction to or
from any person to whom it is not lawful to make any offer of solicitation in
the jurisdiction. Neither the delivery of this proxy statement nor any
distribution of securities made under this proxy statement shall, under any
circumstances, create an implication that there has been no change in the
affairs of Sterling or Hanover since the date of this proxy statement or that
the information in this proxy statement is correct as of any time subsequent to
its date.
All information in this proxy statement concerning Sterling and its
subsidiaries has been furnished by Sterling and all information concerning
Hanover has been furnished by Hanover.
8
<PAGE> 18
COMPARATIVE PER SHARE DATA
We summarize below the per share information for Sterling and Hanover on
a historical, pro forma combined and equivalent basis. You should read this
information in conjunction with Sterling's and Hanover's historical financial
statements and the related notes contained in the annual and quarterly reports
and other documents filed with the Commission. See "AVAILABLE INFORMATION." The
Sterling proforma information gives effect to the merger, accounted for as a
pooling of interests, assuming that .93 shares of Sterling common stock are
issued for each outstanding share of Hanover's common stock. Hanover's
equivalent pro forma share amounts are calculated by multiplying the pro forma
Sterling basic and diluted earnings per share, Sterling pro forma per share
dividend and Sterling pro forma book value per common share by the exchange
ratio of .93 shares of Sterling common stock so that the per share amounts equal
the respective values for one share of Hanover common stock. Do not rely on the
pro forma information as being indicative of the historical results that we
would have had if we had been combined or of the future results that we will
experience after the merger. Pro forma information does not include any expense
savings anticipated as a result of the merger.
9
<PAGE> 19
STERLING FINANCIAL CORPORATION
Comparative Per Share Data
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
BOOK VALUE PER COMMON
SHARE
Historical:
Sterling $ 10.08 $ 9.91 $ 9.02
Hanover 8.43 9.38 8.77
Proforma:
Proforma per share of Sterling
common stock (1) 9.79 9.96 9.14
Equivalent proforma per share
of Hanover (2) 9.10 9.26 8.50
BOOK VALUE PER REALIZED
COMMON SHARE (6)
Historical:
Sterling $ 10.24 $ 9.39 $ 8.70
Hanover 9.73 9.07 8.35
Proforma:
Proforma per share of Sterling
common stock (1) 10.30 9.49 8.78
Equivalent proforma per share
of Hanover (2) 9.58 8.83 8.17
CASH DIVIDENDS PER COMMON
SHARE
Historical:
Sterling $ 0.721 $ 0.664 $ 0.625
Hanover 0.460 0.420 0.370
Proforma:
Proforma per share of Sterling
common stock 0.721 0.664 0.625
Equivalent proforma per share
of Hanover (3) 0.671 0.618 0.581
INCOME FROM CONTINUING OPERATIONS
PER COMMON SHARE
Basic
Historical:
Sterling $ 1.48 $ 1.38 $ 1.24
Hanover 1.21 1.08 0.97
Proforma:
Proforma per share of Sterling
common stock (4) 1.43 1.32 1.18
Equivalent proforma per share
of Hanover (5) 1.33 1.23 1.10
Diluted
Historical:
Sterling $ 1.48 $ 1.38 $ 1.24
Hanover 1.21 1.08 0.97
Proforma:
Proforma per share of Sterling
common stock (4) 1.43 1.31 1.18
Equivalent proforma per share
of Hanover (5) 1.33 1.22 1.10
</TABLE>
10
<PAGE> 20
(1) Represents proforma combined net book value of Sterling and Hanover
attributable to shares of Sterling Common Stock, divided by the sum of
(i) the number of shares of Sterling Common Stock outstanding during
each period retroactively adjusted for stock dividends and splits and
(ii) shares of Sterling Common Stock assumed to be issued pursuant to
this merger during each period.
(2) Represents the amount computed pursuant to (1) above multiplied by the
Exchange Ratio (.93).
(3) Represents the dividends declared on Sterling Common Stock during the
respective periods multiplied by the Exchange Ratio (.93).
(4) Represents net income per share of Sterling Common Stock, on a pro
forma basis. Such amounts have been determined by dividing pro forma
net income by the sum of (i) the weighted average number of shares of
Sterling Common Stock outstanding during each period retroactively
adjusted for stock dividends and splits and (ii) share of Sterling
Common Stock assumed to be issued pursuant to the Merger. Such amounts
for purposes of determining diluted net income per share have been
determined by dividing pro forma net income by the sum of (i) the
weighted average number of shares of Sterling Common Stock and the
dilutive effect of stock options outstanding during each period
retroactively adjusted for stock dividends and splits and (ii) shares
of Sterling Common Stock and the dilutive effect of Sterling options
assumed to be issued pursuant to the merger.
(5) Represents the amount computed pursuant to (4) above multiplied by the
Exchange Ratio (.93).
(6) Excludes the impact of unrealized gains (losses) on securities
available-for-sale.
11
<PAGE> 21
SELECTED FINANCIAL DATA
We provide the following financial information to aid you in your
analysis of the financial aspects of the merger. These tables contain certain
selected historical consolidated summary financial data, for the periods and as
of the dates indicated, for Sterling Financial Corporation and for Hanover
Bancorp, Inc. This data is derived from, should be read in conjunction with, and
is qualified by the consolidated financial statements of Sterling and of
Hanover, including the notes to those financial statements, incorporated by
reference in this proxy statement/prospectus. The pro forma data is not
necessarily indicative of results that would have been achieved had the parties
consummated the transaction and you should not construe the data as
representative of future operations.
12
<PAGE> 22
STERLING FINANCIAL CORPORATION
Selected Financial Data (1)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSE:
Interest income $ 67,714 $ 65,763 $ 61,784 $ 57,530 $ 53,807
Interest expense 29,797 30,215 27,338 24,781 23,140
Net interest income 37,917 35,548 34,446 32,749 30,667
Provision for loan losses 420 956 1,129 540 276
Net interest income after
provision for loan losses 37,497 34,592 33,317 32,209 30,391
Noninterest income 29,497 27,193 22,928 19,166 16,246
Noninterest expenses 48,831 45,250 41,120 37,220 33,538
Income before income taxes 18,163 16,535 15,125 14,155 13,099
Income tax expense 4,924 4,193 3,969 3,648 3,356
Net income 13,239 12,342 11,156 10,507 9,743
SELECTED SHARE DATA:
Basic earnings per share $ 1.48 $ 1.38 $ 1.24 $ 1.16 $ 1.08
Diluted earnings per share 1.48 1.38 1.24 1.16 1.08
Cash dividends 0.721 0.664 0.625 0.550 0.650
Weighted average number of
common shares:
Basic 8,912 8,922 8,998 9,082 9,041
Diluted 8,935 8,949 9,002 9,082 9,041
Book value 10.08 9.91 9.02 8.34 7.66
Realized book value (3) 10.24 9.39 8.70 8.17 7.49
AVERAGE BALANCE SHEET TOTALS:
Total assets $ 1,025,760 $ 953,952 $ 860,419 $ 800,994 $ 726,314
Federal funds sold, short-term
investments and securities 277,540 257,461 215,258 202,967 198,979
Loans 627,635 587,824 548,353 506,237 448,840
Allowance for loan losses 8,141 8,335 8,298 8,364 7,822
Deposits 869,582 815,070 726,185 678,505 614,882
Borrowings 43,022 31,550 35,317 30,578 29,143
Stockholders' equity 89,110 84,603 78,390 73,477 66,703
BALANCE SHEET AT PERIOD END:
Total assets $ 1,059,374 $ 997,882 $ 915,173 $ 829,283 $ 776,593
Federal funds sold, short-term
investments and securities 265,834 286,095 245,783 213,392 221,522
Loans 663,008 592,660 566,878 520,225 467,698
Allowance for loan losses 8,174 8,070 8,142 8,259 8,324
Deposits 892,432 855,056 783,297 707,252 671,418
Borrowings 59,291 35,661 35,312 33,175 23,757
Stockholders' equity 90,018 88,191 80,468 75,581 69,821
</TABLE>
13
<PAGE> 23
STERLING FINANCIAL CORPORATION
Selected Financial Data (1)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING RATIOS:
Return on average assets 1.29% 1.29% 1.30% 1.31% 1.34%
Return on average equity 14.86% 14.59% 14.23% 14.30% 14.61%
Return on average realized equity (3) 15.17% 15.23% 14.62% 14.69% 14.87%
Leverage (average equity divided
by average assets) 8.69% 8.87% 9.11% 9.17% 9.18%
Average total loans as a percentage
of average deposits 72.18% 72.12% 75.51% 74.61% 73.00%
Interest income/average
earning assets (2) 7.80% 8.09% 8.35% 8.37% 8.56%
Interest expense/average interest
bearing liabilities 3.73% 4.04% 4.05% 4.09% 4.22%
Net interest income/average earning
assets (2) 4.51% 4.52% 4.77% 4.87% 4.99%
SELECTED ASSET QUALITY RATIOS:
Nonperforming assets/total loans and
other real estate owned 0.48% 0.63% 0.89% 0.39% 0.43%
Nonperforming loans/total loans 0.46% 0.60% 0.83% 0.37% 0.38%
Net charge-offs/average loans 0.05% 0.17% 0.23% 0.12% 0.09%
Loan loss reserves/total loans 1.23% 1.36% 1.44% 1.59% 1.78%
Loan loss reserves/nonperforming loans 269% 227% 174% 425% 474%
</TABLE>
(1) Restated to reflect the acquisition of Northeast Bancorp, Inc.,
acquired on June 15, 1999, which has been accounted for under the
pooling of interests accounting method.
(2) Amounts calculated on a tax-equivalent basis utilizing Sterling's
statutory federal income tax rate.
(3) Excludes the impact of unrealized gains (losses) on securities
available-for-sale.
14
<PAGE> 24
HANOVER BANCORP, INC.
Selected Financial Data
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSE:
Interest income $ 33,909 $ 31,239 $ 28,319 $ 25,420 $ 23,892
Interest expense 17,817 15,854 13,941 12,148 11,409
Net interest income 16,092 15,385 14,378 13,272 12,483
Provision for loan losses 640 1,060 910 480 360
Net interest income after
provision for loan losses 15,452 14,325 13,468 12,792 12,123
Noninterest income 4,287 4,310 3,259 2,912 2,594
Noninterest expenses 13,661 12,907 11,549 10,986 10,201
Income before income taxes 6,078 5,728 5,178 4,718 4,516
Income tax expense 1,332 1,477 1,371 1,138 960
Net income 4,746 4,251 3,807 3,580 3,556
SELECTED SHARE DATA:
Basic earnings per share $ 1.21 $ 1.08 $ 0.97 $ 0.88 $ 0.86
Diluted earnings per share 1.21 1.08 0.97 0.88 0.86
Cash dividends 0.460 0.420 0.370 0.340 0.310
Weighted average number of
common shares:
Basic 3,922 3,934 3,931 4,057 4,142
Diluted 3,923 3,952 3,931 4,057 4,142
Book value 8.43 9.38 8.77 7.97 7.93
Realized book value (2) 9.73 9.07 8.35 7.82 7.56
AVERAGE BALANCE SHEET:
Total assets $ 487,956 $ 426,934 $ 377,604 $ 344,146 $ 321,949
Federal funds sold, short-term
investments and securities 170,706 119,808 90,257 91,138 98,378
Loans 293,427 282,590 265,293 232,643 205,970
Allowance for loan losses 3,639 3,233 2,537 2,322 2,631
Deposits 385,208 344,436 313,086 288,895 264,457
Borrowings 62,369 41,863 27,959 19,794 23,830
Stockholders' equity 35,451 35,972 32,616 31,910 30,602
BALANCE SHEET AT PERIOD END:
Total assets $ 503,924 $ 470,093 $ 406,356 $ 356,129 $ 337,222
Federal funds sold, short-term
investments and securities 171,454 153,655 103,335 76,174 104,418
Loans 298,975 289,340 277,475 254,573 213,869
Allowance for loan losses 3,701 3,405 2,908 2,403 2,220
Deposits 396,509 364,008 329,951 297,004 278,234
Borrowings 70,321 64,787 37,885 24,300 22,953
Stockholders' equity 32,748 36,944 34,314 31,541 32,862
</TABLE>
15
<PAGE> 25
HANOVER BANCORP, INC.
Selected Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING RATIOS:
Return on average assets 0.97% 1.00% 1.01% 1.04% 1.10%
Return on average equity 13.39% 11.82% 11.67% 11.22% 11.62%
Return on average realized equity (2) 12.79% 12.32% 11.92% 11.41% 11.75%
Leverage (average equity divided
by average assets) 7.27% 8.43% 8.64% 9.27% 9.51%
Average total loans as a percentage
of average deposits 76.17% 82.04% 84.73% 80.53% 77.88%
Interest income/average earning assets (1) 7.58% 7.99% 8.16% 8.09% 8.17%
Interest expense/average interest bearing
liabilities 4.33% 4.46% 4.45% 4.31% 4.22%
Net interest income/average earning
assets (1) 3.74% 4.05% 4.24% 4.34% 4.42%
SELECTED ASSET QUALITY RATIOS:
Nonperforming assets/total loans and
other real estate owned 0.31% 0.35% 0.35% 0.21% 0.17%
Nonperforming loans/total loans 0.19% 0.33% 0.26% 0.18% 0.15%
Net charge-offs/average loans 0.12% 0.20% 0.15% 0.13% 0.31%
Loan loss reserves/total loans 1.24% 1.18% 1.05% 0.94% 1.04%
Loan loss reserves/nonperforming loans 403% 333% 302% 443% 597%
</TABLE>
(1) Amounts calculated on a tax-equivalent basis utilizing
Hanover's statutory federal income tax rate.
(2) Excludes the impact of unrealized gains (losses) on securities
available-for-sale.
16
<PAGE> 26
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth selected unaudited pro forma financial
data reflecting the merger.
We prepared the pro forma information assuming that shareholders of
Hanover will receive .93 shares of Sterling common stock in the merger for each
share of Hanover common stock they own. Sterling pro forma financial information
included in this proxy statement is presented for illustrative purposes only.
The pro forma financial information does not necessarily reflect the actual
results of Sterling following completion of the merger.
We prepared the pro forma information using the "pooling-of-interests"
method of accounting for business combinations. Use of this method is a
pre-condition for the completion of the merger.
The pro forma information presented does not give effect to any cost
savings that may be realized nor any merger-related expenses that may be
incurred as a result of the merger. It also ignores the effect of cash payments
that will be required for fractional shares and may be paid to dissenting
shareholders. The amount of these cash payments is impossible to estimate but we
believe it to be immaterial.
17
<PAGE> 27
STERLING FINANCIAL CORPORATION (PRO FORMA)
Selected Financial Data
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME AND EXPENSE:
Interest income $ 101,414 $ 96,871 $ 89,960 $ 82,950 $ 77,699
Interest expense 47,405 45,938 41,136 36,929 34,549
Net interest income 54,009 50,933 48,824 46,021 43,150
Provision for loan losses 1,060 2,016 2,039 1,020 636
Net interest income after
provision for loan losses 52,949 48,917 46,785 45,001 42,514
Noninterest income 33,784 31,503 26,187 22,078 18,840
Noninterest expenses 62,492 58,157 52,669 48,206 43,739
Income before income taxes 24,241 22,263 20,303 18,873 17,615
Income tax expense 6,256 5,670 5,340 4,786 4,316
Net income 17,985 16,593 14,963 14,087 13,299
SELECTED SHARE DATA:
Basic earnings per share $ 1.43 $ 1.32 $ 1.18 $ 1.10 $ 1.03
Diluted earnings per share 1.43 1.31 1.18 1.09 1.03
Cash dividends 0.721 0.664 0.625 0.550 0.650
Weighted average number of
common shares:
Basic 12,559 12,581 12,654 12,855 12,899
Diluted 12,620 12,644 12,671 12,869 12,907
Book value 9.79 9.96 9.14 8.40 7.92
Realized book value (2) 10.30 9.49 8.78 8.24 7.68
AVERAGE BALANCE SHEET TOTALS:
Total assets $ 1,513,716 $ 1,380,886 $ 1,238,023 $ 1,145,140 $ 1,048,263
Federal funds sold, short-term
investments and securities 448,246 377,269 305,515 294,105 297,357
Loans 921,062 870,414 813,646 738,880 654,810
Allowance for loan losses 11,780 11,568 10,835 10,686 10,453
Deposits 1,254,790 1,159,506 1,039,271 967,400 879,339
Borrowings 105,391 73,413 63,276 50,372 52,973
Stockholders' equity 124,561 120,575 111,006 105,387 97,305
BALANCE SHEET AT PERIOD END:
Total assets 1,559,677 1,466,100 1,321,529 1,185,412 1,113,815
Federal funds sold, short-term
investments and securities 437,282 439,750 349,118 289,566 325,940
Loans 958,368 880,125 844,353 774,798 681,567
Allowance for loan losses 11,875 11,475 11,050 10,662 10,544
Deposits 1,288,941 1,219,064 1,113,248 1,004,256 949,652
Borrowings 125,997 98,573 73,197 57,475 46,710
Stockholders' equity 122,760 125,135 114,782 107,122 102,683
</TABLE>
18
<PAGE> 28
STERLING FINANCIAL CORPORATION (PRO FORMA)
Selected Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING RATIOS:
Return on average assets 1.19% 1.20% 1.21% 1.23% 1.27%
Return on average equity 14.44% 13.76% 13.48% 13.37% 13.67%
Leverage (average equity divided
by average assets) 8.23% 8.73% 8.97% 9.20% 9.28%
Average total loans as a percentage
of average deposits 73.40% 75.07% 78.29% 76.38% 74.47%
Interest income/average earning
assets (1) 7.73% 8.06% 8.29% 8.28% 8.43%
Interest expense/average interest
bearing liabilities 3.93% 4.18% 4.18% 4.16% 4.25%
Net interest income/average earning
assets (1) 4.25% 4.37% 4.60% 4.71% 4.81%
SELECTED ASSET QUALITY RATIOS:
Nonperforming assets/total loans
and other real estate owned 0.43% 0.54% 0.71% 0.33% 0.35%
Nonperforming loans/total loans 0.38% 0.51% 0.64% 0.31% 0.31%
Net charge-offs/average loans 0.07% 0.18% 0.20% 0.12% 0.16%
Loan loss reserves/total loans 1.23% 1.30% 1.31% 1.38% 1.55%
Loan loss reserves/nonperforming loans 288% 241% 184% 415% 443%
</TABLE>
(1) Amounts calculated on a tax-equivalent basis utilizing Sterling and
Hanover's statutory federal income tax rate.
(2) Excludes the impact of unrealized gain (losses) on securities
available-for-sale.
19
<PAGE> 29
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Sterling
and
Pro Forma Hanover
Sterling Hanover Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 52,924 $ 20,251 $ -- $ 73,175
Interest bearing deposits in banks and
short-term investments 1,009 396 -- 1,405
Securities 259,575 171,058 (6)(1) 430,627
Loans 663,008 298,975 (3,615)(2) 958,368
Allowance for loan losses (8,174) (3,701) (11,875)
Goodwill and other intangible assets 3,314 121 -- 3,435
Other assets 87,718 16,824 -- 104,542
----------- ----------- ----------- -----------
Total assets $ 1,059,374 $ 503,924 $ (3,621) $ 1,559,677
=========== =========== =========== ===========
Deposits $ 892,432 $ 396,509 $ -- $ 1,288,941
Borrowings 59,291 70,321 (3,615)(2) 125,997
Other liabilities 17,633 4,346 -- 21,979
----------- ----------- ----------- -----------
Total liabilities 969,356 471,176 (3,615) 1,436,917
----------- ----------- ----------- -----------
Common stock 44,674 3,223 14,834(3) 62,731
Capital surplus 14,461 18,271 (14,834)(3) 17,892
(6)(1)
Accumulated other comprehensive income (loss) (1,448) (5,019) -- (6,467)
Retained earnings 32,432 16,273 -- 48,705
Treasury stock (101) -- -- (101)
----------- ----------- ----------- -----------
Total stockholders' equity 90,018 32,748 (6) 122,760
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 1,059,374 $ 503,924 $ (3,621) $ 1,559,677
=========== =========== =========== ===========
</TABLE>
(1) - Proforma adjustment to eliminate intercorporate investment.
(2) - Proforma adjustment to eliminate intercorporate loans.
(3) - Proforma adjustment to convert Hanover's $.83 par to Sterling's $5.00
par and to properly reflect .93 exchange ratio.
20
<PAGE> 30
PRO FORMA STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
The following three tables show pro forma statements of income for the
years ended December 31, 1999, 1998 and 1997. We prepared this pro forma
information under the pooling-of-interests method of accounting assuming that
the merger occurred on the first day of each period for which we present
information. Under the pooling-of-interests method of accounting, the income
statements of the separate companies are added together for each period shown.
The unaudited pro forma condensed combined income statements do not include any
non-recurring material expenses related to the Hanover acquisition. Sterling is
currently in the process of estimating the dollar amount of such expenses. You
should read this pro forma information together with the historical financial
statements of Sterling and Hanover incorporated by reference in this proxy
statement. See "WHERE YOU CAN FIND MORE INFORMATION."
21
<PAGE> 31
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
As of December 31, 1999
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Sterling
and
Pro Forma Hanover
Sterling Hanover Adjustments Combined
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Interest income $ 67,714 $ 33,909 $ (209)(1) $101,414
Interest expense 29,797 $ 17,817 (209)(1) 47,405
Net interest income 37,917 16,092 -- 54,009
Provision for loan losses 420 640 -- 1,060
Net interest income after provision for loan losses 37,497 15,452 -- 52,949
Non-interest income 29,497 4,287 -- 33,784
Non-interest expense 48,831 13,661 -- 62,492
-------- -------- -------- --------
Income before income taxes 18,163 6,078 -- 24,241
Income tax expense 4,924 1,332 -- 6,256
-------- -------- -------- --------
Net income $ 13,239 $ 4,746 $ -- $ 17,985
======== ======== ======== ========
Total comprehensive income (loss) $ 7,124 $ (1,477) $ -- $ 5,647
======== ======== ======== ========
Basic earnings per share $ 1.48 $ 1.21 $ 1.43
======== ======== ========
Diluted earnings per share $ 1.48 $ 1.21 $ 1.43
======== ======== ========
Weighted average number of shares outstanding:
Basic 8,912 3,922 (275)(2) 12,559
Diluted 8,935 3,923 (238)(3) 12,620
</TABLE>
(1) - Proforma adjustment to eliminate interest on intercorporate debt.
(2) - Proforma adjustment to reflect exchange rate of .93.
(3) - Proforma adjustment to reflect exchange rate of .93 and incremental
dilution of Hanover stock options.
22
<PAGE> 32
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
As of December 31, 1998
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Sterling
and
Pro Forma Hanover
Sterling Hanover Adjustments Combined
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Interest income $65,763 $31,239 $ (131)(1) $96,871
Interest expense 30,215 15,854 (131)(1) 45,938
Net interest income 35,548 15,385 -- 50,933
Provision for loan losses 956 1,060 -- 2,016
Net interest income after provision for loan losses 34,592 14,325 -- 48,917
Non-interest income 27,193 4,310 -- 31,503
Non-interest expense 45,250 12,907 -- 58,157
------- ------- ------- -------
Income before income taxes 16,535 5,728 -- 22,263
Income tax expense 4,193 1,477 -- 5,670
------- ------- ------- -------
Net income $12,342 $ 4,251 $ -- $16,593
======= ======= ======= =======
Total comprehensive income $14,162 $ 3,803 $ -- $17,965
======= ======= ======= =======
Basic earnings per share $ 1.38 $ 1.08 $ 1.32
======= ======= =======
Diluted earnings per share $ 1.38 $ 1.08 $ 1.31
======= ======= =======
Weighted average number of shares outstanding:
Basic 8,922 3,934 (275)(2) 12,581
Diluted 8,949 3,952 (257)(3) 12,644
</TABLE>
(1) - Proforma adjustment to eliminate interest on intercorporate debt.
(2) - Proforma adjustment to reflect exchange rate of .93.
(3) - Proforma adjustment to reflect exchange rate of .93 and incremental
dilution of Hanover stock options.
23
<PAGE> 33
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
As of December 31, 1997
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Sterling
and
Pro Forma Hanover
Sterling Hanover Adjustments Combined
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
Interest income $61,784 $28,319 $ (143)(1) $89,960
Interest expense 27,338 13,941 (143)(1) 41,136
Net interest income 34,446 14,378 -- 48,824
Provision for loan losses 1,129 910 -- 2,039
Net interest income after provision for loan losses 33,317 13,468 -- 46,785
Non-interest income 22,928 3,259 -- 26,187
Non-interest expense 41,120 11,549 -- 52,669
------- ------- ------- -------
Income before income taxes 15,125 5,178 -- 20,303
Income tax expense 3,969 1,371 -- 5,340
------- ------- ------- -------
Net income $11,156 $ 3,807 $ -- $14,963
======= ======= ======= =======
Total comprehensive income $12,456 $ 4,861 $ -- $17,317
======= ======= ======= =======
Basic earnings per share $ 1.24 $ 0.97 $ 1.18
======= ======= =======
Diluted earnings per share $ 1.24 $ 0.97 $ 1.18
======= ======= =======
Weighted average number of shares outstanding:
Basic 8,998 3,931 (275)(2) 12,654
Diluted 9,002 3,931 (262)(3) 12,671
</TABLE>
(1) - Proforma adjustment to eliminate interest on intercorporate debt.
(2) - Proforma adjustment to reflect exchange rate of .93.
(3) - Proforma adjustment to reflect exchange rate of .93 and incremental
dilution of Hanover stock options.
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THE MEETINGS
DATE, TIME AND PLACE
Sterling. The Sterling annual meeting will be held at Willow Valley
Family Resort and Conference Center, 2416 Willow Street Pike, Lancaster,
Pennsylvania, at 9:00 a.m., local time, on May 22, 2000.
Hanover. The Hanover annual meeting will be held at the Hanover Country
Club, Lincolnway East, R.D. 1, Abbottstown, Pennsylvania, 9:30 a.m., local
time, on May 23, 2000.
MATTERS TO BE CONSIDERED AT THE STERLING ANNUAL MEETING
At the Sterling annual meeting, we will ask holders of Sterling common
stock to consider and vote upon the approval and adoption of the agreement and
the approval of the Sterling adjournment proposal. In addition, holders of
Sterling common stock will be asked to:
- Elect five Class of 2003 directors to serve for a three-year
term; and
- Vote upon a proposal to ratify the selection of Ernst & Young
LLP as the corporation's independent certified public
accountants for the year ending December 31, 2000.
Sterling shareholders may also consider and vote upon other matters
that may be properly brought before the Sterling annual meeting.
The Board of Directors of Sterling has unanimously approved the
agreement and recommends a vote FOR approval and adoption of the agreement, FOR
approval of the adjournment proposal, FOR the election, as directors, of the
nominees of the Board of Directors and FOR ratification of the appointment of
auditors.
MATTERS TO BE CONSIDERED AT THE HANOVER ANNUAL MEETING
At the Hanover annual meeting, we will ask holders of Hanover common
stock to consider and vote upon the approval and adoption of the agreement and
the approval of the Hanover adjournment proposal. In addition, holders of
Hanover common stock will be asked to elect three directors for a three-year
term. Hanover shareholders may also consider and vote upon other matters that
may properly be brought before the Hanover annual meeting.
The Board of Directors of Hanover has unanimously approved the
agreement and recommends a vote FOR approval and adoption of the agreement, FOR
approval of the Hanover adjournment proposal and FOR the election, as directors,
of the nominees of the Board of Directors.
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<PAGE> 35
VOTES REQUIRED
Sterling. Approval of the agreement requires the affirmative vote of
holders of 66 2/3% of the outstanding shares of the Sterling common stock
entitled to vote at the Sterling annual meeting. Sterling is authorized to issue
35,000,000 shares of common stock. On March 31, 2000, there were 8,931,568
shares of common stock outstanding. All other matters to be voted upon by the
Sterling shareholders require the affirmative vote of a majority of the common
stock present, in person or by proxy, at the annual meeting.
Each holder of shares of Sterling common stock outstanding on Sterling
record date, March 31, 2000, is entitled to one vote for each share held of
record on each matter to be considered at the Sterling annual meeting.
Shareholders of Sterling are not entitled to cumulate votes for the election of
directors.
As of the Sterling record date, directors and executive officers of
Sterling and their affiliates beneficially owned and were entitled to vote ___
shares of Sterling common stock, which represented approximately __% of the
shares of Sterling common stock outstanding on the Sterling record date. Each
Sterling director and executive officer has indicated his present intention to
vote the Sterling common stock so owned by him or her for approval and adoption
of the agreement and all other matters to be presented at the meeting to
Sterling shareholders.
Hanover. Approval of the agreement requires the affirmative vote of a
majority of the outstanding shares of the Hanover common stock entitled to vote
at the Hanover annual meeting. Hanover is authorized to issue 9,000,000 shares
of common stock and 2,000,000 shares of preferred stock. On March 31, 2000,
there were 3,884,189 shares of common stock outstanding and no shares of
authorized preferred stock outstanding. All other matters to be voted on at the
meeting require the affirmative vote of holders of the majority of the Hanover
common stock present, in person or by the proxy, at the Hanover annual meeting.
Each holder of shares of Hanover common stock outstanding on the
Hanover record date, March 31, 2000, is entitled to one vote for each share held
of record on each matter to be considered at the Hanover annual meeting.
Shareholders of Hanover are not entitled to cumulate votes for the election of
directors.
As of the Hanover record date, directors and senior officers of Hanover
and their affiliates beneficially owned and were entitled to vote 288,874 shares
of Hanover common stock, which represented approximately 7.4% of the shares of
Hanover common stock outstanding on the Hanover record date. Each Hanover
director and senior officer has indicated his present intention to vote the
Hanover common stock so owned by him for approval and adoption of the agreement
and all other matters to be presented at the meeting to Hanover shareholders.
The Hanover directors and senior officers each executed a letter
agreement expressing their present intention to support the merger by:
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<PAGE> 36
- Attending Hanover's shareholders meetings and any adjournment
of the meetings and voting shares over which the individual
has control in favor of the merger with Sterling;
- Agreeing not to:
- Vote shares over which the individual has control in
favor of a transaction with a third party;
- Transfer shares over which the individual has
control;
- Rescind a vote or consent the individual has already
given supporting the transaction with Sterling; and
- Take action to prevent consummation of the merger;
- Agreeing not to change the individual's Hanover or Sterling
stock holdings beginning with the price determination period
and ending after 30 days of post merger combined operations
are published; and
- Agreeing to permit Hanover's stock transfer agent to stop any
stock transfer that would violate the agreement.
The letter agreement relates only to the individual's capacity as a shareholder
of Hanover and does not affect the individual's exercise of responsibilities and
fiduciary duties as a director or officer of Hanover.
As of both the Sterling record date and the Hanover record date,
neither Sterling nor Hanover had voting power with respect to any shares of
Sterling or Hanover common stock in a fiduciary, custodian or agent capacity,
except however that Sterling holds 400 shares of Hanover stock as available for
sale and their trust departments may each hold a deminimus number of shares in a
fiduciary capacity. In addition, Hanover granted Sterling an option to acquire
772,955 shares of Hanover common stock or 19.9% of Hanover's issued and
outstanding shares, as described in "Investment Agreement," below.
VOTING, REVOCATION AND SOLICITATION OF PROXIES
Proxy holders will vote shares represented by all properly executed
proxies received in time for the meetings in the manner specified. In the case
of shares of Sterling, proxy holders will vote properly executed proxies that do
not contain voting instructions in favor of the agreement, in favor of the
Sterling adjournment proposal, in favor of the election, as directors, of the
nominees of the Board of Directors and for approval of Ernst & Young LLP as the
corporation's independent auditors.
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<PAGE> 37
In the case of shares of Hanover, proxy holders will vote properly
executed proxies that do not contain voting instructions in favor of the
agreement, in favor of the Hanover adjournment proposal and in favor of the
election, as directors, of the nominees of the Board of Directors.
Sterling and Hanover each intend to count shares of Sterling common
stock or Hanover common stock, as the case may be, present in person at the
meetings but not voting, and shares of Sterling common stock or Hanover common
stock, as the case may be, for which they have received proxies but with respect
to which holders of shares have abstained or not voted on any matter, as present
at the meetings for purpose of determining the presence of a quorum for the
transaction of business.
A broker cannot vote your shares with respect to the merger without
specific instructions from you, the shareholder. Abstentions and broker
non-votes relating to shares of Sterling or Hanover common stock will not
constitute or be counted as votes "cast," but will be counted for the
determination of a quorum, for purposes of the Sterling annual meeting and for
the Hanover annual meeting. Neither Sterling nor Hanover expect any matter other
than those referred to in this proxy will be brought before either of the
meetings. If, however, other matters are properly presented for a vote, the
persons named as proxies will vote in accordance with their judgement with
respect to such to matters.
If you sign your proxy but do not make any selections, you give
discretionary authority to the proxy holder to vote on the proposals at the
meeting. Also, every proxy gives the holder discretionary authority to vote on
other matters that may arise at the meeting of which management is not currently
aware. However, the proxy holders will not vote any proxy that withholds
authority or that is voted against the merger in favor of any adjournment of the
meeting.
If you execute a proxy, you can revoke it at any time up to the time of
the vote on the issue. Unless revoked, shares represented by proxies will be
voted at the meetings and at all adjournments or postponements of the meetings.
Your attendance at the meeting will not revoke your proxy. Proxies may be
revoked by:
Delivery of a notice of revocation or of a later-dated proxy to:
- Sterling: Ronald L. Bowman
Vice President/Secretary
Sterling Financial Corporation
101 North Pointe Boulevard
Lancaster, PA 17601
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<PAGE> 38
- Hanover: Thomas J. Paholsky
Secretary
Hanover Bancorp, Inc.
33 Carlisle Street
Hanover, PA 17331
- Submitting a duly executed proxy bearing a later date.
- Your attendance at the Sterling or Hanover meeting, as the
case may be, and your notification to the Secretary that you
wish to vote your shares in person.
If a quorum is not present at the beginning of the meeting, the Board
of Directors of Sterling or Hanover, as the case may be, intend to adjourn the
meeting to another place and time without further notice to the shareholders. If
for any other reason the Board of Directors of Sterling or Hanover believe
additional time should be allowed to obtain proxies, the Board may adjourn the
meeting with a vote of a majority of the shares outstanding. If the Board
proposes to adjourn the meeting, the proxy holders will vote all shares for
which they have voting authority in favor of the adjournment.
In connection with the solicitation of proxies, Sterling will:
- Bear the cost of soliciting its proxies;
- Reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable expenses; and
- If it so decides, solicit proxies personally or by telegraph
or telephone.
In connection with the solicitation of proxies, Hanover will:
- Bear the cost of soliciting its proxies;
- Reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable expenses; and
- If it so decides, solicit proxies personally or by telegraph
or telephone.
RECORD DATE
Sterling. On the Sterling record date, March 31, 2000, 8,931,568 shares
of Sterling common stock were issued and outstanding and held by approximately
3,325 holders of record. Common stock is the only issued and outstanding class
of stock. Except as shown on the table
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<PAGE> 39
on page __, Sterling's Board of Directors is not aware of any individual, entity
or group that owns more than 10% of Sterling's common stock.
Hanover. On the Hanover record date March 31, 2000, 3,884,189 shares of
Hanover common stock were issued and outstanding and held by approximately 1,528
holders of record. Common stock is the only issued and outstanding class of
stock. Except as shown on the table on page __, Hanover's Board of Directors is
not aware of any individual, entity or group that owns more than 10% of
Hanover's common stock.
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<PAGE> 40
MATTER NO. 1
APPROVAL OF THE AGREEMENT AND PLAN OF MERGER
In this section we describe the material terms and provisions of the
proposed merger. A copy of the agreement that provides for the merger is
attached to this proxy statement/prospectus as Annex A. This is only a
discussion of material terms of the merger and we qualify it by reference to the
full text of the agreement. We urge all shareholders to read the merger
agreement.
The agreement provides that:
- Hanover Bancorp, Inc. will be merged into Sterling Financial
Corporation; and
- Shareholders of Hanover will receive .93 shares of Sterling
common stock for each share of Hanover common stock owned when
the merger is completed.
Hanover Bancorp, Inc. will cease to exist. The Bank of Hanover and
Trust Company and HOVB Investment Co. will be subsidiaries of Sterling Financial
Corporation. The Federal Deposit Insurance Corporation and the Pennsylvania
Department of Banking will continue to regulate The Bank of Hanover and Trust
Company.
The Boards of Directors of Sterling and Hanover have unanimously
approved and adopted the agreement and believe the merger is in the best
interests of Sterling and Hanover, as the case may be, their shareholders and
other constituencies. The Boards of Directors of Sterling and Hanover have
unanimously recommended that shareholders vote "FOR" the agreement.
BACKGROUND OF THE MERGER
Sterling. The Sterling Board of Directors has, for several years, as
part of its long-range planning practices, periodically reviewed and evaluated
the various strategic options and alternatives available to maximize the
economic benefits for Sterling and its shareholders. At its most recent annual
review, the board considered its long-range plan in light of current economic,
financial and regulatory conditions and their impact and likely future
ramifications for Sterling and the local financial services industry.
In the past several years, Sterling has been able to fulfill its
strategy of expanding through acquisition of North East Bank, as well as through
internal growth in its market place and the effective management of its net
interest margin.
The Sterling Board has long recognized that, in order for Sterling to
achieve the requisite scale and scope of operations necessary to remain an
effective competitor in the dramatically changing market for banking and
financial services, the Board should look to strategic
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<PAGE> 41
combinations with other entities that share the culture and philosophy of
Sterling with a similar commitment to long-term shareholder value and expand
through strategic acquisition
Hanover. In the context of its ongoing evaluation of shareholder value,
and its strategic positioning of the Bank of Hanover as a community bank serving
its natural market, the Board of Directors from time to time discussed the
attraction of creating a company that could retain the inherent characteristics
of the Bank of Hanover, yet have the size and scale necessary to produce
shareholder value and compete over the long term. With this in mind, the Board
of Directors of Hanover explored various options, including acquisitions,
mergers of equals or affiliations with larger institutions, through the years,
becoming more active recently in evaluating such alternatives.
General. Hanover and Sterling have had an ongoing business relationship
for at least five years, in which Town & Country, Inc., a Bank of Lancaster
County subsidiary, was a customer of Bank of Hanover. The two companies were
also involved in loan participations. In mid 1999, John Stefan, President of
Sterling, and Brad Scovill, President of Hanover, informally discussed
acquisition strategies, in general, and first contemplated the possibility that
Hanover and Sterling might find success in pursuing a strategic opportunity
together. In September 1999, Terrence Hormel, Chairman of Hanover, and Mr.
Scovill met with Mr. Stefan to further discuss strategies. In the following two
months, Messrs. Scovill and Stefan discussed potential structures, philosophies
and social issues regarding a potential transaction between Hanover and
Sterling.
As part of its evaluation of its strategic alternatives, including
discussions with Sterling, Hanover's Board began to interview investment banking
firms. In November and December, 1999, following its assessment of investment
banking candidates, the Board decided to hire McConnell, Budd & Downes, Inc. In
December, the Board of Directors also retained Barley, Snyder, Senft & Cohen,
LLC to provide legal counsel in connection with its discussions, and any
possible transaction, with Sterling.
On January 10, 2000, representatives of Sterling and Hanover, their
respective legal counsel and representatives of MB&D met to discuss the
development of an indication of interest outlining terms of a possible
affiliation between Hanover and Sterling. As a result of this meeting, Sterling,
with its legal counsel, Shumaker Williams, P.C. and investment banking firm,
Garland McPherson, developed a non-binding indication of interest and presented
it to Hanover for its consideration. The indication of interest was discussed at
a meeting of Hanover's Executive Committee of its Board of Directors held on
January 13, 2000. As a result of the meeting, the Executive Committee authorized
Hanover's management and advisors to proceed to negotiate a revised indication
of interest and forms of definitive affiliation agreements with Sterling.
Following the meeting, Messrs. Hormel and Scovill made each of the directors of
Hanover aware, on a confidential basis, of a possible transaction with Sterling.
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<PAGE> 42
Hanover's Board of Directors met on January 21, 2000, to consider a
revised indication of interest and draft affiliation agreements. At the meeting,
management of Hanover, MB&D and Barley, Snyder made extensive presentations on
the business, financial and legal aspects of the proposed transaction.
The Board considered these presentations in the context of Hanover's
ongoing process of exploring its various alternatives and assessing how these
alternatives would support increasing long-term shareholder value while still
maintaining Bank of Hanover as a community bank serving its natural markets. In
this context, the Board reviewed Hanover's historical relationship with Sterling
and the results of the preliminary conversations with Sterling regarding the
benefits that could be provided to shareholders, employees and customers if the
two companies joined together. The Board discussed many factors that made the
possibility of merging with Sterling attractive and that are discussed in the
"Reasons for the Merger" section, following.
The Board discussed the proposed structure, which would allow Bank of
Hanover to remain a separate operating subsidiary and to influence Sterling's
future direction through three board seats on the holding company board.
Sterling proposed to give Hanover shareholders .93 shares of Sterling common
stock for each share of Hanover stock and to "roll over" any outstanding Hanover
stock options. Other terms of the indication of interest included:
- A requirement that the transaction be accounted for as a
pooling of interests;
- A multibank holding company structure with Bank of Hanover as
a separate subsidiary; and
- Termination rights of each party based on the market value of
Sterling stock during a period prior to closing.
After reviewing these terms and the proposed time line for pursuing the
transaction, representatives of McConnell Budd presented a financial analysis of
the proposed transaction. Their report summarized the aggregate and per share
value of the transaction based on the current market value of Sterling stock and
the proposed consideration as a multiple of Hanover's 1999 and estimated 2000
earnings and book value. The report also contained:
- An extensive financial analysis of the proposed transaction,
including a listing of comparable banking transactions in the
northeastern region based on a number of measures, including
earnings and book value multiples;
- A merger model that included various "pass through" values
(e.g. market value, earnings power, book value and dividend
income) using a .93 exchange ratio and cost savings required
to eliminate dilution;
- An analysis of certain other potential acquirers' ability to
pay the proposed price, in terms of dilution and cost savings;
- A discounted cash flow analysis; and
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<PAGE> 43
- An analysis of the market value of Sterling's stock in
comparison to its peers.
Particular note was made of the fact that Sterling's stock traded at a
higher multiple of its earnings than its peers and the risks associated with a
potential decline in the market value of its stock and a fixed exchange ratio.
Following the presentation and discussion with the Board, representatives of
MB&D indicated that they anticipated that their firm would be in a position to
render an opinion that the proposed exchange ratio is fair to the Hanover
shareholders from a financial point of view.
A representative of Barley, Snyder then addressed the Board regarding
issues of confidentiality and emphasizing the need to refrain from trading, or
disclosing information which may lead others to trade, in the stock of Sterling
or Hanover. He also summarized the process which was proposed should the Board
authorize Hanover's management and advisors to continue to pursue the
transaction; the draft definitive agreement would continue to be negotiated;
mutual due diligence would be continued; and McConnell Budd would be asked to
finalize its "fairness opinion." Assuming these items progressed in a
satisfactory manner, a final definitive agreement would be presented to the
Boards of Sterling and Hanover and, if approved, the agreement would be executed
and the transaction would be publicly announced.
Barley, Snyder then reviewed the directors' standard of care in
evaluating the transaction under Pennsylvania corporate law and reviewed in
detail both the indication of interest and the draft definitive agreements
received from Sterling. The review involved:
- The structure of the transaction;
- The exchange of Sterling stock for Hanover stock;
- Covenants of the parties between the date of the Agreement and
closing;
- Conditions to consummation of the transaction;
- The option to be granted to Sterling by Hanover allowing
Sterling to acquire up to 19.9% of Hanover's outstanding under
certain conditions; and
- The requirement that each director execute an agreement
agreeing to vote his shares in favor of the transaction.
Drafts of the definitive agreements were made available for review by Board
members. After considerable discussion, it was the unanimous sense of the Board
to proceed with the process through negotiation of definitive agreements and
additional due diligence.
On January 25, 2000, Sterling's Board of Directors met to discuss the
proposed agreement relating to the acquisition of Hanover. Representatives of
Shumaker Williams and
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<PAGE> 44
Garland McPherson attended the meeting. The Board discussed the strategic impact
of the merger, counsel reviewed and analyzed terms of the proposed agreement
with Hanover including:
- Structure of the transaction;
- Consideration;
- Covenants of the Agreement;
- The 19.9% stock option granted by Hanover to Sterling; and
- Termination provisions.
Counsel also discussed the Board's fiduciary duties under the law. The Board
then discussed:
- Certain financial aspects of the proposed transaction, as
described in the disclosure of Garland McPherson, below.
- The general structure of the transaction and certain
pooling-of-accounting issues and tax consequences, as
discussed later in this proxy statement/prospectus.
- Messrs. Stefan, Moyer and counsel discussed the findings of
their due diligence review.
- In addition, counsel and the Board of Directors discussed the
continuing parameters of the insider trading blackout.
The Board then authorized officers of the company to execute and
deliver the agreement substantially in the form presented to the Board of
Directors and reviewed by the Board of Directors.
A meeting of Hanover's Board of Directors was held on January 25, 2000,
to review the proposed definitive agreements relating to the acquisition of
Hanover by Sterling. A representative of Barley, Snyder indicated that the
parties' management and advisors had completed their mutual due diligence, and
negotiated terms of definitive agreements to present to the Board of Sterling
and Hanover.
Barley, Snyder then reviewed the provisions of the proposed agreement
and plan of merger, investment agreement and stock option in detail with the
Board. Barley, Snyder particularly noted and described the "market out"
termination provisions of the agreement as finally negotiated allowing Hanover
to terminate the transaction under certain circumstances relating to a decline
in the market value of Sterling's stock and providing a substantially
35
<PAGE> 45
reciprocal right to Sterling in the event of an increase in the market value of
Sterling's stock. Barley, Snyder also described in some detail the exercise
events, redemption rights and termination fee provisions relating to the option
to be granted by Hanover to Sterling to acquire up to 19.9% of Hanover's stock
under certain circumstances.
Representatives of MB&D then updated their presentation of January 21,
2000, on the financial analysis of the transaction, including the distribution
of an updated report. The report included a summary of the terms of the
affiliation, examples of the "market out" termination clauses, an updated merger
model and a written "fairness opinion" concluding that, as of the date of the
opinion, the exchange ratio was fair to the shareholders of Hanover from a
financial point of view.
A representative of Barley, Snyder then reviewed the set of resolutions
to be presented for Board action on the definitive agreements. The Board
unanimously adopted the resolutions and Hanover and Sterling proceeded to
execute the definitive merger documents and disclosed the transaction through a
press release and SEC filing.
STERLING REASONS FOR THE MERGER
At its meeting on January 25, 2000, the Sterling Board of Directors
unanimously determined that the terms of the agreement with Hanover were in the
best interest of Sterling, its shareholders and other constituencies. In the
course of reaching its decision to approve the agreement, the Sterling Board of
Directors consulted with:
- Garland McPherson & Associates, Inc.;
- Its legal counsel; and
- Independent certified public accountants.
In reaching these conclusions, the Sterling Board considered a number
of factors, including the following:
- Sterling's current condition and historical operating results
and its prospective results of operations if Sterling were to
acquire Hanover, including the earnings potential of the
combined business;
- The results of operations of the resulting entity, if there is
realization of economies of scale over a 1-to-3 year period of
time;
- The economic, business and competitive climate for banking and
financial institutions in south central Pennsylvania and
northern Maryland and Sterling's business plan for
strengthening and broadening Sterling's market position in
this
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<PAGE> 46
area, specifically, the ability of Sterling through this
transaction to enter a neighboring market with additional
market opportunities;
- The potential expansion of Sterling's non-interest revenue
through its leasing subsidiary, Town & Country, Inc. and Bank
of Lancaster County's Wealth Management Group into a new
market that has market characteristics that should
foster additional growth of these business units;
- The expansion of Sterling's commercial loan market into an
area with substantial commercial loan needs;
- The opportunities for Sterling to deliver its comprehensive
list of services and products to the Hanover customer base;
- The enhancement of Sterling's capital base that results from
this transaction that will permit the banks to pursue larger
loan relationships;
- The commitment of Hanover senior management to remain with
Sterling following the merger;
- The availability of pooling-of-interests accounting treatment
for the merger; and
- The opinion of Garland McPherson that the exchange ratio was
fair to the Sterling shareholders from a financial point of
view.
From Sterling's standpoint, the merger represents an attractive
opportunity to acquire access to additional expertise and specialized services,
especially expanded trust services, in a broadening market area.
The list of factors considered by Sterling is not exhaustive, but we
have highlighted the important factors considered by each Board. Individual
directors may have given different weights to these factors in reaching their
decision; however, neither the Sterling nor the Hanover Board assigned specific
weights or priority to any one factor.
HANOVER REASONS FOR THE MERGER
In the course of reaching its decision to approve the agreement, the
Hanover Board of Directors consulted with:
- MB&D;
- Its legal counsel; and
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<PAGE> 47
- Its independent certified public accountant.
The Hanover Board believes the merger is fair to, and in the best
interests of Hanover and its shareholders. In reaching these conclusions, the
Hanover Board considered a number of factors, including the following:
- Hanover's current condition and historical operation results,
and its prospective results of operations if Hanover were to
remain independent;
- The economic, business and competitive climate for banking and
financial institutions in the south central Pennsylvania area,
and the challenges that Hanover faces as an independent bank
in a highly competitive marker;
- The business, operations, earnings and prospects of Sterling,
and the enhanced opportunities efficiencies, particularly from
the integration of operations and support functions, and the
growth that the merger would make possible;
- The opinion of MB&D that the financial consideration to be
received in the merger was fair to Hanover shareholders from a
financial point of view;
- The experience of Sterling's senior management team; and
- The benefits of a tax-free exchange to Hanover shareholders.
The list of factors considered by Hanover Board is not exhaustive, but
we have highlighted the important factors considered by the Hanover Board.
Individual directors may have given different weights to these factors in
reaching their decision; however, the Hanover Board did not assign specific
weights or priority to any one factor.
Accordingly, the Sterling and Hanover Boards recommend that
shareholders vote FOR approval of the agreement.
EFFECT OF THE MERGER
If the agreement is approved by the shareholders of both Sterling and
Hanover, Sterling will acquire Hanover through a merger of Hanover into
Sterling. Sterling will exchange shares of Sterling common stock for the issued
and outstanding shares of Hanover common stock. The Bank of Hanover and Trust
Company and HOVB Investment Co. will be wholly owned subsidiaries of Sterling.
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EXCHANGE RATIO
On the effective date of the merger, each outstanding share of Hanover
common stock will convert into the right to receive .93 shares of Sterling
common stock.
On the effective date of the merger, each outstanding option to
purchase shares of Hanover common stock will automatically convert into an
option to purchase Sterling common stock. The number of shares of Sterling
common stock issuable upon exercise will be equal to the number of shares of
Hanover common stock subject to the option multiplied by the exchange ratio,
.93. Shares issuable upon exercise of these options to acquire Sterling common
stock will remain subject to the terms of the plans and grant agreements of
Hanover under which Hanover issued the options.
OPINION OF STERLING INDEPENDENT FINANCIAL ADVISOR
Sterling retained Garland McPherson, by letter dated January 4, 2000,
to render financial advisory and investment banking services including but not
limited to rendering an opinion to Sterling's Board of Directors that the
exchange ratio is fair, from a financial point of view, to its shareholders, to
Sterling in connection with the possible acquisition of Hanover. Garland
McPherson has no other material relationship with Sterling or Hanover.
Garland McPherson, as part of its investment banking and bank
consulting business, is engaged in the valuation of financial institution
securities for a variety of purposes, including mergers and acquisitions, and
the determination of adequate consideration in merger and acquisition
transactions. The Sterling Board selected Garland McPherson on the basis of its
experience in and knowledge of the banking industry and its ability to evaluate
the fairness of the exchange ratio from a financial point of view. Garland
McPherson acted exclusively for the Sterling Board in rendering its fairness
opinion and has received fees from Sterling in rendering its fairness opinion
and its services. There are no other material relationships between Garland
McPherson, its affiliates and representatives and Sterling or its affiliates.
The full text of the Garland McPherson opinion is attached as Annex B
to this joint proxy statement/prospectus and is incorporated herein by
reference. We urge you to read the opinion in its entirety for a description of
the procedures followed, assumptions made, matters considered and qualifications
and limitations on the review undertaken by Garland McPherson in connection
therewith. The following summary of the opinion is qualified in its entirety by
the full text of the opinion. The exchange ratio was determined by negotiation
between Sterling and Hanover and was not determined by Garland McPherson.
39
<PAGE> 49
In rendering the Garland McPherson opinion, Garland McPherson:
- Reviewed the historical financial performances, current
financial positions and general prospects of Sterling and
Hanover;
- Reviewed the agreement;
- Reviewed the proxy statement/prospectus;
- Reviewed and analyzed the stock market performance of Sterling
and Hanover;
- Studied and analyzed the operations, historical financial
statements and future prospects of Sterling;
- Reviewed the respective history of dividends paid by the two
institutions;
- Considered the terms and conditions of the proposed
transaction as compared with the terms and conditions of
comparable bank mergers and acquisitions;
- Discussed with various senior officers of Sterling and Hanover
the foregoing as well as other matters it believed relevant to
its opinion; and
- Conducted such other analyses, studies and investigations as
were deemed appropriate.
Garland McPherson relied without independent verification upon the
accuracy and completeness of all the financial and other information reviewed by
and discussed with it for purposes of its opinion. With respect to the Sterling
and Hanover financial forecasts reviewed by Garland McPherson in rendering its
opinion, Garland McPherson assumed that such financial forecasts were reasonably
prepared on the basis reflecting the best currently available estimates and
judgments of the respective managements as to the future financial performance
of Sterling and Hanover. Garland McPherson did not make an independent
evaluation or appraisal of the assets (including loans) or liabilities of
Sterling or Hanover nor was it furnished with any such appraisal. Garland
McPherson also did not independently verify, and has relied on and assumed, that
all allowances for loan losses set forth in the balance sheets of Sterling and
Hanover were adequate and complied fully with all applicable law, regulatory
policy and sound banking practice as of the date of such financial statements.
In connection with rendering the opinion, Garland McPherson performed a
variety of financial analyses. Although the evaluation of the fairness, from a
financial point of view, of the exchange ratio and of the consideration to be
paid in the transaction was to some extent a subjective one based on the
experience and judgment of Garland McPherson and not merely the result of
mathematical analysis of financial data, Garland McPherson principally relied on
the
40
<PAGE> 50
financial evaluation methodology summarized below in its determinations. Garland
McPherson believes its analyses must be considered as a whole and that selecting
portions of such analyses and factors considered by Garland McPherson without
considering all such analyses and factors could create an incomplete view of the
process underlying Garland McPherson's opinion. In its analysis, Garland
McPherson made numerous assumptions with respect to business, market, monetary
and economic conditions, industry performance and other matters, many of which
are beyond Sterling's and Hanover's control. Any estimates contained in Garland
McPherson's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates.
The following is a summary of selective analyses conducted by Garland
McPherson in connection with the its opinion letter.
Comparable Company Analysis
Garland McPherson compared selected financial and operating data for
Sterling, from 1995 through September 30, 1999, with those of a peer group of
seventeen Mid-Atlantic financial institutions with assets between $700 million
and $2 billion. This data included, but was not limited to: return on average
assets, return on average equity, certain capital adequacy ratios and certain
asset quality ratios. Garland McPherson excluded securities gains and items of a
non-recurring nature in computing profitability ratios. Selected data as of
September 30, 1999 is provided below:
<TABLE>
<CAPTION>
STERLING PEERS
<S> <C> <C>
Core Return on Average Assets 1.3% 1.3%
Core Return on Average Equity 15.4% 14.7%
Leverage Ratio 8.3% 8.0%
Non-performing Assets/Total Assets 0.2% 0.3%
Loan Loss Reserve/Non-performing Assets & 90+ Days Past Due Loans 273.3% 179.8%
</TABLE>
Garland McPherson also compared stock market data for Sterling with the
same group of banking organizations. The analysis showed, among other things,
that the average ratio of trading price to tangible book value per share for the
peer group was 199% as compared to 287% for Sterling. In addition, the group's
average stock price to core operating earnings per share was 12.3 compared to
20.1 for Sterling.
Garland McPherson compared selected financial and operating data from
1995 through September 30, 1999 for Hanover with those of a peer group of 22
Mid-Atlantic financial institutions with assets between $250 million and $1
billion. This data included, but was not limited to: return on average assets,
return on average equity, certain capital adequacy ratios and
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<PAGE> 51
certain asset quality ratios. Garland McPherson excluded securities gains and
items of a non-recurring nature in computing profitability ratios. Selected data
as of September 30, 1999 is provided below:
<TABLE>
<CAPTION>
HANOVER PEERS
<S> <C> <C>
Core Return on Average Assets 0.9% 1.2%
Core Return on Average Equity 12.3% 13.0%
Leverage Ratio 7.5% 8.6%
Non-performing Assets/Total Assets 0.1% 0.3%
Loan Loss Reserve/Nonaccrual & 90+ Days Past Due Loans 503.6% 192.0%
</TABLE>
Garland McPherson also compared stock market data for Hanover with the
same group of banking organizations. The analysis showed, among other things,
that the average ratio of trading price to tangible book value per share for the
peer group was 158% as compared to 157% for Hanover. In addition, the group's
average stock price to core operating earnings per share was 13.0 compared to
12.2 for Hanover.
Analysis of Selected Bank Mergers
Garland McPherson examined selected bank mergers on a nationwide basis
announced after 1998 that resulted in a market expansion for the buyer. Garland
McPherson limited the analysis to targets with total assets between $100 million
and $1 billion that generated a return on equity between 10% and 15%. The median
book multiple of these transactions was 220.6%, the median tangible book
multiple was 250.8% and the median earnings multiple was 20.9. However, none of
the companies or transactions used in any of these analyses were identical to
Hanover or to Sterling or to this transaction. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgements concerning the differences in financial and
operating characteristics of the companies and other factors that would affect
the public trading values of the companies or company to which they are being
compared.
Discounted Dividend Analysis
Using discounted dividend analysis, Garland McPherson estimated the
present value of the future dividend streams that Hanover could produce over a
five-year period under various earnings growth assumptions. Garland McPherson
also estimated the terminal value for Hanover by applying earnings multiples
ranging from thirteen to nineteen. The dividend streams and terminal value were
discounted to determine the present value using discount rates ranging from
10.0% to 12.0%. The discounted dividend analysis indicated a range of per share
values from $21.86 to $32.18 under the most likely earnings projections.
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<PAGE> 52
Pro Forma Merger Analysis
Garland McPherson examined the relative contribution that would be made
by Sterling and Hanover to various key financial statistics of the combined
entity on a pro forma basis as of December 31, 1999 before giving consideration
to any economies that may result from the merger. This analysis indicated that
the relative contributions would have been as follows:
<TABLE>
<CAPTION>
HANOVER STERLING
<S> <C> <C>
Net Income 26.4% 73.6%
Total Assets 32.2% 67.8%
Gross Loans 31.1% 68.9%
Total Deposits 30.8% 69.2%
Total Equity 26.7% 73.3%
Shares Outstanding 28.8% 71.2%
</TABLE>
Garland McPherson also analyzed, using projections derived from
discussions with managements of Hanover and Sterling, certain pro forma
projected effects resulting from the merger. The analysis indicated that, based
on the most likely earnings projections, the merger is anticipated to be neutral
in terms of the impact on Sterling's earnings per share during the second year
following the merger and accretive to earnings per share thereafter.
In reaching its opinion as to fairness, none of the analyses performed
by Garland McPherson was assigned a greater significance by Garland McPherson
than any other. As a result of its consideration of the aggregate of all factors
present and analyses performed, Garland McPherson reached the conclusion, and
opines, that the exchange ratio, as set forth in the agreement, is fair, from a
financial point of view, to holders of Sterling's securities.
In connection with delivering the Garland McPherson opinion, Garland
McPherson updated certain of its analyses and reviewed the assumptions on which
the analyses were based and the factors considered.
In delivering its opinion, Garland McPherson assumed that in the course
of obtaining the necessary regulatory and governmental approvals for the
transaction, no restrictions will be imposed on Sterling or Hanover that would
have a material adverse affect on the contemplated benefits of the transaction.
Garland McPherson also assumed that there would not occur any change in
applicable law or regulation that would cause a material adverse change in the
prospects or operations of Hanover after the effective date.
Pursuant to the terms of the engagement letter, Sterling has paid
Garland McPherson $115,000 and has agreed to reimburse Garland McPherson for its
reasonable out-of-pocket
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<PAGE> 53
expenses. Sterling has also agreed to pay Garland McPherson $135,000 upon
consummation of the merger. Whether or not the Merger is consummated, Sterling
has agreed to indemnify Garland McPherson and certain related persons against
certain liabilities relating to or arising out of its engagement.
The full text of the opinion of Garland McPherson, as of the date of
this Proxy Statement/Prospectus, which sets forth assumptions made and matters
considered, is attached hereto as Annex B to this proxy statement/prospectus. We
urge you to read the opinion in its entirety. Garland McPherson's opinion is
directed only to the consideration to be received by shareholders in the
transaction and does not constitute a recommendation to you as to how you should
vote at the meeting.
OPINION OF HANOVER INDEPENDENT FINANCIAL ADVISOR
The Hanover Board retained MB&D under an engagement letter dated
January 24, 2000, to render financial advisory and investment banking services
to Hanover in connection with the possible acquisition of Hanover by Sterling.
MB&D has no other material relationship with Hanover or Sterling.
On January 25, 2000, MB&D delivered its opinion to the Hanover Board of
Directors, that as of that date, the exchange ratio was fair, from a financial
point of view, to Hanover shareholders. The basis for the opinion has been
updated for the purposes of this joint proxy statement/prospectus. The opinion,
which is unchanged, appears in Annex C. The exchange ratio of .93 shares of
Sterling common stock in exchange for each share of Hanover common stock, was
negotiated based on consideration of numerous factors including the following:
- Analysis of the historical and projected future contributions
of recurring earnings by the parties.
- Analysis of the possible future EPS results for the parties on
both a combined and a stand-alone basis.
- Anticipated dilutive or accretive effects of the prospective
transaction to the earnings per share of Sterling and by
extension, through the exchange ratio, to earnings per share
equivalent of Hanover.
- The probable impact on dividends per share to be received by
Hanover shareholders as a result of the contemplated
transaction.
- The composition of loan portfolios and relative asset quality
as disclosed by the parties.
- Adequacy of reserves for loan and lease losses of the parties.
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<PAGE> 54
- Composition of the deposit bases of each of the parties.
- Analysis of the historical trading range, trading pattern and
relative liquidity of the common shares of each of the
parties.
- The accounting equity capitalization, the tangible equity
capitalization and the market capitalization of each of the
parties.
- Contemplation of other factors, including certain intangible
factors.
MB&D has acted as financial advisor to Hanover since December of 1999.
With respect to the pending transaction involving Sterling, MB&D advised Hanover
during the evaluation and negotiation process leading up to the execution of the
merger agreement and provided Hanover with a number of analyses as to a range of
financially feasible exchange ratios that might be achieved in a hypothetical
transaction. Representatives of MB&D met with the executive management and Board
of Directors of Hanover or designated committees of the board on eight separate
occasions during the period from November 2, 1999 to January 25, 2000, in
connection with the analysis of Hanover's strategic alternatives and the
negotiation process. The determination of the applicable exchange ratio was
arrived at in an arms-length negotiation between Sterling and Hanover in a
process in which MB&D advised Hanover and participated directly in the
negotiations.
MB&D was retained based on its qualifications and experience in the
financial analysis of banking and thrift institutions generally, its knowledge
of the banking markets in general and of the Pennsylvania banking markets in
particular as well as its experience with merger and acquisition transactions
involving banking institutions. As a part of its investment banking business,
which is focused exclusively on financial services industry participants, MB&D
is regularly engaged in the valuation of financial institutions and their
securities in connection with its equity brokerage business generally and
mergers and acquisitions in particular. Members of the Corporate Finance
Advisory Group of MB&D have extensive experience in advising financial
institution clients on mergers and acquisitions. In the ordinary course of its
business as a NASD broker-dealer, MB&D may, from time to time purchase
securities from or sell securities to Hanover or Sterling and as a market maker
in securities, MB&D may from time to time have a long or short position in, and
buy or sell debt or equity securities of Hanover or Sterling for its own account
or for the accounts of its customers. In addition, in the ordinary course of
business, the employees of MB&D may have direct or indirect investments in the
debt or equity securities of either or both Hanover or Sterling.
The full text of the opinion of MB&D, which summarizes the assumptions
made, matters considered and limits on the review undertaken is attached as
Annex C. MB&D recommends that all Hanover shareholders read the joint proxy
statement/prospectus in its entirety and the opinion in its entirety. The
summary description of the matters that MB&D considered, limitations on the
review undertaken and the analyses performed and the assumptions on which
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<PAGE> 55
the various analyses are based contained in the joint proxy statement/prospectus
is more thorough and detailed than the summary contained in the opinion itself.
MB&D therefore recommends that the reader carefully study this section of the
joint proxy statement/prospectus.
The opinion of MB&D is directed only to the exchange ratio at which
shares of Hanover common stock may be exchanged for shares of Sterling common
stock. The opinion does not constitute a recommendation to any holder of Hanover
common stock as to how such holder should vote at the Hanover annual meeting.
The opinion is necessarily based upon conditions as of the date of the opinion
and upon information made available to MB&D through the date of the opinion.
Other than the fact that a survey or market check of companies that
could logically have been expected to have an interest in acquiring Hanover was
not performed by MB&D in conjunction with the process followed, the management
and Board of Hanover imposed no limitations on MB&D with respect to the
investigations made, matters considered or procedures followed in the course of
rendering its opinions.
Materials reviewed and analyses performed by MB&D:
In connection with the rendering and updating of its opinion, MB&D
reviewed the following documents and considered the following subjects:
- The merger agreement detailing the pending transaction;
- The joint proxy statement/prospectus in substantially the form
to be mailed to Hanover shareholders;
- Hanover Annual Reports to shareholders for 1996, 1997, 1998
and 1999;
- Hanover Annual Reports on Form 10-K for 1996, 1997, 1998 and
1999;
- Related financial information for the four calendar years
ended December 31, 1996, 1997, 1998 and 1999;
- Hanover Quarterly Report on Form 10-Q and related unaudited
financial information for the first three quarters of 1999;
- Hanover's press release concerning unaudited results for
calendar year 1999;
- Sterling Annual Reports to Shareholders for 1996, 1997, 1998
and 1999;
- Sterling Annual Reports on Form 10-K and related financial
information for the calendar years ended 1996, 1997, 1998 and
1999;
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<PAGE> 56
- Sterling Quarterly Reports on Form 10-Q and related unaudited
financial information for the first three quarters of 1999;
- Sterling's press release concerning unaudited results for
calendar year 1999;
- Internal financial information and financial forecasts,
relating to the business, earnings, cash flows, assets and
prospects of the respective companies furnished to MB&D by
Hanover and Sterling;
- Discussions with members of the senior management of Hanover
concerning the past and current results of operations of
Hanover, its current financial condition and management's
opinion of its future prospects;
- Discussions with members of the senior management of Sterling
concerning the past and current results of operations of
Sterling, its current financial condition and management's
opinion of its future prospects;
- The historical record of reported prices, trading volume and
dividend payments for both Hanover and Sterling common stock;
- Based primarily on anecdotal information, the current state of
and future prospects for the economy of Pennsylvania generally
and the relevant market areas for Hanover and Sterling in
particular;
- Specific merger analysis models developed by MB&D to evaluate
potential business combinations of financial institutions
using both historical reported information and projected
information for both Hanover and Sterling and the results of
the evaluation;
- The reported financial terms of selected recent business
combinations of financial institutions for purposes of
comparison to the pending transaction;
- A survey of institutions that might have had an interest in
the possible acquisition of Hanover, was not completed.
Alternatively, an analysis of the hypothetical acquisition
capacity or Upstream Acquisition Analysis, as described below,
of a selected group of companies which MB&D believed, with the
concurrence of management of Hanover, would logically have
been interested in a possible acquisition of Hanover, was
completed. This analysis was based solely on publicly
available information concerning the companies and did not
involve any actual contact with the companies. MB&D believes,
however, that the analysis is adequate to establish a
reasonable range of expected values that might have been
available to Hanover in an unrestricted negotiation process,
at a point in time.
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<PAGE> 57
This analysis, which was updated to reflect changing market
conditions, was discussed with the management and the Hanover
Board of Directors; and
- Other studies and analyses as MB&D considered appropriate
under the circumstances associated with this particular
transaction.
The opinion of MB&D takes into account its assessment of general
economic, market and financial conditions and its experience in other
transactions involving participants in the financial services industry, as well
as its experience in securities valuation and its knowledge of the banking
industry generally. For purposes of reaching the opinion, MB&D has assumed and
relied upon the accuracy and completeness of the information provided to it or
made available by Hanover and Sterling and assumes no responsibility for the
independent verification of the information. With respect to financial forecasts
made available to MB&D it is assumed by MB&D that they were prepared on a
reasonable basis and reflect the best currently available estimates and good
faith judgments of the management of Hanover and Sterling as to the future
performance of Hanover and Sterling. MB&D has also relied upon assurances of the
management of Hanover and Sterling that they were not aware of any facts or of
the omission of any facts that would make the information or financial forecasts
provided to MB&D incomplete or misleading. In the course of rendering the
opinion, MB&D has not completed any independent valuation or appraisal of any of
the assets or liabilities of either Hanover or Sterling and was not provided
with such valuations or appraisals from any other source.
A summary of the material analyses employed by MB&D in connection with
rendering its written opinion follows. Since it is a summary, it does not
purport to be a complete and comprehensive description of all the analyses
performed, or an enumeration of every matter considered by MB&D in arriving at
the opinion. The preparation of a fairness opinion is a complicated process,
involving a determination as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances. Therefore, opinions are not readily susceptible to summary
description. In arriving at its fairness opinion, MB&D did not attribute any
particular weight to any one specific analysis or factor considered by it and
made a number of qualitative as well as quantitative judgments as to the
significance of each analysis and factor. Therefore, MB&D believes that its
analyses must be considered as a whole and feels that attributing undue weight
to any single analysis or factor considered could create a misleading or
incomplete view of the process leading to the formation of its opinion. In the
analyses, MB&D has made certain assumptions with respect to banking industry
performance, general business and economic conditions and other factors, many of
which are beyond the control of management of either Hanover or Sterling.
Estimates, which by definition contain the possibility of error, referred to in
the analyses are not necessarily indicative of actual values or predictive of
future results or values, which may vary significantly from those described. In
addition, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the prices at which businesses might actually be sold.
Accordingly, these analyses and estimates are inherently subject to uncertainty,
and MB&D does not assume responsibility for the accuracy of these analyses or
estimates.
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<PAGE> 58
Analysis of the Anticipated Transaction and the Applicable Exchange Ratio in
Relation to Hanover
The agreement provides that Hanover shareholders will receive a fixed
exchange ratio of .93 shares of Sterling common stock in exchange for each share
of Hanover common stock. The parties anticipate that the transaction will be
tax-free to those shareholders of Hanover who hold their shares as a capital
asset and that the transaction will be accounted for as a pooling of interests.
Based on reported financial data for Hanover and Sterling as of
September 30, 1999, and earnings estimates provided by the parties, the relative
contributions of the parties to the proforma Sterling on a pooling basis would
have been approximately as follows:
Proforma Contribution Table
As of September 30, 1999
<TABLE>
<CAPTION>
Item STERLING HANOVER
-------- -------
<S> <C> <C>
Assets 67.4% 32.6%
Loans 68.3% 31.7%
Deposits 69.2% 30.8%
Equity 73.3% 26.7%
Estimated 2000
Earnings 73.0% 27.0%
Ownership interests 70.8% 29.2%
</TABLE>
Based on reported financial data for Hanover and Sterling as of December
31, 1999, and earnings estimates provided by the parties, the relative
contributions of the parties to the proforma Sterling on a pooling basis would
have been approximately as follows:
Proforma Contribution Table
As of December 31, 1999
<TABLE>
<CAPTION>
Item STERLING HANOVER
------ -------- -------
<S> <C> <C>
Assets
Loans
Deposits
Equity
Estimated 2000
Earnings
Ownership interests
</TABLE>
Based on adjusted fully converted shares and share equivalents
outstanding for the two companies as of September 30, 1999, and December 31,
1999, and the negotiated exchange ratio of
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<PAGE> 59
.93 to 1, current Hanover shareholders, had the proposed transaction been
completed as of such dates, would have owned approximately the indicated
percentage amounts of the proforma shares outstanding of Sterling depicted in
the last row of each of the above tables. A manifestation of the premium implied
in the fixed exchange ratio which applies to the pending transaction is the
difference between the prospective earnings contribution of Hanover to the
combined entity and the prospective percentage ownership of the proforma entity
by former Hanover shareholders. Hanover shareholders will prospectively receive
a larger ownership interest in the proforma entity than the relative earnings
contribution to the proforma total by Hanover in the first year of the
transaction.
Projected Transaction Value
Based upon the exchange ratio and the last trade value of Sterling
common stock reported by NASDAQ on January 24, 2000, which was the last
completed trading day prior to the execution of the agreement, which was $27.56,
the theoretical market value of the anticipated transaction was approximately
$101.4 million as of that date, based on an estimated 3,679,269 shares of
Sterling common stock to be issued to Hanover shareholders. On a per share
basis, this is equivalent to approximately $25.63 per share ($27.56x .93). MB&D
elected to use the closing value of Sterling on this date because January 24,
2000 was the last full day of trading prior to the execution of the merger
agreement. The transaction was announced on January 26, 2000, prior to the
opening of trading on NASDAQ. Because the applicable exchange ratio is fixed,
the market value of the exchange will fluctuate as the market value of Sterling
common stock fluctuates. Based on the last trade value for Sterling common stock
reported by NASDAQ as of __________ which was $__________ on the last trading
day prior to the printing and mailing of this joint proxy statement/prospectus,
the theoretical market value of the anticipated transaction was $_______ million
as of such date, based on an updated estimate of ______________ shares of
Sterling common stock to be issued to Hanover shareholders. The indicated market
value has declined by $__________, or ___%, from the level at the announcement
date. Hanover's shareholders should take note of and understand that this value
will continue to fluctuate up and down, as the value of a share of Sterling
common stock fluctuates in the market.
Mechanics and Applicability of "Market-Out" Termination Provision
In a pending transaction, actual or perceived circumstances may arise
that negatively impact the market value of an acquirer's common stock, whether
or not the measurable accounting reality of such a development has a material
adverse effect. It is also possible, even in the absence of any identifiable
circumstance or development, that an acquirer's common stock price can suffer a
meaningful downward adjustment. In order to provide a measure of protection to
the shareholders of Hanover against such situations, a provision of the merger
agreement (see Schedule 2.1) provides that Sterling's stock price movements
during the period measured from the date of announcement of the merger to a date
5 business days before the schedule effective date will be monitored and
compared against the starting price of Sterling common stock just before the
merger
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<PAGE> 60
was announced, which has been fixed in the merger agreement at $27.09. Hanover
shall have the right to terminate the Agreement if
- The closing market price of Sterling common stock, calculated
as the arithmetic average of the per share mean between the
closing bid price and the closing asked price for Sterling
common stock during a 20 trading day period ended 5 business
days prior to the Effective Date, is less than $21.67, or 80%
of the starting price and
- The closing market price divided by the starting price,
expressed as a percentage, is less than the Average NASDAQ
Bank Index Value for the same 20 day period divided by the
NASDAQ Bank Index Value on the starting date, which has been
fixed as 1516.67, also expressed as a percentage, by more than
5%.
- Alternatively, in the event that the closing market price is
less than $18.96, or 70% of the starting price, at the end of
the 20 day period, Hanover shall have the right to terminate
the merger agreement without reference to movements of
Sterling's market price relative to the NASDAQ Bank Index
Value.
Sterling has reciprocal rights to terminate the merger agreement in the
event of mirroring upward movements in its stock price. In either case, the
satisfaction of the termination conditions creates a right, but not an
obligation, to terminate. The opportunity to evaluate such termination
provisions will take place only at the end of the transaction in accordance with
its terms.
As of the date of our opinion letter included in this joint proxy
statement/prospectus, the mean of the closing bid price and closing asked price
for Sterling had declined from $27.09, which it was as of the announcement date,
to $__.__ . It has therefore declined to a level that is ____% of the starting
price. As of the date of this joint proxy statement/prospectus, we are not at
the end of the 20 day price determination period, as defined in the merger
agreement, and the termination provision is not applicable. However, if we were
at the end of the period now, Hanover would have the right, but not the
obligation, to terminate the transaction.
Multiple of Historical and Projected Earnings for Hanover Common Stock
The cited per share theoretical value of $25.63 as of January 24, 2000,
represents a multiple of 21.18 times reported earnings per share for 1999, which
was $1.21. The $25.63 value cited is the equivalent of 18.85 times management's
internal estimate for 2000 of $1.36. Based on the closing market value for
Sterling common stock as of __________ which was $_______ and a revised
transaction value per share of $__________, the multiples of earnings were
__________ and________ times for 1999 reported EPS and management's internal
estimate for 2000 stand-alone earnings per share, respectively. The revised
multiples reflect the fact that between the time of announcement of this
prospective transaction and the date of this joint proxy statement/prospectus,
the mean between the closing bid and asked prices for Sterling common
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<PAGE> 61
stock has declined approximately _____ %. The tabular information which follows
is intended to help to put the recent price movements in Sterling's market price
in context.
Sterling's time-series historical multiple of trailing 12 month
reported earnings relative to a selected comparison group:
Price/LTMEPS(1)
<TABLE>
<CAPTION>
Co. Name Ticker State Sept 98 Dec 98 March June 99 Sept 99 Dec 99 April __, 2000 %
symbol 99
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arrow Financial AROW NY 20.1 17.6 18.0 17.0 16.0 11.7
Corporation
NBT Bancorp Inc. NBTB NY 17.2 16.6 14.9 14.5 12.2 11.2
Omega Financial OMEF PA 17.8 16.9 18.2 18.1 16.6 15.7
Corporation
State Bancorp, Inc. STB NY 21.2 20.5 13.8 12.1 10.4 9.8
Sterling Bancorp STL NY 15.0 16.4 13.6 12.7 11.1 9.8
Suffolk Bancorp SIBK NY 15.1 14.3 13.8 13.7 13.0 12.3
Tompkins TMP NY 15.8 15.3 14.9 13.7 12.8 12.2
Trustco, Inc.
Fulton Financial FULT PA 16.7 17.7 17.5 15.3 13.6 12.8
Corporation
Yardville National YANB NJ 13.0 12.8 10.8 10.2 9.0 8.8
Bancorp
Mean 16.9 16.4 15.0 14.2 12.7 11.6
Sterling Financial SLFI PA 22.7 23.2 19.9 18.8 20.8 20.9
Corporation
</TABLE>
(1) Since public financial institutions publish earnings per share
information on a quarterly basis, this calculation is usually
based on annualized earnings per share based on the most
recent four (4) quarters of reported results.
The table above depicts a time series of LTM P/E ratios, which are
backward looking price/earnings ratios, for a selected group of financial
institutions located in New York, New Jersey and Pennsylvania. The parties
discussed an earlier version of this table, prior to the announcement of the
transaction, with management and the Hanover Board of Directors to apprize them
of the fact, that although there had then been a 15.4% reduction in the LTM P/E
ratio for Sterling Financial Corporation between September of 1998 and January
of 2000, prior to the announcement of the pending transaction, that the
reduction of Sterling's LTM P/E during this time period had been less than one
half of that of the mean reduction of the comparison group during the same time
period. The reduction in the mean LTM P/E for the comparison group for the
September 98 to January 00 time frame was 32.9% and the mean LTM P/E for the
group stood at 11.30x in January of 2000. MB&D also observed that Sterling was
trading at a 19.2x LTM P/E in January, prior to the announcement of the
transaction. In other words, Sterling was trading at a higher LTM P/E than any
other member of the comparison group. MB&D commented that, based on a theory of
rational expectations, notwithstanding the fact that Sterling has for an
extended historical period traded at a relatively elevated P/E versus other bank
holding companies, MB&D was not
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comfortable that this pattern would persist. MB&D advised both management and
the Board that the relative P/E of Sterling should be rationally expected to
trend toward the mean of the comparison group, over time, although it would not
necessarily actually reach the mean.
Since the announcement of the transaction on January 26, 2000, the mean
LTM P/E of the comparison group continued to trend downward and stood at 10.49x
as of April __, 2000 based on the market prices of the constituent companies on
April __, 2000 divided by their reported earnings per share for 1999. During the
same time period, the LTM P/E of Sterling has experienced a sharp negative
adjustment from 19.2x to 13.0x calculated on the same basis. Sterling's backward
looking P/E has thus declined 32.3% during the period from the announcement date
to April __, 2000 although it is still trading at a premium to the mean LTM P/E
of the comparison group.
Multiple of Stated Book Value of Hanover Common Stock
The theoretical value of $25.63 (as of the announcement date)
represents a multiple of 3.06 times Hanover's reported $____ book value per
share as of December 31, 1999. Based on the closing market value for Sterling
common stock as of __________ which was $_______ and a revised transaction value
per share of $__________, the multiple of the December 31, 1999 book value
declined to ________.
Percentage of Market Value of Hanover Common Stock
Based upon the theoretical values of $25.63 and $_________ for the two
relevant valuation dates, the theoretical values represent 176.76% (a 76.76%
premium) and ______% (a_____% premium) of the last reported prices for Hanover
common stock which was $14.50 on January 24, 2000.
Specific Acquisition Analysis
MB&D employs a proprietary analytical model to examine hypothetical
transactions involving banking companies. The model uses:
- Forecast earnings data;
- Selected current period balance sheet;
- Income statement data;
- Current market;
- Trading information; and
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- A number of assumptions as to interest rates for borrowed
funds, the opportunity costs of funds, discount rates,
dividend streams, effective tax rates, transaction structures.
The model distinguishes between purchase and pooling accounting treatments and
inquires into the likely economic feasibility of a given hypothetical
transaction at a given price level or specified exchange rate while employing a
specified transaction structure. The model also permits evaluation of various
levels of potential non-interest expense savings that might be achieved along
with various potential implementation timetables for such savings, as well as
the possibility of income enhancement opportunities that may arise in a given
hypothetical transaction.
For the purposes of rendering the opinion with respect to this
transaction, MB&D evaluated a fixed exchange ratio of .93 shares of common stock
of Sterling in exchange for each share of Hanover in a tax deferred transaction
conditioned on the receipt of pooling accounting treatment. MB&D believes that
the nominal earnings per share dilution on a proforma basis, before
consideration of cost savings or potential income enhancements and excluding
non-recurring expenses, for Sterling would approximate 3.02% or $0.05 per share.
MB&D's calculations suggest that this transaction would be dilutive (3.45%) to
tangible book value per share on a proforma basis to Sterling based on balance
sheet information for the parties as of September 30, 1999. The transaction
would equate to a comparable deposit premium of 17.32% and would result in a
43.38% increase of dividend payments to Hanover shareholders, based on an
annualization of the most recent regular quarterly dividend payment to
shareholders by Sterling. The proforma entity will continue to be more than
adequately capitalized with a ratio of tangible common equity to tangible assets
of approximately 7.94% and an estimated tier one capital ratio in excess of
11.00%. In order for the transaction to become neutral to earnings per share
from a dilution perspective, MB&D estimates that it would be necessary to
achieve a reduction in pre-tax non-interest-expense of approximately $940,000
which represents 6.68% of the budgeted non-interest expenses for Hanover in
2000 of approximately $14 million. Because the estimation of incremental
amounts of recurring cost savings and the exact timing of their realization is
not possible for outside observers, MB&D does not attempt to forecast the future
quarter in which the pending transaction will become either earnings neutral or
accretive. It is MB&D's belief, however, that reductions in recurring
non-interest expense and earnings improvements due to the implementation of a
more diverse product line should be highly feasible for the parties involved and
that this transaction can be expected to become accretive to proforma earnings
per share with the passage of time. MB&D anticipates that this transaction will
become accretive to earnings per share of Sterling in the year 2001.
Analysis of Other Comparable Transactions
MB&D is reluctant to place emphasis on the analysis of comparable
transactions as a valuation methodology due to what it considers to be inherent
limitations of the application of
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the results to specific cases. MB&D believes that such analysis fails to
adequately take into consideration such factors as:
- Material differences in the underlying capitalization of the
comparable institutions which are being acquired;
- Differences in the historic earnings (or loss) patterns
recorded by the compared institutions which can depict a very
different trend than might be implied by examining only recent
financial results;
- Failure to exclude non-recurring profit or loss items from the
last twelve months' earnings streams of target companies which
can distort apparent earnings multiples;
- Material differences in the form or forms of consideration
used to complete the transaction;
- Differences between the planned method of accounting for the
completed transaction;
- Such less accessible factors as the relative population,
business and economic demographics of the acquired entities
markets as compared or contrasted to such factors for the
markets in which comparable companies are doing business.
- Comparable analysis generally cites transaction multiples and
premiums as of the date of announcement only and usually fails
to adjust such multiples and premiums for subsequent changes
in the trading values of the securities of the acquirer. In
our opinion this failure can render such comparisons, which
are already questionable, relatively meaningless, particularly
in cases where there has been a material adjustment in the
equity prices of financial institutions subsequent to the
announcement dates for such "comparable transactions". There
has been a virtually industry-wide downward adjustment in the
equity trading prices of financial institutions during the
last six months of 1999 and the early months of 2000 which
renders such announcement date comparisons more than usually
suspect. Consequently any use of comparable analysis requires
that market price adjustments must be made.
- Comparable analysis rarely seems to take into consideration
the degree of facilities overlap between the acquirer's market
and that of the target or the absence of such overlap and the
resulting cost savings opportunity differentials between two
otherwise apparently comparable transactions.
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<PAGE> 65
- Comparable analysis also generally fails to incorporate the
projected impact of deposit divestitures that may be required
by regulators in a given transaction and which are not required
in a so-called comparable transaction.
For the nine reasons cited, MB&D believes that comparable analysis has
serious inherent limitations and should not be relied upon to any material
extent by members of management, the Board of Directors or shareholders in
considering the presumed merits of a pending transaction.
With these serious reservations in mind, MB&D nonetheless examined
statistics associated with 22 transactions involving commercial banks. The
following criteria were utilized to create the sample:
- Acquired institutions are all commercial banks.
- Transactions were announced between January 1, 1997, and
March___, 2000.
- Total assets of the target institutions were greater than $300
million and less than $750 million.
- All the listed transactions took place between entities
located in the middle Atlantic states and/or New England.
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The following table depicts the 22 selected transactions
<TABLE>
<CAPTION>
ACQUIRER / TARGET ANNOUNCED
<S> <C>
CITIZENS FINANCIAL GROUP INC. / BNH BANCSHARES INC. 04/08/97
PEOPLES HERITAGE FINANCIAL GROUP / ATLANTIC BANCORP 06/24/97
PRIVATE INVESTOR / CHINESE AMERICAN BANK 07/23/97
FIRST UNION / COVENANT BANCORP INC. 08/05/97
FULTON FINANCIAL CORPORATION / KEYSTONE HERITAGE GROUP, INC. 08/15/97
COMMERCIAL BANK OF NEW YORK / FIRST BANK OF THE AMERICAS 09/05/97
CITIZENS BANCSHARES INC. / CENTURY FINANCIAL CORPORATION 11/18/97
HERITAGE BANCORP, INC. / BCB FINANCIAL SERVICES CORPORATION 11/19/97
SOVEREIGN BANCORP / CARNEGIE BANCORP 12/15/97
BB&T CORPORATION / FRANKLIN BANCORPORATION INC. 12/16/97
FIRST COMMONWEALTH FINANCIAL CORP. / SOUTHWEST NATIONAL CORP. 07/16/98
COMMERCE BANCORP / PRESTIGE FINANCIAL CORP. 09/17/98
M & T BANK CORPORATION / FNB ROCHESTER CORP 12/09/98
VALLEY NATIONAL BANCORP / RAMAPO FINANCIAL CORP. 12/17/98
INDEPENDENCE COMMUNITY BANK CORP. / BROAD NATIONAL BANCORP. 02/01/99
CONNECTICUT BANK OF COMMERCE / MTB BANK 04/22/99
HUDSON UNITED BANCORP / SOUTHERN JERSEY BANCORP OF DELAWARE 06/29/99
NBT BANCORP INC. / LAKE ARIEL BANCORP INC. 08/16/99
STATEN ISLAND BANCORP INC. / FIRST STATE BANCORP 08/18/99
SUMMIT BANCORP / NMBT CORP 10/04/99
NBT BANCORP INC. / PIONEER AMERICAN HOLDING COMPANY 12/08/99
MERCANTILE BANKSHARES CORP. / UNION NATIONAL BANCORP INC. 01/21/00
</TABLE>
The tables below permit a comparison of the median values for two
selected statistics arising from the list of 22 transactions evaluated with the
"comparable" statistics calculated for pending transaction between Hanover and
Sterling.
"COMPARABLE" STATISTICS AS OF THE ANNOUNCEMENT DATE FOR THE WHOLE SAMPLE(1):
<TABLE>
<CAPTION>
ANNOUNCED TRANSACTION ANNOUNCED TRANSACTION PRICE/
COMPARED STATISTICS PRICE/TANGIBLE BOOK VALUE TRAILING 12 MONTHS EARNINGS
<S> <C> <C>
Median for the Sample 272.06% 24.53x
Median for 1999 and 2000 257.63% 20.95x
(Eight Transactions)
STERLING / HANOVER 316.00% 21.90x
</TABLE>
(1) Without regard to the form of consideration used or the planned
accounting convention expected.
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"COMPARABLE" STATISTICS AS OF THE ANNOUNCEMENT DATE FOR POOLING
TRANSACTIONS ONLY:
<TABLE>
<CAPTION>
ANNOUNCED TRANSACTION ANNOUNCED TRANSACTION PRICE/
COMPARED STATISTICS PRICE/TANGIBLE BOOK VALUE TRAILING 12 MONTHS EARNINGS
<S> <C> <C>
Median for the Sample 309.36% 25.00x
Median for 1999 268.11% 22.98x
(Three Transactions)
STERLING / HANOVER 316.00% 21.90x
</TABLE>
ADJUSTED "POOLING TRANSACTIONS ONLY" COMPARABLE STATISTICS AS OF
03-01-00:(2)
<TABLE>
<CAPTION>
ANNOUNCED TRANSACTION ANNOUNCED TRANSACTION PRICE/
COMPARED STATISTICS PRICE/TANGIBLE BOOK VALUE TRAILING 12 MONTHS EARNINGS
<S> <C> <C>
Median for the Sample 154.70% 11.79x
Median for 1999 188.15% 16.63x
(Three Transactions)
STERLING / HANOVER 212.44% 14.79x
</TABLE>
(2) The adjusted statistics are based on market prices for the acquirers as
of March 1, 2000. Such adjustments are applicable to stock for stock
pooling transactions only.
It is evident that the selected statistics, adjusted to reflect
movements in the values of the acquirer's common stock price since the
announcement dates, provide a noticeably different picture than that derived
based on such data as of the announcement date only. The comparisons remain
vulnerable to the other types of flaws listed for such analyses. The analysis
does reveal one interesting fact. Prices to tangible book ratios and price
earnings multiples have moved down sharply for the all-stock pooling
transactions examined.
Given the listed reservations concerning the problematic nature of
comparable analysis, MB&D is willing to supply the compiled information for the
possible benefit of the Hanover shareholders but is reluctant to draw
conclusions based on such comparisons alone. MB&D is inclined to place more
weight on the other methods of analysis summarized than on comparable analysis
regardless of whether or not the apparent comparisons appear to be in favor of,
or not in favor of, a given pending transaction.
Value Pass-Through Analysis
Value pass-through analysis is based on a comparison of anticipated
proforma values to stand-alone values as of a given point in time. Value
pass-through analysis with respect to proforma earnings per exchange unit,
proforma tangible book value per exchange unit and proforma dividends to be
received per exchange unit is unaffected by movements in the market value of the
acquirer's common stock in fixed exchange ratio transactions.
With respect to earnings per share, based on a Hanover management
internal forecast of $1.36 in stand-alone earnings per share for 2000 and an
internal estimate of Sterling's expected earnings per share on a stand-alone
basis for the same time period, we calculated the earnings that
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would be associated with .93 shares of proforma Sterling common stock for
2000.(1) MB&D's calculations suggest that with zero cost savings and no income
enhancements and factoring out non-recurring and transaction expenses, the
earnings associated with .93 shares of Sterling common stock would represent a
6.77% increase over the earnings associated with one share of Hanover or
approximately $1.45 per share. Assuming that exactly enough cost savings and
income enhancements can be achieved to render the transaction earnings per share
neutral, from a Sterling perspective, the earnings associated with .93 shares of
Sterling would represent a 10.10% increase over the earnings associated with a
single share of Hanover or approximately $1.50 per share. To the extent that
more cost savings and/or income enhancements are achievable, such earnings
pass-through enhancement could exceed 6.77% and 10.10%. In the event cost
savings and income enhancements that are less than the amounts necessary to
achieve earnings neutrality are achieved, the earnings associated with .93
shares of Sterling will represent an increase of between 6.77% and a greater
amount. MB&D believes that cost savings and income enhancements in excess of the
level necessary to render this transaction earnings neutral to EPS for Sterling
are reasonably achievable. The conclusion of MB&D with respect to this aspect of
the analysis is that a Hanover shareholder who exchanges his shares for Sterling
common shares at the exchange ratio of .93:1 will then hold a security which,
MB&D believes, will generate more earnings per share than the single share of
Hanover common stock that was exchanged.(2) The implication is that as long as
Sterling trades at a price earnings ratio that is equal to or greater than the
price earnings ratio at which shares of Hanover trade, the market value of the
.93 shares of Sterling will exceed the market value of the Hanover share
exchanged.
With respect to tangible book value per share, assuming no cost savings
and no income enhancements and factoring out non-recurring items and transaction
expenses, MB&D calculates that the tangible book value of .93 shares of the
proforma Sterling would have been $8.88 as of September 30, 1999, based on
reported tangible book values of the parties as of September 30, 1999. This
represents a conceptual 5.86% increase from the $8.38 in tangible book value per
share for Hanover as of the same date. Such an increase is generally considered
to be supportive of the market value of the exchange unit.
With respect to dividends received per share, the estimated annualized
dividend for Hanover as of the announcement date was $0.48 per share while the
estimated annualized dividend for Sterling as of the same date was $0.74.
Consequently assuming continuation of the recent dividend policy at Sterling,
the exchange rate of .93 will confer an estimated dividend income per exchange
unit of $0.69 to Hanover shareholders. This constitutes an increase of slightly
in excess of 43%.
- --------
(1) The analysis assumes conceptually that the transaction had
been closed on January 1, 2000.
(2) This assertion is dependent on the realization of the forecast
data used in the calculations. This forecast data was supplied
to McConnell, Budd & Downes, Inc. by the parties.
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Upstream Acquisition Analysis
MB&D also completed an analysis of the relative capacity of other
financial services entities doing business in, or adjacent to, Pennsylvania to
acquire Hanover on economic terms, equal to or better than, those proposed by
Sterling. We examined the theoretical ability of these entities to use a
transaction structure with similar tax and accounting implications as the
structure proposed by Sterling, a "tax-free" stock for stock exchange accounted
for as a pooling of interests. The analysis was based solely on publicly
available information concerning such other entities and no conversations were
held with either the executives or representatives of such entities. Starting
with a large universe of hypothetical acquirers that in MB&D's opinion could
theoretically have been interested in a possible acquisition of Hanover, MB&D
narrowed the list down to seven entities, excluding Sterling, for a more
detailed analysis. In examining the seven companies, the data employed was
derived from publicly available information as of September 30, 1999 and
consensus estimates for future period earnings per share obtained from Bloomberg
Financial Markets. Factors considered included:
- Proforma EPS dilution.
- Proforma tangible book value dilution.
- A calculation of additional after-tax earnings necessary to
render a given transaction earnings per share neutral to the
acquiring entity.
- A calculation of the equivalent pre-tax reduction in
non-interest-expense which would be necessary to render a
given transaction earnings per share neutral to the acquirer.
- Consideration of whether or not the franchise adjacency or
overlap, or the absence thereof, of each such hypothetical
acquirer would facilitate the realization of such required
cost savings.
- A value pass through analysis with respect to earnings, book
value and proforma dividends per share.
- The likely impact on trading liquidity versus existing
liquidity for Hanover common stock.
As a result of MB&D analysis, MB&D reached the conclusion that of the
entities considered, Sterling would be able to complete a stock for stock
transaction at a given exchange ratio, on a basis where the amount of required
cost savings to achieve earnings per share neutrality, expressed as a pre tax
reduction in non-interest expense would be lower than such case for all of the
other entities. This is important since such a transaction contains the highest
potential for future accretive results. The conclusion which MB&D reached as a
result of its
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upstream analysis was that there was not an obvious additional candidate which
would be able or likely to offer consideration which equaled or exceeded that
offered by Sterling.
Discounted Cash Flow Analysis I
MB&D reviewed a discounted cash flow model that we prepared based on
projections provided by the management of Hanover. The model employed a
projection of hypothetical earnings for Hanover on an independent stand-alone
basis for calendar years 2000 through 2002. As part of the exercise, a
hypothetical dividend payout ratio assumption, which depicted average annual
payout as a percentage of earnings, was used to project dividend streams, which
would be available to shareholders. MB&D employed a range of possible future
market trading price/earnings ratios ranging from a minimum of 12 times earnings
to a maximum of 18 times earnings in order to project possible future trading
values for a share of either Hanover common stock on an independent basis or an
equivalent amount of Sterling common stock reflecting the exchange ratio. Given
the model time horizon and a range of discount rates of 12% to 14%, these
assumptions resulted in a range of present discounted values for a share of
Hanover common stock on a independent basis. Such values ranged from $16.57 to
$25.36 and include consideration of the present discounted value of the
projected stream of cash dividends, which might be received by a shareholder
during the cited period. These values represent the discounted present values of
the sum of the future possible trading values of the equivalent of one share of
Hanover common stock plus the discounted value of the stream of cash dividends
which are projected to have been received between the present and the future
valuation date at the end of 2002. The value of .93 shares of Sterling as of
January 24, 2000 exceeded the full range of present discounted values for
Hanover on a stand-alone basis.
Discounted Cash Flow Analysis II
As has already been discussed, the market value of Sterling has
experienced a marked negative adjustment since the announcement date. As a
consequence we have revisited the discounted cash flow analysis and have revised
certain of our assumptions. Based on the broad based reduction in trading values
of the common stocks of many financial institutions during the past six month
period, we have adjusted the terminal multiple range for this model to a range
of market multiples ranging from 9 times earnings to 15 times earnings since we
believe that such a multiple range is now more representative of the actual
market for the equity securities of financial institutions. MB&D has not made an
adjustment in its range of discount rates. The model uses a projection of
hypothetical earnings for Hanover on an independent stand-alone basis for
calendar years 2000 through 2002. As part of the exercise, a hypothetical
dividend payout ratio assumption, which depicted average annual payout as a
percentage of earnings, was used to project dividend streams, which would be
available to shareholders. Apart from the change in the range of terminal market
multiples used and recognition of the decline in market trading values for
Sterling common stock, all other assumptions are unchanged. MB&D employed the
revised range of possible future market trading price/earnings ratios in order
to project possible future trading values for a share of either Hanover common
stock on an independent basis or an equivalent amount of Sterling common stock
reflecting the exchange ratio. Given the model time horizon and a range of
discount rates of 12% to 14%, MB&D's calculations generated a
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range of present discounted values for a share of Hanover common stock on a
independent basis. Such values ranged from a minimum of $12.79 to a maximum of
$21.38 and include consideration of the present discounted value of the
projected stream of cash dividends, which might be received by a shareholder
during the cited period. These values represent the discounted present values of
the sum of the future possible trading values of the equivalent of one share of
Hanover common stock plus the discounted value of the stream of cash dividends
which are projected to have been received between the present and the future
valuation date at the end of 2002. While the value of .93 shares of Sterling as
of January 24, 2000 exceeded the full range of present discounted values for
Hanover on a stand-alone basis, the value of .93 shares of Hanover as of April
__, 2000 no longer exceeds the full range of present discounted values although
it continues to equal or exceed 75% of the range.
The point of such a discounted cash flow exercise is not to make a
precise estimate of where Hanover on a stand-alone basis would be trading at a
precise point in the future. It is equally not an effort to predict, on a
precise basis, where the proforma Sterling will be trading at an exact point in
the future. MB&D readily acknowledges that with the large number of variables
involved including many which are beyond the control of management, that such
predictions with any degree of precision are well beyond the capability of MB&D,
Hanover or Sterling. Rather, the point of the exercise is to employ reasonable
future point earnings estimates to complete an analysis designed to test a
hypothesis that the result of one given course of action is likely to be better
over time than another. In our opinion, the results of the present discounted
cash flow analysis provides comfort that the shareholders of Hanover are likely
to be better off as a result of completing the pending transaction with Sterling
than they would likely be by remaining an independent financial institution.
It is important to note that the discount factors we have used embody
both the concept of a time value of money and separately risk factors that
reflect, among other things, the uncertainty of the forecasted cash flows and
terminal price/earnings multiples. Use of higher discount rates would result in
lower discounted present values. Conversely, use of lower discount rates would
result in higher discounted present values. MB&D advised the Hanover board of
directors that although discounted cash flow analysis is a commonly used
valuation methodology, it relies on numerous assumptions, including discount
rates, terminal values, future earnings performance and asset growth rates, as
well as dividend payout ratios. The accurate specification of such assumptions
for time periods more than one year in the future is a very difficult process
and contains the possibility of inaccuracy despite our attempts to be both
accurate and conservative in our analysis. Consequently, any or all of these
assumptions may vary from actual future performance and results. Any errors made
in the selection of assumptions for such an exercise can interact with one
another and can lead to conclusions that may demonstrate little resemblance to
actual events.
Other Factors Given Consideration
MB&D has given consideration to a number of additional factors
associated with the pending transaction that it believes are favorable from the
point of view of a Hanover shareholder.
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- MB&D believes that the exchange ratio negotiated reflects a
reasonable share of ownership in the proforma Sterling for
Hanover shareholders based on both a historical and a
projected contribution analysis.
- MB&D has given consideration to the fact that at the present,
Sterling has expressed its intention to permit Bank of Hanover
to conduct business as such and that it has no current plan to
convert Bank of Hanover into branch offices of Sterling.
- Hanover shareholders will be initially represented by three
directors on the Board of Directors of Sterling.
- MB&D believes that the proforma entity will be a more visible
financial institution in the national financial markets and
will attract increased research coverage and generate greater
liquidity from a shares traded perspective than is the case
for either Hanover or Sterling on a stand-alone basis.
.
- MB&D also believes that Hanover shareholders will encounter
prospects for greater future annual cash dividends based upon
projected cost savings and the earnings growth expectations of
the combined entities than would have been the case for
continued independence.
Compensation of MB&D
Pursuant to a letter agreement with Hanover dated January 24, 2000,
MB&D will receive a fee for services rendered The fee has been divided into
several payments, which correspond with the successful completion of specific
events. MB&D was paid $200,000.00 after the execution of the merger agreement
for the pending transaction with Sterling and will be paid a further $250,000.00
upon issuance of its opinion to be included as an exhibit to this joint proxy
statement/prospectus. A final payment equivalent to .70% (seventy basis points)
multiplied by the value of the shares to be issued to the shareholders of
Hanover, including, conceptually, the (in-the-money) options pertaining to
Hanover shares, at the time of closing of the transaction. This final fee will
be reduced by the amount of $450,000.00 already actually paid to MB&D. In MB&D
opinion the fee arrangement is in line with industry practices for the type of
services and advice provided.
The fee payable to MB&D represents compensation for services rendered
in connection with the analysis of the hypothetical transaction, support of the
negotiations, and participation in the drafting of documentation, and for the
rendering of the opinion. In addition, Hanover has agreed to reimburse MB&D for
its reasonable out-of-pocket expenses incurred in connection with the
transaction. Hanover also has agreed to indemnify MB&D and its directors,
officers and employees against certain losses, claims, damages and liabilities
relating to or arising out of its engagement, including liabilities under the
federal securities laws.
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MB&D has filed a written consent with the SEC relating to the inclusion
of its fairness opinion and the reference to such opinion and to MB&D in the
registration statement in which this joint proxy statement/prospectus is
included. In giving such consent, MB&D did not admit that it comes within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the rules and regulations of the Securities and Exchange
Commission thereunder, nor did MB&D thereby admit that it is an expert with
respect to any part of such registration statement within the meaning of the
term "expert" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
EFFECTIVE DATE OF THE MERGER
The effective date of the merger will occur within 30 days following
the satisfaction or waiver of all conditions to completion of the merger
specified in the agreement. Sterling and Hanover may also mutually agree on a
different date. We presently expect that the effective date of the merger will
occur prior to June 30, 2000.
On or prior to the effective date of the merger, Sterling will file
articles of merger with the Pennsylvania Department of State. This document will
set forth the effective date of the merger.
EXCHANGE OF HANOVER STOCK CERTIFICATES
As promptly as practicable after the effective date of the merger,
Sterling's transfer agent, American Stock Transfer and Trust Company, will send
a transmittal form to each record owner of Hanover common stock. The transmittal
form will contain instructions on how to surrender certificates representing
Hanover common stock for certificates representing Sterling common stock.
Hanover common stock held in the Hanover Dividend Reinvestment Plan, Employee
Stock Purchase Plan and 401K plan will be exchanged directly through the
transfer agent.
You should not forward your Hanover stock certificates until you have
received transmittal forms from Sterling. You should not return stock
certificates with the enclosed proxy card.
Until you exchange your certificates representing Hanover common stock,
you will not receive the certificates for the Sterling common stock into which
your Hanover shares have converted.
For all other purposes, however, each certificate that represents
shares of Hanover common stock outstanding at the effective date of the merger
will evidence ownership of the shares of Sterling common stock into which those
shares converted as a result of the merger. Neither Sterling nor Hanover will
have liability for any amount paid in good faith to a public official pursuant
to any applicable abandoned property, escheat or similar law.
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BUSINESS PENDING THE MERGER
Sterling and Hanover have agreed to conduct their business in the
usual, regular and ordinary course, consistent with prudent business judgment,
pending the merger. Among other things, they will:
- Not amend their articles of incorporation or bylaws; and
- Keep all insurance policies, now carried, in full force and
effect.
In addition, Hanover will:
- Not enter into or assume any material contract, incur any
material liability or obligation, make any material
commitment, acquire or dispose of any property or asset or
engage in any transaction or subject any of its properties or
assets to any material lien, claim, charge or encumbrance of
any kind whatsoever, except for actions taken in the ordinary
course of business, consistent with past practice and
consistent with information previously delivered to Sterling;
- Not declare, set aside or pay any dividend or make any other
distribution in respect of its common stock, except that
Hanover may pay its regular quarterly cash dividends in an
amount not to exceed $0.12 per share during each of the first,
second and third quarters of 2000;
- Not authorize, purchase, issue or sell (or authorize, issue or
grant options, warrants or rights to purchase or sell) any
shares of its common stock or any other of its equity or debt
securities or any securities convertible into its common stock
except pursuant to Hanover options outstanding on January 25,
2000;
- Not increase the rate of compensation of, pay a bonus or
severance compensation to, enter into any employment,
severance, deferred compensation or other agreement with any
of its officers, directors, employees or consultants; except
that Hanover may grant general salary increases to individual
employees in the ordinary course of business consistent with
past practices and as indicated in information previously
delivered to Sterling;
- Except pursuant to Hanover options, not change the presently
outstanding number of shares or effect any capitalization,
reclassification, stock dividend, stock split or like change
in capitalization;
- Not enter into or substantially modify (except as may be
required by applicable law) any pension, retirement, stock
option, stock warrant, stock purchase, stock appreciation
right, savings, profit sharing, deferred compensation,
severance,
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consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, or plan or arrangement, or any
trust agreement related thereto, in respect to any of its
directors, officers, or other employees except that Hanover
may pay retention bonuses to current employees, which
retention bonuses will be paid prior to the date of the
merger;
- Not make any loan or other credit facility commitment in
excess of $3,000,000 (including without limitation, lines of
credit and letters of credit) to any affiliate or compromise,
expand, renew or modify any such outstanding commitment;
- Not enter into any related party transaction except
transactions relating to extensions of credit made in
accordance with all applicable laws, regulations and rules and
in the ordinary course of business on substantially the same
terms, including interest rates and collateral, as those
prevailing at the time for comparable arm's length
transactions with other persons that do not involve more than
the normal risk of collectibility or present other unfavorable
features;
- Not merge with or into, or consolidate with, or be purchased
or acquired by, any other corporation, financial institution,
entity or person (or agree to any merger, consolidation,
affiliation, purchase or acquisition) or permit (or agree to
permit) any other corporation, financial institution, entity
or person to be merged with it or consolidate or affiliate
with any other corporation, financial institution, entity or
person; acquire control over any other firm, financial
institution, corporation or organization or create any
subsidiary; acquire, liquidate, sell or dispose (or agree to
acquire, liquidate, sell or dispose) of any assets other than
in the ordinary course of business and consistent with prior
practice;
- Not change any method, practice or principle of accounting
except those that may be required by generally accepted
accounting principles or any applicable regulation or take any
action that would preclude satisfaction of the condition to
closing relating to the pooling-of-interest method of
accounting for the merger; and
- Not open any new branches, enter into any contracts or make
any expenditures with respect to any new branches without the
prior written consent of Sterling, with the exception of the
branch to be located in Red Lion, Pennsylvania, the business
bank branch to be located in Westminster, Maryland, and the
relocation of the branch in New Oxford, Pennsylvania.
MATERIAL CONTRACTS
There have been no material contracts or other transactions between
Hanover and Sterling since signing the agreement, nor have there been any
material contracts, arrangements, relationships or transactions between Hanover
and Sterling during the past five years, other than
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in connection with the agreement and as described in this proxy
statement/prospectus, relating to the ongoing business relationship in which
Town & Country, Inc., a Bank of Lancaster County subsidiary, was a customer of
Hanover. In addition, the companies were involved in loan participations.
CONDITIONS TO THE MERGER
The obligations of Sterling and Hanover to complete the merger are
subject to a number of conditions and contingencies. These are stated in the
agreement. The most significant of these conditions include:
- Approval by the shareholders of Sterling and Hanover;
- Approval by, notice to or consent of the Board of Governors
of the Federal Reserve System and the Pennsylvania Department
of Banking;
- Receipt of an opinion of Shumaker Williams, P.C. concerning
certain federal income tax consequences relating to the
merger;
- Continued effectiveness of the registration statement
containing this proxy statement/prospectus;
- Determination that the merger can be accounted for as a
pooling of interests for financial reporting purposes;
- Determination of compliance with all applicable federal and
state securities and antitrust laws; and
- Dissenting shareholders exercise of dissenters' rights with
respect to no more than 5% of the issued and outstanding
shares of Sterling common stock and 6% of the issued and
outstanding shares of Hanover common stock.
In connection with the regulatory approvals, Sterling will file:
- A Notice with respect to the transaction with the Board of
Governors of the Federal Reserve System, pursuant to the Bank
Holding Company Act; and
- An Application with the Pennsylvania Department of Banking,
pursuant to Section 115 of the Pennsylvania Banking Code,
including a Notice relating to the merger.
Any term or condition of the agreement may be waived by the party that
would benefit from the term at any time before the merger, whether before or
after the approval of the agreement by Sterling's or Hanover's shareholders.
However, the parties may not adopt a change in the
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amount of consideration to be received by Hanover shareholders unless the
shareholders of Hanover approve the change. In addition, if the parties waive
the requirement that a tax opinion be delivered at closing and the tax
consequences to the Hanover shareholders are material, Hanover would send
revised materials to shareholders and solicit their approval.
INVESTMENT AGREEMENT
Concurrently with the execution and delivery of the agreement, Sterling
and Hanover entered into an investment agreement. The investment agreement is
attached as Exhibit A to the agreement, which is attached to this joint proxy
statement/prospectus as Annex A. The investment agreement protects Sterling from
interference from a third party during the period of time between execution of
the agreement and merger of the companies.
Under the terms of the investment agreement Hanover granted Sterling an
option to purchase up to 772,995 shares of Hanover common stock at a purchase
price of $14.00 per share. However, Sterling may not exercise the option for
more than 19.9% of the issued and outstanding shares of Hanover after giving
effect to the option exercise.
The option is exercisable upon the occurrence of the following events:
- The failure of Hanover's shareholders to approve the merger
- A third party's acquisition of 20% or more of Hanover's
common stock, exclusive of any of Hanover's common stock sold
to the third party, directly or indirectly, by Sterling;
- A third party beginning a tender or exchange offer for
Hanover's common stock, or applied to a bank regulatory
authority, that would result in the third party acquiring or
having the right to acquire 20% or more of the issuer's
common stock; or
- A third party's entrance into an acquisition agreement with
Hanover.
Sterling may exercise the option for some or all of the shares.
The Investment also grants redemption rights to Sterling These rights
permit Sterling to require the company to redeem some or all of the shares
acquired by Sterling upon exercise of the warrant at a redemption price equal
to:
- 115% of the exercise price;
- The highest price paid or agreed to be paid for a share of
stock by an acquiring person, as defined; and
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- In the event of sale of all or substantially all of the
company's assets, the sum of the price paid for the assets
and the current market value the remaining assets of the
company, as determined by a recognized banking firm, divided
by the number of shares of common stock then outstanding.
The redemption rights are exercisable upon the occurrence of either of
the following events:
- Third party acquisition of 20% or more of the Hanover common
stock, exclusive of any shares resulting from the exercise of
the warrant or shares of Hanover common stock sold by
Sterling; or
- Third party agreement to acquire Hanover by any method.
In addition, the investment agreement provides for adjustment of the
option in the event of a change in the Hanover common stock through a stock
dividend, stock split, recapitalization, combination, conversion, division, or
exchange of shares. In each case, the number and kind of shares issuable under
the option is adjusted appropriately.
TERMINATION OF THE MERGER AGREEMENT
The agreement may be terminated at any time before the merger, whether
before or after its approval and adoption by the shareholders of Hanover by:
- Agreement of all of the parties;
- Unilateral action by each of the parties in the event of a
material breach by the other party of any representation,
warranty or covenant not cured or curable within 30 days
after written notice or any condition precedent to the
terminating party's obligation to consummate the merger is
not satisfied through no fault of the terminating party;
- By either party in the event of a failure to consummate the
merger by September 30, 2000; or
- By Sterling, if under circumstances described in Section
7.1(e) of the agreement, Hanover is involved in a merger or
other transaction with any other party or another party makes
an offer or a proposal to acquire 20% of Hanover capital
stock.
The merger agreement contains provisions allowing Hanover or Sterling
to terminate the agreement in the event of a substantial decline or increase in
the market value of Sterling's common stock from its level immediately prior to
the execution of the agreement. These
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provisions provide either party with the right, but not the obligation, to
terminate the agreement; this right of termination only exists immediately
before the scheduled closing date of the merger. In the case of Hanover, these
provisions are designed to protect it from a substantial decline in the market
value of Sterling's common stock that results from either a development directly
relating to Sterling, but which does not trigger any other termination right, or
from factors unrelated to Sterling itself, such as a general downward movement
of the stock markets or particular segments of the stock markets.
The merger agreement sets forth two tests relating to the market value
of Sterling's common stock under which Hanover has the right to terminate the
agreement in the event the conditions of either test are met. To apply these
tests, the "closing market price" of Sterling's common stock is determined by
calculating the arithmetic average of the per share mean between the closing bid
price and the closing asked price for Sterling common stock during a 20 day
trading period ending 5 days prior to the scheduled closing of the merger. The
first test is a two-pronged test under which Hanover may terminate the merger
agreement if:
- Sterling's "closing market price" is less than 80% of the
market price of Sterling's stock on the day prior to
announcement of the transaction; that market price was
$27.09, and 80% of that market price equals, $21.67; and
- The decline in Sterling's market price, exceeds the decline
in the NASDAQ Bank Index Value between the day the starting
price is determined and the end of the 20 day period, by more
than 5%. For purposes of this calculation:
- The percentage decline in Sterling's market price is
calculated by dividing the closing market price by the
starting price of $27.09;
- The percentage decline in the NASDAQ Bank Index is calculated
by dividing the 20 day average NASDAQ Bank Index, during the
closing period, by the starting NASDAQ Bank Index Value of
1516.67.
The second test has only once requirement:
- Hanover has the right to terminate the merger agreement if
the closing market price of Sterling's common stock is less
than 70% of the starting price, regardless of the movement of
the NASDAQ Bank Index Value. Seventy percent of the starting
price is $18.96.
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A table giving examples of this provision follows:
EXAMPLES OF TERMINATION PROVISION
Hanover's Rights
- ----------------
<TABLE>
<CAPTION>
<S> <C>
Closing Bid for Sterling as of 1/24/00: $ 26.625
Closing Ask for Sterling as of 1/24/00: $ 27.562
Starting Price: $ 27.09
NASDAQ Bank Index on the Starting Date: 1516.67
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
First Trigger: Price of Sterling that would activate the first trigger $21.67 (.80 of the Starting Price)
Absolute Walk Away: Price of Sterling that would activate the absolute walk $18.96 (.70 of the Starting Price)
Sterling Ratio: Closing Market Price/Starting Price Closing Market Price / $27.09
Index Ratio: Average NASDAQ Bank Index Value for the Determination
Period/NASDAQ Bank Index Value on the starting date
Average NASDAQ Bank Index Value for the Determination
Period / 1516.67
</TABLE>
<TABLE>
<CAPTION>
CLOSING TRIGGER CLOSING STARTING TRIGGER
MARKET STARTING STERLING ONE INDEX INDEX INDEX RATIO TWO
PRICE PRICE RATIO ACTIVATED PRICE PRICE RATIO DIFFERENTIAL ACTIVATED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$23.03 $27.09 0.85 No N/A
$21.67 $27.09 0.80 No N/A
$21.40 $27.09 0.79 Yes 1289.17 1516.17 0.85 0.06 Yes
$21.40 $27.09 0.79 Yes 1274.00 1516.17 0.84 0.05 No
$20.32 $27.09 0.75 Yes 1228.50 1516.17 0.81 0.06 Yes
$20.32 $27.09 0.75 Yes 1213.34 1516.17 0.80 0.05 No
$18.96 $27.09 0.70 Yes 1152.67 1516.17 0.76 0.06 Yes
$18.96 $27.09 0.70 Yes 1137.50 1516.17 0.75 0.05 No
$18.69 $27.09 0.69 Absolute Walk Away
</TABLE>
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<TABLE>
<CAPTION>
Sterling's's Rights
<S> <C>
Closing Bid for Sterling as of 1/24/00: $ 26.625
Closing Ask for Sterling as of 1/24/00: $ 27.562
Starting Price: $ 27.09
NASDAQ Bank Index on the Starting Date: 1516.67
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
First Trigger: Price of Sterling that would activate the first trigger $32.50 (1.20 of the Starting Price)
Absolute Walk Away: Price of Sterling that would activate the absolute walk $35.22 (1.30 of the Starting Price)
Sterling Ratio: Closing Market Price/Starting Price Closing Market Price / $27.09
Index Ratio: Average NASDAQ Bank Index Value for the Determination
Period/NASDAQ Bank Index Value on the starting date
Average NASDAQ Bank Index Value for the Determination
Period / 1516.67
</TABLE>
<TABLE>
<CAPTION>
CLOSING TRIGGER CLOSING STARTING TRIGGER
MARKET STARTING STERLING ONE INDEX INDEX INDEX RATIO TWO
PRICE PRICE RATIO ACTIVATED PRICE PRICE RATIO DIFFERENTIAL ACTIVATED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$31.15 $27.09 1.15 No N/A
$32.50 $27.09 1.20 No N/A
$32.78 $27.09 1.21 Yes 1744.17 1516.17 1.15 0.06 Yes
$32.78 $27.09 1.21 Yes 1759.34 1516.17 1.16 0.05 No
$33.86 $27.09 1.25 Yes 1804.84 1516.17 1.19 0.06 Yes
$33.86 $27.09 1.25 Yes 1820.00 1516.17 1.20 0.05 No
$35.22 $27.09 1.30 Yes 1880.67 1516.17 1.24 0.06 Yes
$35.22 $27.09 1.30 Yes 1895.84 1516.17 1.25 0.05 No
$35.49 $27.09 1.31 Absolute Walk Away
</TABLE>
As we describe above, the Sterling market price termination provisions
apply during a period immediately prior to closing of the merger. Thus, neither
party has the right to terminate the agreement under the Sterling market price
termination provisions at this time. However, for the 20 day trading period
ended on April _____, 2000, the mean of the closing bid and closing asked price
for Sterling stock was $__________, a decline of _____%. The NASDAQ Bank Index
Value declined _____% during the period from the day the starting price was
determined to April _____, 2000. Thus, if the closing market price of Sterling
stock was determined during the
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20 trading day period ended on April _____, 2000, Hanover would have the right
to terminate the merger agreement under either test.
We anticipate that the merger will close late in the second quarter of
2000. Neither Hanover nor Sterling can predict whether the market price of
Sterling's stock or the NASDAQ Bank Index Value will increase, decrease or
remain stable between the date of this proxy statement/prospectus and the end of
the period during which the closing market price is determined. However, if
either test is met allowing Hanover to terminate the merger agreement based on
the market value of Sterling's stock, Hanover's Board of Directors would
determine, as of the relevant date, in the exercise of its fiduciary duties,
whether the transaction remains in the best interests of Hanover's shareholders,
employees, customers, the communities it serves and Hanover's other
constituencies. This determination would be made by Hanover's Board in light of
all the facts and circumstances that exist at the time. Hanover's Board expects
to employ the same methodology it used and examine the same factors it
considered when it originally approved the merger agreement. Many of the
factors, including financial factors, originally considered by the Board in
approving and adopting the merger agreement were independent of the market price
of Sterling's stock. Thus, the market price of Sterling's common stock, in and
of itself, may not be determinative in the Board's decision. Among the
non-financial factors which Hanover's Board considered in approving and adopting
the merger agreement were the following:
- Sterling's financial performance, including its historical
return on equity and earnings per share, and capital
position;
- Sterling's credit quality, community banking philosophy,
geographic market and progressive view of the future of
financial services;
- Sterling's non-banking businesses, including leasing,
investment services and insurance;
- Sterling's size, market capitalization and stock liquidity;
- The consistent management philosophies and cultures of
Hanover and Sterling; and
- The profile of the resulting company in terms of assets,
market capitalization, stock liquidity, legal lending limit,
investment assets under management, contiguous markets and
management resources.
As part of the process of evaluating whether to terminate the merger
agreement, Hanover's Board would expect to consult with McConnell Budd to review
an updated analysis of the financial factors that the Board originally
considered, including the market for financial institution merger transactions
at that time. In addition to the multiple of the merger price based on market
value to earnings, other financial factors that would be considered include:
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- Relative ownership percentages of the Hanover and Sterling
shareholders in the institution resulting from the merger;
- Book value multiples;
- A merger model which includes various "pass through" values
(e.g. market value, earnings power, book value and dividend
income) using a .93 exchange ratio and cost savings required
to eliminate dilution;
- An analysis of certain other potential acquirers' ability to
pay the proposed price, in terms of dilution and cost
savings, although no discussions were held with such parties;
- A discounted cash flow analysis; and
- An analysis of the market value of Sterling's stock in
comparison to its peers.
The input sought from McConnell Budd would likely include a
determination of whether McConnell Budd continues to believe the exchange ratio
is fair to Hanover's shareholders from a financial point of view. However, it
should be noted that the availability of an updated fairness opinion and the
determination as to whether to exercise Hanover's termination right based on the
market value of Sterling stock are not directly related. For example, a
situation could exist in which such a fairness opinion is available but the
Board of Directors determines it is in the best interests of Hanover and its
constituencies to exercise its right of termination.
We reiterate that if the closing market price of Sterling's common
stock were to be determined during the 20 trading days ending on the date of
this proxy statement/prospectus, Hanover would have the right, but not the
obligation, to terminate the merger agreement under either of the tests
described above. No determination can be made as to whether Hanover's Board
would have the right to terminate the merger agreement until immediately before
the scheduled closing of the merger, and no determination can be made at this
point as to whether the Board would exercise that right. Therefore, in voting
whether to approve the merger agreement, Hanover's shareholders should not
assume that the Board would exercise a right to terminate if it were available.
CHANGE OF CONTROL FEE
If Hanover or Bank of Hanover enters into a change of control
transaction:
- Within 60 days after termination of the agreement according
to its terms,
- Sterling has not breached its obligations under the
agreement,
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then, Hanover will pay a $500,000 fee to Sterling, in addition to paying
Sterling's expenses relating to the merger. For purposes of this termination
fee, a change in control is defined as:
- A merger, consolidation or division,
- A sale, exchange, transfer or other disposition of
substantially all of Hanover's assets,
- Hanover's purchase of another entity unless the Hanover
shareholders control at least a majority of the votes
entitled to be cast for the election of directors or
- A transaction having an effect similar to those described in
the agreement.
EMPLOYEE BENEFITS
Sterling and Hanover agreed to use their best efforts to employ as
officers and employees of Hanover immediately following the merger, any persons
who were officers and employees of Hanover immediately before the merger.
Employment in these circumstances will be on an "at will" basis. As a condition
to employment by Sterling or Hanover, any continuing employee must agree to
cancel any existing employment contract, agreement or understanding now in
existence with Hanover or Bank of Hanover.
After the merger, all benefits of continuing Hanover employees will be
maintained at a level at least equal to the benefits enjoyed by those employees
prior to the merger. Sterling's and Hanover's Board of Directors will determine
changes to compensation and benefits in the future as may be appropriate. After
the merger, continuing Hanover employees will be eligible to apply for positions
available at Sterling or any of its subsidiaries. Sterling will also permit
severance payments to employees of Bank of Hanover, other than to employees who
severance benefits were provided for and written in employment agreements or
whose employment is terminated within six months following the merger. Those
individuals will need to sign a release of any and all claims the individual may
have against Hanover, Bank of Hanover, Sterling or any Sterling affiliate.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Sterling will employ and retain Hanover's senior executive officers,
who are employed, in good standing and actively at work on the day of the
merger, in their current management positions, with compensation initially at
least equal to their current levels of compensation. In the future, Sterling's
and Bank of Hanover's Board of Directors will determine any changes to
employment status, compensation and benefits as may be appropriate. Sterling
retains the right to terminate any of the continuing officers at any time
following the date of the merger for "good reason," as that term is reasonably
defined by Sterling.
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<PAGE> 85
John E. Stefan, President and Chief Executive Officer of Sterling, will
join the Bank of Hanover Board of Directors following the merger. Non-employee
directors' compensation for services as a member of the Bank of Hanover Board of
Directors will remain the same for a period of 3 years after the effective date.
Individuals serving on the Bank of Hanover Board of Directors immediately
following the effective date of the merger shall, absent a breach of a
director's fiduciary duty, be nominated and recommended by Sterling's Board of
Directors to serve 3 successive 1 year terms, and to serve until the director's
successor has been duly elected, qualified or appointed.
Three people, as Sterling and Hanover agree, will be appointed to the
Sterling Board of Directors and one individual will be appointed to the Board of
Directors of Bank of Lancaster County. Sterling's Board of Directors will elect
J. Bradley Scovill, President and Chief Executive Officer of Hanover, as
President and Chief Executive Officer of Bank of Hanover and as an Executive
Vice President of Sterling. Sterling's Board of Directors will also appoint Chad
M. Clabaugh as Executive Vice President of Bank of Hanover and Vice President of
Sterling. Messrs. Scovill and Clabaugh will also be members of the Sterling
Management Committee.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the anticipated material federal
income tax consequences of the merger, if the merger were to take place on the
date of this proxy statement/prospectus. This is only a general description. We
include the opinion of Shumaker Williams, P.C., Special Counsel to Sterling, as
to the income tax consequences of the merger as Exhibit 8 to the Registration
Statement of which this proxy statement forms a part. Shumaker Williams assumed
that the merger and related transactions will take place as described in the
agreement. The opinion does not consider the particular facts and circumstances
of your situation. We recommend that you consult your own tax advisors as to
particular facts and circumstances that may be unique to you and not common to
shareholders as a whole, and also as to any estate, gift, state, local or
foreign tax consequences arising out of the transactions and/or any sale of
Sterling common stock received in the merger. We do not anticipate that the law
will change before completion of the merger.
The following is a summary of the opinion of Shumaker Williams, P.C.:
- The merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a)(1)(A)
of the Internal Revenue Code;
- Neither Hanover nor Sterling will recognize gain or loss in
the merger;
- Shareholders of Hanover will not recognize any gain or loss
upon their receipt of Sterling common stock in exchange for
their Hanover common stock, except shareholders who receive
cash proceeds received for fractional interests will
recognize gain or loss equal to the difference between the
proceeds and the tax
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basis allocated to their fractional share interests, and the
gain or loss will constitute capital gain or loss if their
Hanover common stock is held as a capital asset at the
effective date of the merger;
- The tax basis of the shares of Sterling common stock,
including fractional share interests, that Hanover
shareholders receive in the merger will be the same as the
tax basis of their original shares of Hanover common stock
exchanged for Sterling less any basis allocable to fractional
share interests; and
- The holding period of the Sterling common stock Hanover
shareholders receive in the merger will include the holding
period of their original shares of Hanover common stock,
provided they hold their Hanover common stock as a capital
asset at the time of the merger.
This is not a complete description of all the federal income tax
consequences of the merger and, in particular, does not address tax
considerations that may affect the treatment of shareholders who acquired their
Hanover common stock pursuant to the exercise of employee stock options or
otherwise as compensation, or shareholders that are exempt organizations of who
are not citizens or residents of the United States. Your individual
circumstances may affect the tax consequences of the merger to you. In addition,
we have not provided with respect to the tax consequences of the merger under
applicable state, local or foreign laws. We urge you to consult a tax advisor as
to the specific tax consequences of the merger to you.
ACCOUNTING TREATMENT
The agreement contemplates that the merger will be treated as a pooling
of interests for financial accounting and reporting purposes. Under this
accounting method, the assets and liabilities of Hanover will be combined with
Sterling at their historical recorded bases. Results of operations of Sterling
will include the results of both companies for the entire fiscal year in which
the merger occurs. The reported balance sheet amounts and results of operations
of the separate companies for the prior periods will be combined, reclassified
and conformed, as appropriate, to reflect the combined financial position and
results of operations for Sterling.
If Sterling would be required to purchase more than 10% of the
outstanding shares of Hanover capital stock for cash due to the exercise of
dissenters' rights by Hanover shareholders, or if other conditions arise that
would prevent the merger from being treated as a pooling-of-interests for
financial accounting purposes, Sterling has the right to terminate the agreement
and to cancel the merger.
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EXPENSES
Sterling and Hanover will each pay all their respective costs and
expenses, including fees and expenses of financial consultants, accountants and
legal counsel, except that Sterling and Hanover will share proportionally the
cost of printing this proxy statement.
RESTRICTION ON RESALE OF STOCK HELD BY AFFILIATES
The shares of Sterling common stock to be issued upon completion of the
merger have been registered with the Commission under the Securities Act.
Following the merger, these shares may be freely resold or otherwise transferred
by all former shareholders of Hanover, except those former shareholders who are
deemed "affiliates" of Hanover, within the meaning of Commission Rules 144 and
145. In general terms, any person who is an executive officer, director or 10%
shareholder of Hanover at the time of the meeting may be deemed to be an
affiliate of Hanover for purposes of Commission Rules 144 and 145. This proxy
statement/prospectus does not cover resales of shares of Sterling common stock
to be issued to affiliates of Hanover in connection with the transaction.
Sterling common stock received by persons who are deemed to be
affiliates of Hanover may be resold only:
- In compliance with the provisions of Commission Rule 145(d);
- In compliance with the provisions of another applicable
exemption from the registration requirements of the
Securities Act; or
- Pursuant to an effective registration statement filed with
the Commission.
In general terms, Commission Rule 145(d) permits an affiliate of
Hanover to sell shares of Sterling common stock he or she received in ordinary
brokerage transactions subject to certain limitations on the number of shares
that may be sold in any consecutive three month period.
The ability of affiliates to resell shares of Sterling common stock
received in the transaction under Rule 144 or Rule 145, is subject to Sterling's
having satisfied its Exchange Act reporting requirements for specified periods
prior to the time of sale. Affiliates are also permitted to resell Sterling
common stock received in the transaction pursuant to an effective registration
statement under the Securities Act or another available exemption from the
Securities Act regulations and requirements. This proxy statement/prospectus
does not cover any resales of Sterling common stock received by persons who may
be deemed to be affiliates of Sterling or Hanover.
Each person who may be an affiliate of Hanover is required, prior to
the closing, to provide Sterling with a letter agreeing to abide by the
limitations imposed by the Commission
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regarding the sale or other disposition of the shares of Sterling common stock
that the shareholders will receive in the merger.
In addition, a requirement of pooling-of-interests accounting treatment
for the merger is that an affiliate of Hanover may not, as a general rule and
subject to an exception in a case of certain de minimis sales:
- Sell any shares of Hanover common stock during the 30-day
period immediately preceding the day of the merger; or
- Sell any shares of Sterling common stock received by him or
her in exchange for his or her shares of Hanover capital
stock until after the publication of financial results
covering at least 30 days of post-merger combined operations.
FINANCIAL INTERESTS OF DIRECTORS AND OFFICERS
Certain members of management of Hanover and its Board of Directors,
may have interest in the merger in addition to their interests as shareholders.
On January 25, 2000, Mr. Scovill entered into an employment agreement
with Sterling Financial Corporation and the Bank of Hanover which will only take
effect on the effective date of the merger. Under the terms of the agreement,
Mr. Scovill will be employed as Executive Vice President of Sterling and
President and Chief Executive Officer of Bank of Hanover. The term of the
Agreement is three years, beginning on the effective date of the merger between
Sterling and Hanover. On each anniversary date of the employment agreement, the
term of the agreement is extended for an additional year so that the term of the
employment agreement is a full three years each time it is renewed, unless
either Mr. Scovill or the Bank of Hanover or Sterling indicates that they do not
wish to extend the term.
The employment agreement allows the Bank of Hanover or Sterling to
terminate Mr. Scovill's employment for cause. The agreement automatically
terminates if Mr. Scovill becomes disabled or terminates his employment other
than for good reason or because of a change in control. Following a change in
control of either Sterling or Bank of Hanover, Mr. Scovill would be entitled to
receive 2.99 times his annual compensation at the time of the change in control.
In addition, his life, disability and other welfare benefits will be continued
for three years following the change in control or until he obtains other
employment which provides substantially similar benefits. If Mr. Scovill's
employment is terminated by the Bank of Hanover or Sterling without cause, and
no change in control has occurred, Mr. Scovill is entitled to receive 2 times
his annual salary or the remaining balance of his compensation otherwise due to
him through the end of the existing term of the employment agreement, whichever
is greater. In addition, Mr. Scovill will continue to receive life, disability,
medical insurance and other normal health and welfare benefits for the remainder
of the current term of the employment agreement or the cost of such benefits in
cash. He would also be entitled to receive additional retirement benefits which
he otherwise
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would have received if his employment had continued through the end of the term
of the employment agreement.
The agreement also provides that Sterling and Bank of Hanover will
obtain insurance covering Mr. Scovill against lawsuits, arbitrations and similar
legal proceedings in his capacity as an officer of Sterling and Bank of Hanover.
In addition, Sterling has agreed to indemnify Mr. Scovill for legal proceedings
brought against him because of his service as a director, officer, employee or
agent of Sterling.
In addition, Chad M. Clabaugh and Thomas J. Paholsky will be offered
change in control agreements. Under the change in control agreements, in
addition to terms standard to such agreements, it is anticipated that each of
Messrs. Clabaugh and Paholsky would be entitled to receive a multiple of his
average annual compensation in the event that he terminates his employment for
good reason following a change in control of the Bank of Hanover or Sterling.
However, he would not be entitled to receive this payment if he was terminated
for cause. In addition, it is anticipated that the change in control agreement
would terminate if he voluntarily left his employment, retired, died or became
disabled.
The Hanover Board of Directors was aware of these factors and
considered them, among other matters, in approving the merger agreement.
The directors and officers of Sterling and its subsidiaries have no
special interests in the merger, other than in their capacity as shareholders of
Sterling. The directors and officers of Sterling and its subsidiaries will not
receive any special consideration or compensation in connection with the
completion of the merger.
DISSENTERS' RIGHTS
General. The Pennsylvania Business Corporation Law of 1988, grants
shareholders of Sterling and of Hanover the right to dissent from the merger and
to obtain payment of the "fair value" of their shares in the event we complete
the merger.
If you are a shareholder of Sterling or Hanover and you contemplate
exercising your right to dissent, we urge you to read carefully the provisions
of Subchapter D of Chapter 15 of the Pennsylvania Business Corporation Law of
1988, which is attached to this proxy statement/prospectus as Annex D. We
include a discussion of the provisions of the statute. The discussion describes
the steps that you must take if you want to exercise your right to dissent.
You should read this summary and the full text of the law.
Before the day of the shareholders meeting, send any written notice or
demand, required concerning your exercise of dissenters' rights to Ronald L.
Bowman, Vice President/Secretary, Sterling Financial Corporation, 101 North
Pointe Boulevard, Lancaster, Pennsylvania 17601, if
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<PAGE> 90
you are a Sterling shareholder, or Thomas J. Paholsky, Secretary, Hanover
Bancorp, Inc., 33 Carlisle Street, Hanover, Pennsylvania 17331, if you are a
Hanover shareholder.
Fair Value. The term "fair value" means the value of a share of
Sterling or, if you are a Hanover shareholder, Hanover common stock immediately
before the day of the merger, taking into account all relevant factors, but
excluding any appreciation or depreciation in anticipation of the merger.
Notice of Intention to Dissent. If you wish to dissent, you must:
- File a written notice of intention to demand payment of the
fair value of your shares if the merger is effected with
Sterling or Hanover, prior to the vote of shareholders on the
merger at the meeting;
- Make no change in your beneficial ownership of stock from the
date you give notice through the day of the merger; and
- Not vote your stock for approval of the agreement.
Neither a proxy nor a vote against approval of the merger satisfies the
necessary written notice of intention to dissent.
Notice to Demand Payment. If the merger is approved by the required
vote of shareholders, Sterling or Hanover will mail a notice to all dissenters
who gave due notice of intention to demand payment and who did not vote for
approval of the agreement. The notice will state where and when you must deliver
a written demand for payment and where you must deposit certificates for stock
in order to obtain payment. The notice will include a form for demanding payment
and a copy of the law. The time set for receipt of the demand for payment and
deposit of stock certificates will be not less than 30 days from the date of
mailing of the notice.
Failure to Comply with Notice to Demand Payment, etc. You must take
each step in the indicated order and in strict compliance with the statute to
keep your dissenters' rights. If you fail to follow the steps, you will lose
your right to dissent and you will receive .93 shares of Sterling common stock
for each share of Hanover common stock that you hold or, if you are a Sterling
shareholder, you will continue to hold Sterling common stock after the merger.
Payment of Fair Value of Shares. Promptly after the merger, or upon
timely receipt of demand for payment if the merger already has taken place,
Sterling will send dissenters, who have deposited their stock certificates, the
amount that Sterling estimates to be the fair value of the stock. The remittance
or notice will be accompanied by:
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<PAGE> 91
- A closing balance sheet and statement of income of Sterling
or Hanover for a fiscal year ending not more than 16 months
before the date of remittance or notice together with the
latest available interim financial statements;
- A statement of Sterling's estimate of the fair value of the
Sterling common stock or Hanover common stock; and
- A notice of the right of the dissenter to demand supplemental
payment, accompanied by a copy of the law.
Estimate by Dissenter of Fair Value of Shares. If a dissenter believes
that the amount stated or remitted by Sterling is less than the fair value of
the stock, the dissenter may send an estimate of the fair value of the stock to
Sterling. If Sterling remits payment of the estimated value of a dissenter's
stock and the dissenter does not file his or her own estimate within 30 days
after the mailing by Sterling of its remittance, the dissenter will be entitled
to no more than the amount remitted by Sterling.
Valuation Proceeding. If any demands for payment remain unsettled
within 60 days after the latest to occur of:
- The merger;
- Timely receipt by Sterling or Hanover, as the case may be, of
any demands for payment; or
- Timely receipt by Sterling or Hanover, as the case may be, of
any estimates by dissenters of the fair value,
then, Sterling may file an application, in the Court of Common Pleas of
Lancaster County, requesting that the court determine the fair value of the
stock. If this happens, all dissenters, no matter where they reside, whose
demands have not been settled, shall be made parties to the proceeding. In
addition, a copy of the application will be delivered to each dissenter.
If Sterling fails to file the application, then any dissenter, on
behalf of all dissenters who have made a demand and who have not settled their
claim against Sterling, may file an application in the name of Sterling at any
time within the 30-day period after the expiration of the 60-day period and
request that the Lancaster County Court determine the fair value of the shares.
The fair value determined by the Lancaster County Court may, but need not, equal
the dissenters' estimates of fair value. If no dissenter files an application,
then each dissenter entitled to do so shall be paid Sterling's estimates of the
fair value of the common stock and no more, and may bring an action to recover
any amount not previously remitted, plus interest at a rate the Lancaster County
Court finds fair and equitable.
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Sterling intends to negotiate in good faith with any dissenting
shareholders. If, after negotiation, a claim cannot be settled, then Sterling
intends to file an application requesting that the fair value of the common
stock be determined by the Lancaster County Court.
Costs and Expenses. The costs and expenses of any valuation proceedings
in the Lancaster County Court, including the reasonable compensation and
expenses of any appraiser appointed by the Court to recommend a decision on the
issue of fair value, will be determined by the Court and assessed against
Sterling except that any part of the costs and expenses may be apportioned and
assessed by the Court against all or any of the dissenters who are parties and
whose action in demanding supplemental payment the Court finds to be dilatory,
obdurate, arbitrary, vexatious or in bad faith.
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COMPARATIVE STOCK PRICES AND DIVIDENDS
AND RELATED SHAREHOLDER MATTERS
STERLING COMMON STOCK
Sterling common stock is quoted on the National Market System of NASDAQ
under the symbol "SLFI." The table below shows, for the periods indicated, the
high and low bid quotations for Sterling common stock as reported on NASDAQ, and
cash dividends declared per share. The quotations in the table represent
quotations between dealers, do not include retail markups, mark downs or
commissions, and may not represent actual transactions. All information has been
adjusted for stock dividends and splits throughout the periods.
<TABLE>
<CAPTION>
CASH DIVIDENDS
1999 HIGH LOW DECLARED PER SHARE
- ---- ---- --- ------------------
<S> <C> <C> <C>
First Quarter $36.00 $26.40 $.168
Second Quarter $28.40 $25.80 $.176
Third Quarter $31.80 $24.50 $.176
Fourth Quarter $31.80 $24.50 $.184
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDENDS
1998 HIGH LOW DECLARED PER SHARE
- ---- ---- --- ------------------
<S> <C> <C> <C>
First Quarter $27.43 $23.43 $.152
Second Quarter $44.00 $26.48 $.160
Third Quarter $39.90 $27.20 $.168
Fourth Quarter $34.95 $31.30 $.168
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDENDS
1997 HIGH LOW DECLARED PER SHARE
- ---- ---- --- ------------------
<S> <C> <C> <C>
First Quarter $19.24 $19.24 $.145
Second Quarter $19.33 $19.24 $.145
Third Quarter $19.62 $19.24 $.145
Fourth Quarter $23.24 $19.62 $.183
</TABLE>
* Includes $.031 special cash dividend paid in fourth quarter.
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On January 24, 2000, the closing price for Sterling common stock, as
reported on NASDAQ was $27.56. As of March 31, 2000, Sterling common stock was
held by 3,325 holders of record. Sterling has in the past paid regular quarterly
cash dividends to its shareholders on or about January 2, April 1, July 1 and
October 1, of each year.
HANOVER COMMON STOCK
Hanover common stock is quoted on the OTC under the symbol "HOVB." The
table below shows, for the periods indicated, the high and low bid quotation for
Hanover common stock as reported on the OTC, and cash dividends declared per
share. The quotations in the table represent quotations between dealers, do not
include retail markups, mark downs or commissions, and may not represent actual
transactions. All information has been adjusted for stock dividends and stock
splits throughout the periods.
<TABLE>
<CAPTION>
CASH DIVIDENDS
1999 HIGH LOW DECLARED PER SHARE
- ---- ---- --- ------------------
<S> <C> <C> <C>
First Quarter $17.75 $16.00 $0.11
Second Quarter $17.00 $15.75 $0.11
Third Quarter $17.00 $15.00 $0.12
Fourth Quarter $15.38 $14.00 $0.12
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDENDS
1998 HIGH LOW DECLARED PER SHARE
- ---- ---- --- ------------------
<S> <C> <C> <C>
First Quarter $21.00 $16.69 $0.10
Second Quarter $22.50 $19.92 $0.10
Third Quarter $23.00 $17.75 $0.11
Fourth Quarter $20.00 $17.00 $0.11
</TABLE>
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<PAGE> 95
<TABLE>
<CAPTION>
CASH DIVIDENDS
1997 HIGH LOW DECLARED PER SHARE
- ---- ---- --- ------------------
<S> <C> <C> <C>
First Quarter $13.88 $12.75 $0.09
Second Quarter $13.41 $12.75 $0.09
Third Quarter $16.88 $12.85 $0.10
Fourth Quarter $18.00 $15.94 $0.10
</TABLE>
As of March 31, 2000, Hanover common stock was held by approximately
1,528 holders of record. Hanover has paid regular cash dividends to its
shareholders on or about February 1, May 1, August 1 and November 1, of each
year.
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<PAGE> 96
COMPARISON OF SHAREHOLDER RIGHTS
After the merger, the shareholders of Hanover will become shareholders
of Sterling. There are certain differences in the rights of shareholders of
these two companies. We summarize the differences between Hanover and Sterling
common stock and the rights of their respective holders, as of April __, 2000,
in the following table:
<TABLE>
<CAPTION>
HANOVER BANCORP, INC. STERLING FINANCIAL CORPORATION
--------------------- ------------------------------
<S> <C> <C>
TITLE Common stock, par value $.83 per share Common stock, $5.00 par value per
share
SHARES AUTHORIZED 9,000,000 35,000,000
SHARES ISSUED AND OUTSTANDING 3,884,189 at March 31, 2000 8,931,568 at March 31, 2000
PREFERRED STOCK 2,000,000 authorized, $2.50 par value, None authorized
none outstanding
PREEMPTIVE RIGHTS No Limited Circumstances
VOTING: ELECTION OF DIRECTORS Non-cumulative Non-cumulative
CLASSIFICATION OF BOARD OF DIRECTORS Board of Directors divided into 3 classes Board of Directors divided into 3 classes
with 3-year terms; approximately 1/3 of with 3-year terms; approximately 1/3 of
directors elected each year directors elected each year
VOTING: OTHER MATTERS One vote for each share of record owned One vote for each share owned of record
MERGERS, CONSOLIDATIONS, LIQUIDATIONS Approvals by 75% of the outstanding Approval by a vote of 75% of
SALES OF SUBSTANTIALLY ALL ASSETS common stock or a majority of outstanding shares of common stock. If
outstanding stock if transaction approved the transaction has received prior
by at least 75% of the Board of Directors. approval of at least a majority of the
continuing members of the Board of
Directors, then 66 2/3% of the
outstanding shares of common stock
would be required
SPECIAL SHAREHOLDER MEETINGS May be called by the President or a Upon request by the Chairman of the
majority of the Directors. Board, President, the Executive Vice
President, if any, or a majority of the
Board of Directors, or by its Executive
Committee.
AUTHORIZATION TO ISSUE SHARES Approval by the Board of Directors. Approval by the Board of Directors,
subject to the shareholder approval
requirements of the Non-quantitative
Maintenance Criteria for National
Market Systems issuers of The
NASDAQ Stock Market, Inc.
</TABLE>
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<TABLE>
<CAPTION>
HANOVER BANCORP, INC. STERLING FINANCIAL CORPORATION
--------------------- ------------------------------
<S> <C> <C>
REPURCHASE OF ADDITIONAL SHARES Stock can be repurchased up to the extent Stock can be repurchased up to the extent
of unrestricted or unreserved undivided of unrestricted or unreserved undivided
profits and as much of its unrestricted profits and as much of its unrestricted
surplus as has been made available for surplus as has been made available for
such purpose by the prior affirmative such purpose by the prior affirmative
vote of the Board of Directors, stock vote of the Board of Directors, stock
cannot be repurchased when Hanover is cannot be repurchased when Sterling is
insolvent or would be made insolvent by insolvent or would be made insolvent by
the purchase; and no more than 10% of the the purchase; and no more than 10% of the
outstanding shares can be repurchased in outstanding shares can be repurchased in
any 12 month period without prior any 12 month period without prior
regulatory approval; and provisions of the regulatory approval; and provisions of the
Securities Act of 1933 restrict the Securities Act of 1933 restrict the
timing, nature and amount of repurchases. timing, nature and amount of repurchases.
STOCK INCENTIVE PLAN Yes Yes
DISSENTERS' RIGHTS Yes Yes
DIVIDEND REINVESTMENT PLAN Yes Yes
MARKET OTC Market Listed for quotation on National Market
System of The NASDAQ Stock Market,
Inc.
REGISTERED UNDER EXCHANGE ACT Yes Yes
</TABLE>
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INFORMATION ABOUT STERLING FINANCIAL CORPORATION
Sterling is a Pennsylvania business corporation, based in Lancaster,
Pennsylvania. The corporation was organized on February 23, 1987, and became a
bank holding company on June 30, 1987, through the acquisition of all of the
outstanding stock of The First National Bank of Lancaster County, now by change
of name, Bank of Lancaster County, N.A. On June 15, 1999, Sterling acquired all
of the outstanding stock of Northeast Bancorp, Inc. and thereby acquired The
First National Bank of North East.
The corporation provides a wide variety of commercial banking and trust
services through its wholly owned subsidiaries, Bank of Lancaster County, N.A.
and The First National Bank of North East. Dividends provided by Sterling's
subsidiary banks provide a major source of operating funds for the corporation.
The corporation's expenses consist principally of operating expenses.
As a registered bank holding company, Sterling is subject to regulation
under the Bank Holding Company Act of 1956, as amended, and the rules and
regulations of the Board of Governors of the Federal Reserve System. Under
applicable Board of Governors of the Federal Reserve System policies, a bank
holding company is expected to act as a source of financial strength to each of
its subsidiary banks and to commit resources to support each subsidiary bank in
circumstances when it might not do so absent such a policy.
The Bank of Lancaster County is a full service commercial bank
operating under a charter from the Comptroller of the Currency. On July 29,
1863, the Comptroller of the Currency authorized The First National Bank of
Strasburg to commence the business of banking. On September 1, 1980, we changed
the name to The First National Bank of Lancaster County. At the time of the
holding company reorganization, on June 30, 1987, the name was changed to its
present name. Bank of Lancaster County holds all of the outstanding stock of
Town & Country, Inc., a vehicle and equipment leasing company, operating in
Pennsylvania and other states. Town & Country employs 55 people. The main office
of the Bank of Lancaster County is located at One East Main Street, Strasburg,
Pennsylvania. In addition to its main office, the bank has 28 branches in
Lancaster County and 1 branch in Chester County, Pennsylvania.
Northeast Bancorp, Inc. is a Delaware bank holding company based in
Newark, Delaware. The corporation was organized in 1983 and is parent company of
The First National Bank of North East, North East, Maryland. A major source of
operating funds for Northeast Bancorp, Inc., is dividends provided by The First
National Bank of North East. Northeast Bancorp, Inc. is a one-bank holding
company and is registered with the Federal Reserve Board in accordance with the
requirements of the Bank Holding Company Act and is subject to regulation by the
Federal Reserve Board.
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<PAGE> 99
On June 15, 1999, Sterling Financial Corporation acquired Northeast
Bancorp, Inc. Under the terms of the agreement, Northeast Bancorp shareholders
received two shares of Sterling 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.
On July 21, 1998, Sterling organized T & C Leasing, Inc., a
Pennsylvania corporation.
T & C Leasing, Inc. is a nationwide vehicle and equipment leasing company
operating primarily in Pennsylvania. Its principal office is located at 1097
Commercial Avenue, East Petersburg, Pennsylvania.
In addition, Sterling also owns all of the outstanding stock of a
non-bank subsidiary, Sterling Mortgage Services, Inc., a mortgage service
company formed by Sterling as a wholly owned subsidiary. Sterling Mortgage
Services, Inc. is presently inactive.
Sterling includes a copy of its annual report to shareholders for 1999
and a copy of its Annual Report on Form 10-K for the year ended December 31,
1999, as filed with the Commission on March 29, 2000, with this proxy
statement/prospectus. At December 31, 1999, Sterling had total assets of $1,059
million and total deposits of $892 million.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Certain documents previously filed by Sterling with the Commission are
incorporated by reference into this proxy statement/prospectus as follows:
- Sterling's Annual Report on Form 10-K for the year ended
December 31, 1999, filed with the Commission on March 29,
2000;
- Sterling's Current Report on Form 8-K, dated January 25, 2000,
re: Earnings, as filed with the Commission on January 25,
2000;
- Sterling's Current Report on Form 8-K, dated January 25, 2000,
re: Merger with Hanover, filed with the Commission on February
8, 2000; and
- Description of Sterling's common stock that appears in
Sterling's prospectus filed with the Commission on April 22,
1999, which forms a part of Sterling's Registration Statement
No. 333-76821 on Form S-4.
Sterling incorporates by reference all documents it files pursuant to
Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of this
proxy statement/prospectus and prior to the merger, into this proxy
statement/prospectus. The incorporated documents are deemed a part of the proxy
statement/prospectus from the date of filing of each document. Any statement
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<PAGE> 100
contained in a document incorporated by reference is deemed to be modified or
superseded for purposes of this proxy statement/prospectus to the extent that a
statement contained herein or in any subsequently filed document that is also
incorporated by reference herein modifies or supersedes the statement. Any
statement so modified or superseded should not be deemed, except as so modified
or superseded, to constitute a part of this proxy statement/prospectus. You
should read all information appearing in this proxy statement/prospectus in
conjunction with the information and financial statements, including notes
thereto, appearing in the documents incorporated herein by reference, except to
the extent stated in this paragraph. All the information in this proxy
statement/prospectus is qualified in its entirety by the information in those
documents.
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INFORMATION ABOUT HANOVER BANCORP, INC.
Hanover was incorporated under the laws the Commonwealth of
Pennsylvania on August 2, 1983. The corporation is a holding company registered
under the Bank Holding Company Act of 1956, owning all the outstanding shares of
its subsidiaries, Bank of Hanover and Trust Company and HOVB Investment Co. The
corporation is registered with and subject to the regulatory supervision of the
Commission and the Board of Governors of Federal Reserve System. Bank of Hanover
is subject to the regulatory supervision of the Pennsylvania Department of
Banking and the Federal Deposit Insurance Corporation. The corporation's
administrative offices are located at 33 Carlisle Street, Hanover, Pennsylvania
17331 (Telephone number: 717-637-2201).
Bank of Hanover was organized in 1835 under the laws of the
Commonwealth of Pennsylvania. The bank conducts its business principally through
11 full service banking offices located in York and Adams counties,
Pennsylvania. At December 31, 1999, the bank had total deposits of $397 million;
total assets of $497 million; and net loans of $295 million.
HOVB Investment Co., a wholly-owned subsidiary of the corporation, was
incorporated in Delaware in 1999. Its principal activity is the holding of and
investing in equity securities.
Hanover includes a copy of its annual report to shareholders for 1999
and a copy of its Annual Report on Form 10-K for the year ended December 31,
1999, as filed with the Commission on March 17, 2000, with this proxy
statement/prospectus.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Hanover consists of 9,000,000 shares of
common stock, par value $0.83 per share, and 2,000,000 shares of preferred
stock, par value $2.50 per share. As of March 31, 2000, there were 3,884,189
shares of common stock and no shares of preferred stock issued and outstanding.
There are no other shares of capital stock of Hanover authorized, issued or
outstanding. Hanover has issued options to purchase common stock under its
Omnibus Stock Plan. As of March 31, 2000, there were 130,157 options
outstanding. Except for options issued under the Omnibus Stock Plan, and except
for the warrant issued in connection with the merger transaction as described in
this proxy statement/ prospectus, Hanover has no options, warrants, or other
rights authorized, issued or outstanding.
The holders of common stock are entitled to one vote for each share
held of record on each matter presented for consideration by shareholders.
Shareholders are not entitled to cumulate votes in the election of directors.
The holders of common stock have no preemptive rights to acquire any additional
shares. The shares of commons stock issued are fully paid and nonassessable and
the holders thereof will not be subject to call or assessment under state law.
The Board of Directors is divided into three classes with approximately
one-third of the total number of directors elected each year for three-year
terms.
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<PAGE> 102
In the event of liquidation, dissolution or winding-up of Hanover,
holders of common stock will be entitled to share ratably in any of its assets
or funds that are available for distribution to its shareholders after the
satisfaction of its liabilities and after payment of any liquidation preferences
of any outstanding preferred stock.
Dividends
The holders of common stock are entitled to share ratably in dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. The timing and amount of dividends depends upon earnings,
capital requirements, federal and state laws, regulations and policies and other
factors deemed relevant by the Board of Directors.
The ability of Hanover to pay dividends to its shareholders is
dependent upon the earnings and financial condition of the Bank of Hanover and
Trust Company, Hanover's wholly-owned subsidiary. Funds for the payment of such
dividends are expected for the foreseeable future to be obtained exclusively
from dividends paid to Hanover by its bank subsidiary.
Anti-takeover Provisions
The articles of incorporation and bylaws of Hanover include certain
provisions which may be considered to be anti-takeover in nature, in that they
may have the effect of discouraging or making more difficult the acquisition of
control over Hanover by means of an unsolicited tender or exchange offer, proxy
contest or similar transaction. The provisions in the articles of incorporation
of Hanover which may be so considered include the following:
- A provision which provides for substantial authorized but
unissued capital stock, including a class of preferred stock
whose rights and privileges may be determined prior to
issuance by the Hanover Board of Directors;
- A provision which denies to shareholders the right to cumulate
their votes in the election of directors;
- A provision which establishes criteria to be applied by the
Board of Directors in evaluating an acquisition proposal;
- A provision which requires a greater than majority vote in
order to remove a director or to fill a vacancy caused by such
a removal or to amend certain provisions of the articles of
incorporation and bylaws;
- A provisions which requires a greater than majority
shareholder vote in order to approve certain business
combinations and other extraordinary corporate transactions;
however, if a greater than majority of the Directors has
approved the transaction, only a majority shareholder vote is
required; and
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<PAGE> 103
- A provision that eliminates the right of shareholders to call
a special meeting.
The provisions of the bylaws of Hanover which may be considered to be
anti-takeover in nature include the following:
- A provision which limits the permissible number of directors;
- A provision which establishes a classified Board of Directors
with staggered three year terms;
- A provision which prevents certain bylaws provisions from
being amended except by a greater than majority shareholder
vote; and
- A provision that requires advance written notice as a
precondition to the nomination of any person for election to
the Board of Directors, other than in the case of nominations
made by existing management.
As a Pennsylvania business corporation and a corporation registered
under the Securities Exchange Act of 1934, Hanover is subject to, and may take
advantage of the protections of, the antitakeover provisions of the Pennsylvania
Business Corporation Law. These antitakeover provisions, which are designed to
discourage the acquisition of control over a targeted Pennsylvania business
corporation, include:
- A provision whereby the directors of the corporation, in
determining what is in the best interests of the corporation,
may consider factors other than the economic interests of the
shareholders, such as the effect of any action upon other
constituencies, including employees, suppliers, customers,
creditors and the community in which the corporation is
located;
- A provision that permits shareholders to demand that a
controlling person pay to them the fair value of their shares
in cash upon a change in control;
- A provision that restricts certain business combinations
unless there is prior approval by the directors or a
supermajority of the shareholders;
- A provision permitting a corporation to adopt a shareholders
rights plan;
- A provision denying the right to vote to a person who acquires
a specified percentage of stock ownership unless those voting
rights are restored by a vote of disinterested shareholders;
and
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<PAGE> 104
- A provision requiring a person who acquires "control share",
which are described in the previous sentence, to disgorge to
the corporation all profits from the sale of equity securities
within eighteen months thereafter.
Corporations may elect to "opt out" of any or all of these antitakeover
provisions of the Pennsylvania corporate law. Hanover has not elected to opt out
of any of the protections provided by the antitakeover statutes.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Certain documents previously filed by Hanover with the Commission are
incorporated by reference into this proxy statement/prospectus as follows:
- Hanover's Annual Report on Form 10-K for the year ended
December 31, 1999, as filed with the Commission on March 17,
2000; and
- Hanover's Current Report on Form 8-K, dated January 25, 2000,
re: Merger with Sterling and filed with the Commission on
February 8, 2000.
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<PAGE> 105
MATTER NO. 2
ADJOURNMENT
In the event that there are not sufficient votes to constitute a quorum
or approve the adoption of the agreement at the time of either of the meetings,
the agreement could not be approved unless the meeting was adjourned in order to
permit further solicitation of proxies. In order to allow proxies that have been
received by either Sterling or Hanover, at the time of each annual meeting to be
voted for the adjournment, if necessary, both Sterling and Hanover have
submitted the question of adjournment under such circumstances to their
shareholders as a separate matter for their consideration. The Boards of
Directors of each of Sterling and Hanover recommend that shareholders vote their
proxies in favor of the respective adjournment proposals. Properly executed
proxies will be voted in favor of the adjournment proposal, unless otherwise
indicated on the proxy. If it is necessary, to adjourn one or both of the
meetings, no notice of the time and place of the adjourned meeting is required
to be given to shareholders other than an announcement of the time and place at
the meeting.
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<PAGE> 106
MATTER NO. 3
ELECTION OF DIRECTORS
NOMINATION AND ELECTION OF DIRECTORS - STERLING
The bylaws of Sterling provide that the Board of Directors consists of
not less than one nor more than 25 persons. The Board of Directors is also
divided into three classes. Each class consists, as nearly as possible, of
one-third of the directors. The bylaws also provide that the directors of each
class are elected for a term of three years, so that the term of office of one
class of directors expires at the annual meeting each year. The bylaws also
provide that the number of directors in each class of directors is determined by
the Board of Directors.
A majority of the Board of Directors may increase the number of
directors between meetings of the shareholders. Any vacancy occurring in the
Board of Directors, whether due to an increase in the number of directors,
resignation, retirement, death or any other reason, may be filled by appointment
by the remaining directors. Any director who is appointed to fill a vacancy
holds office until the next annual meeting of the shareholders and until his/her
successor is elected and qualified. There is a mandatory retirement provision in
the bylaws that states that the office of a director is considered vacant at the
annual meeting of shareholders next following his/her attaining the age of 70
years.
The Board of Directors has fixed the number of directors at 13. There
are five directors whose terms of office will expire at the 2000 annual meeting.
There are eight continuing directors whose terms of office will expire at the
2001 or 2002 annual meeting. The Board of Directors proposes to nominate the
following five persons for election to the Board of Directors for the terms
specified:
Nominees for Class of 2003 Directors
For a Term of Three Years
S. Amy Argudo
Robert H. Caldwell
J. Robert Hess
J. Roger Moyer, Jr.
W. Garth Sprecher
Each of the above nominees is presently a director of Sterling
Financial Corporation.
In the event that any of the nominees are unable to accept nomination
or election, proxyholders will vote proxies given pursuant to this solicitation
in favor of other persons recommended by management. The Board of Directors has
no reason to believe that any of its nominees will be unable to serve as a
director if elected.
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<PAGE> 107
Section 2.3 of Sterling's bylaws requires that nominations, other than
those made by or on behalf of the existing Sterling management, be made pursuant
to timely notice in writing to the Sterling's Secretary. To be timely, a
shareholder's notice must be delivered to or received at the principal executive
office of the corporation not less than 90 days prior to the anniversary date of
the immediately preceding meeting of shareholders of the corporation called for
the election of directors. The chairman of the meeting is required to determine
whether nominations have been made in accordance with the requirements of the
bylaws. If he determines that a nomination was not made in accordance with the
bylaws, he shall so declare at the annual meeting and the defective nomination
will be disregarded.
Information about Nominees and Continuing Directors
Information concerning the five persons to be nominated for election to
the Board of Directors of Sterling at the 2000 annual meeting and concerning the
eight continuing directors is set forth in the table that appears below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
FOR THE PAST FIVE YEARS
AND POSITION HELD WITH
STERLING FINANCIAL
NAME AND AGE DIRECTOR SINCE CORP. AND SUBSIDIARIES
------------ -------------- ----------------------
Class of 2003 - Nominees - For a Term of Three Years
----------------------------------------------------
<S> <C> <C>
S. Amy Argudo 1999 Senior Executive Vice
(36) President of The First
National Bank of
North East, North
East, MD since 1998;
Vice President from
1996 to 1998 and
Administrative
Assistant 1990 to
1996 and Director
of The First National
Bank of North East
since 1998
Robert H. Caldwell 1991 Retired Senior Executive
(69) Vice President and
Director, Armstrong World
Industries, Inc.
(Manufacturer, building
materials, home furnishings
and industrial specialties)
</TABLE>
98
<PAGE> 108
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
FOR THE PAST FIVE YEARS
AND POSITION HELD WITH
STERLING FINANCIAL
NAME AND AGE DIRECTOR SINCE CORP. AND SUBSIDIARIES
<S> <C> <C>
J. Robert Hess 1971 President, B&E Realty;
(69) Broker and Partner,
Kingsway Realty and
Vice Chairman of the
Board, Sterling
Financial Corporation
and Bank of Lancaster
County, N.A.
J. Roger Moyer, Jr. 1994 Senior Executive Vice
(51) President and Assistant
Secretary of Sterling
Financial Corporation
since January 2000;
Executive Vice
President and Assistant
Secretary from 1994
to 2000; Senior
Executive Vice President
and Assistant Secretary
of Bank of Lancaster
County since January
2000; Executive Vice
President and Assistant
Secretary from 1994
to 2000; Director and
Vice President of
Northeast Bancorp, Inc.
since June 1999; Director
and Treasurer of Pennbanks
Insurance Company, SPC
since December 1999 and
Director and Treasurer
of Lancaster Insurance
Group, LLC since May
1999.
W. Garth Sprecher 1998 Vice President and
(48) Corporate Secretary and
Director, D & E
Communications, Inc
(TeleCommunications)
Class of 2001 - Continuing Directors
Richard H. Albright, Jr. 1985 Dentist, Specialist,
(57) Practice Limited to
Orthodontics
</TABLE>
99
<PAGE> 109
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
FOR THE PAST FIVE YEARS
AND POSITION HELD WITH
STERLING FINANCIAL
NAME AND AGE DIRECTOR SINCE CORP. AND SUBSIDIARIES
<S> <C> <C>
Howard E. Groff, Jr. 1988 Vice President, Howard E.
(53) Groff Co. (fuel oil sales
and Service)
John E. Stefan 1979 Chairman of the Board,
(60) President and Chief
Executive Officer of
Sterling Financial
Corporation since
1994; Chairman of the
Board, President and
Chief Executive Officer
of Bank of Lancaster
County since 1994;
Director and President
of Northeast Bancorp,
Inc. since June 1999
and Director of The
First National Bank
of North East since
June 1999.
Glenn R. Walz 1988 President, Walz, Deihm,
(53) Geisenberger, Bucklen &
Tennis, P.C. (Certified
Public Accountants)
Class of 2002 - Continuing Directors
Joan R. Henderson 1995 President, J.R. Henderson &
(57) Associates, Inc. (Planning
and Fund Development for
Non-profit Organizations)
Calvin G. High 1976 Director, High Industries, Inc.;
(67) Partner, High Properties and
Partner, Lancaster Development Co.
David E. Hosler 1998 Chairman, President, Chief
(49) Executive Officer and
Director, Old Guard Group,
Inc. (Property and Casualty
Insurance Companies)
E. Glenn Nauman 1976 Retired Chairman of the
(67) Board and Retired Director,
Nauman Construction
(Building Contractor)
</TABLE>
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<PAGE> 110
Meetings and Committees of the Board of Directors
The Sterling Board of Directors has a standing Audit Committee but does
not have a standing Nominating Committee or Compensation Committee. The Bank of
Lancaster County has a standing Audit Committee and Compensation Committee. The
Bank of Lancaster County does not have a standing Nominating Committee. The
Compensation Committee of the Bank of Lancaster County acts on behalf of
Sterling and will continue to do so until Sterling appoints a committee.
Members of the Sterling and Bank of Lancaster County Audit Committee
during 1999 were Richard H. Albright, Jr., Chairman, and Messrs. High, Nauman
and Walz. The principal duties of the Audit Committee include reviewing
significant audit and accounting principles, policies and practices, reviewing
performance of internal auditing procedures, reviewing reports of examination
received from regulatory authorities, and recommending annually to the Board of
Directors the engagement of an independent certified public accountant. The
Audit Committee met eight times during 1999.
Members of the Bank of Lancaster County Compensation Committee during
1999 were Robert H. Caldwell, Chairman and Messrs. Hess, Hosler, Sprecher and
Walz. The principal duties of the Compensation Committee include the
establishment of policies dealing with various compensation plans for the Bank
of Lancaster County and Sterling. In addition, the committee makes
recommendations to the Board with respect to the compensation paid to senior
executives. The committee also oversees personnel matters. The Compensation
Committee met seven times during 1999.
The Sterling Board of Directors met seven times during 1999 and the
Bank of Lancaster County Board of Directors met 12 times during 1999. All
directors attended at least 75% or more of the meetings of the Boards of
Directors of Sterling and of the bank and the various committees of the Boards
on which they served, except Robert H. Caldwell, who attended 57% of the
meetings of Sterling Financial Corporation and 75% of the meetings of the bank.
Executive Officers
The following persons are the executive officers of Sterling:
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<PAGE> 111
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE PAST FIVE
YEARS AND POSITION HELD WITH STERLING
NAME AGE FINANCIAL CORPORATION AND SUBSIDIARIES
<S> <C> <C>
John E. Stefan 60 Chairman of the Board, President and
Chief Executive Officer of Sterling
Financial Corporation since 1994;
Chairman of the Board, President and
Chief Executive Officer of the Bank of
Lancaster County since 1994; Director and President of
Northeast Bancorp, Inc. since June 1999 and Director of
The First National Bank of North East since June 1999
J. Roger Moyer, Jr. 51 Senior Executive Vice President and
Assistant Secretary of Sterling
Financial Corporation since January
2000; Executive Vice President and
Assistant Secretary from 1994 to
2000; Senior executive Vice President
and Assistant Secretary of Bank of
Lancaster County since January 2000;
Executive Vice President and Assistant
Secretary from 1994 to 2000; Director and Vice President
of Northeast Bancorp, Inc. June 1999; Director and
Treasurer of Pennbanks Insurance Company, SPC since
December 199 and Director and Treasurer of Lancaster
Insurance Group, LLC since May 1999
Thomas P. Dautrich 51 Senior Executive Vice President of
Sterling Financial Corporation since
January 2000; Executive Vice
President of Sterling Financial
Corporation from 1998 to 2000; Senior
Executive Vice President of Banking
Services for Bank of Lancaster County
since January 2000; Executive Vice
President of Banking Services from
1998 to 2000; previously
Executive Vice President, CoreStates
Bank from July 1997 to February 1998;
President, Susquehanna Valley
Division CoreStates Bank from April 1996
to July 1997 and President
Susquehanna Valley Division,
Meridan Bank and Executive
Vice President, Meridan Bancorp, Inc. from
March 1990 to April 1996
</TABLE>
102
<PAGE> 112
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR THE PAST FIVE
YEARS AND POSITION HELD WITH STERLING
NAME AGE FINANCIAL CORPORATION AND SUBSIDIARIES
<S> <C> <C>
Jere L. Obetz 51 Executive Vice President/Treasurer and
Chief Financial Officer of Sterling
Financial Corporation since 1998;
Senior Vice President/Treasurer and
Chief Financial Officer of Sterling
Financial Corporation from 1995 to
1998; Vice President/Treasurer and
Chief Financial Officer of Sterling
Financial Corporation from 1994 to
1995; Executive Vice President/
Chief Financial Officer of the
Bank of Lancaster County since
December 1997; Senior Vice President/
Chief Financial Officer from
1992 to 1997 and Director and Treasurer
of Northeast Bancorp, Inc. since 1999
Ronald L. Bowman 56 Vice President/Secretary of Sterling
Financial Corporation since 1994;
Vice President/Corporate
Financial Secretary of the Bank of
Lancaster County since 1995 and Vice
President/Comptroller from 1971 to
1995 and Secretary of Northeast Bancorp,
Inc. since 1999.
</TABLE>
Principal Holders
The following table shows, as of March 31, 2000, to our knowledge,
those persons or entities, who owned of record or beneficially on March 31,
2000 more than 5% of the outstanding Sterling Financial Corporation common
stock.
We determined beneficial ownership of shares of Sterling Financial
Corporation common stock by referring to Securities and Exchange Commission Rule
13d-3, which provides that a person should be credited with the ownership of any
stock that he, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares:
- Voting power, which includes power to vote or to direct the
voting of the stock, or
- Investment power, which includes the power to dispose or
direct the disposition of the stock, or
- Has the right to acquire beneficial ownership with 60 days
after March 31, 2000.
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<PAGE> 113
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND
OF BENEFICIAL NATURE OF BENEFICIAL PERCENT
TITLE OF CLASS OWNER OWNERSHIP OF CLASS
<S> <C> <C> <C>
Common Stock, Howard E. Groff xxx,xxx(1) xx.xx%
$5.00 par value 111 E. State Street
per share Quarryville, PA 17566
Common Stock, Bank of Lancaster County xxx,xxx(2) xx.xx%
$5.00 par value Employees Stock Plan
per share c/o Trust Department
101 North Pointe Boulevard
Lancaster, PA 17601-4133
Common Stock, Richard D. McDaniel xxx,xxx(3) x.xx%
$5.00 par value PO Box 600
per share North East, MD 21901
</TABLE>
(1) Mr. Groff holds sole voting and investment power over XXX,XXX shares.
(2) Shares held for the account of plan participants are voted by the Plan
Trustee in accordance with the instructions given by the individual
participants.
(3) Includes shares held jointly with daughter and ____ shares held by the
Shady Beach Trust. Mr. McDaniel's daughter is Ms. A. Amy Argudo, a
director of Sterling Financial Corporation. Ms. Argudo is also a
trustee of the Shandy Beach Trust. Ms. Argudo disclaims beneficial
ownership of shares held by the Shady Beach trust. Does not include
shares held by The McDaniel CRUT, over which Mr. McDaniel has neither
the power to vote or invest, directly or indirectly.
Beneficial Ownership of Executive Officers, Directors and Nominees
The following table shows, as of March 31, 2000, the amount and
percentage of Sterling Financial Corporation common stock beneficially owned by
each director, each nominee, each named executive officer and all directors,
nominees and executive officers of Sterling Financial Corporation as a group.
Beneficial ownership of shares of Sterling Financial Corporation's
common stock is determined in accordance with Securities and Exchange Commission
Rule 13d-3, which provides that a person should be credited with the ownership
of any stock that he, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares:
- Voting power, which includes the power to vote or to direct
the voting of the stock, or
- Investment power, which includes the power to dispose or
direct the disposition of the stock, or
- Has the right to acquire beneficial ownership within 60 days
after March 31, 2000.
Unless otherwise indicated in a footnote appearing below the table, all
shares reported in the table below are owned directly by the reporting person.
The number of shares owned by the
104
<PAGE> 114
directors, nominees and executive officers is rounded to the nearest whole
share. The percentage of all Sterling Financial Corporation common stock owned
be each director, nominee or executive officer is less than 1% unless otherwise
indicated.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT AND NATURE OF
OR IDENTITY OF GROUP BENEFICIAL OWNERSHIP PERCENT OF CLASS
<S> <C> <C>
Directors and Nominees
Richard H. Albright, Jr. xx,xxx (1) ---
S. Amy Argudo xxx,xxx (2) x.xx%
Robert H. Caldwell x,xxx (3) ---
Howard E. Groff, Jr. xx,xxx (4) ---
Joan R. Henderson x,xxx (5) ---
J. Robert Hess xx,xxx (6) x.xx%
Calvin G. High xx,xxx (7) ---
David E. Hosler xxx ---
J. Roger Moyer, Jr. xx,xxx (8) ---
E. Glenn Nauman xx,xxx (9) ---
W. Garth Sprecher xxx ---
John D. Stefan xxx,xxx (10) x.xx%
Glenn R. Walz x,xxx (11) ---
Other Names Executive Officers
Thomas P. Dautrich xxx (12) ---
Jere L. Obetz xx,xxx (13) ---
All Directors, Nominees xxx,xxx x.xx%
and Executive Officers
as a Group (16 persons)
</TABLE>
(1) Includes X,XXX shares owned jointly with spouse, X,XXX owned directly
by spouse, and XX,XXX shares owned by Albright Family Enterprises, L.P.
of which Dr. Albright is a general partner.
(2) Includes XXXX shares held by the Shady Beach Trust and XXX shares by
The McDaniel CRUT. Ms. Argudo is a trustee of both trusts. Her father,
Richard D. McDaniel, is the beneficiary of the Shady Beach Trust. Ms.
Argudo disclaims beneficial ownership of the shares held by the Shady
Beach Trust, over which she has neither the power to vote nor invest,
directly or indirectly. Also includes XXXX shares held jointly with her
father.
(3) Includes XXX shares owned directly by spouse.
(4) Includes X,XXX shares owned directly by spouse and X,XXX shares owned
as custodian for children.
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<PAGE> 115
(5) Includes XX shares owned jointly with spouse and XXX shares owned
directly by spouse.
(6) Includes XX,XXX shares owned jointly with spouse, X,XXX shares owned
directly by spouse, X,XXX shares owned as custodian for children and
XX,XXX shares owned in trust for the benefit of grandchildren.
(7) Includes XX,XXX shares owned jointly with spouse.
(8) Includes XX,XXX shares held by Trustee under the Employees Stock Plan,
X,XXX shares owned jointly with spouse, XX shares owned directly by
spouse, X,XXX shares owned directly by children and X,XXX shares owned
directly by mother for whom Mr. Moyer holds power of attorney and with
respect to which Mr. Moyer shares voting and investment power. Mr.
Moyer disclaims beneficial ownership of shares owned directly by his
children. Mr. Moyer has the right to acquire an additional X,XXX shares
pursuant to the exercise of stock options.
(9) Includes XX,XXX shares owned directly by spouse and XXX shares owned
directly by mother.
(10) Includes XX,XXX shares held by Trustee under the Employees Stock Plan,
X,XXX shares owned jointly with spouse, XX,XXX shares owned directly by
spouse, and XX,XXX shares owned directly by child. Mr. Stefan disclaims
beneficial ownership of shares owned directly by his spouse. Mr. Stefan
has the right to acquire an additional XX,XXX shares pursuant to the
exercise of stock options.
(11) Includes X,XXX shares owned directly by spouse and XXX shares owned as
custodian for children.
(12) Mr. Dautrich has the right to acquire an additional X,XXX shares
pursuant to the exercise of stock options.
(13) Includes XX,XXX shares held by Trustee under the Employees Stock Plan
and X,XXX shares owned directly by spouse. Mr. Obetz disclaims
beneficial ownership of shares owned directly by his spouse. Mr. Obetz
has the right to acquire an additional X,XXX shares pursuant to the
exercise of stock options.
Recommendations of the Board of Directors
The Board of Directors recommends that the shareholders vote FOR:
- The election of the five nominees identified in this Proxy
Statement;
- The merger proposal;
- The adjournment proposal, if necessary; and
- The proposal to ratify the selection of independent certified
public accountants for the year ending December 31, 2000.
Executive Compensation
Sterling's officers do not receive any additional compensation for
their services, beyond the compensation paid to them as officers of the Bank of
Lancaster County. The table below shows the annual and long-term compensation
for services in all capacities to Sterling and to the Bank of Lancaster County
for the fiscal years ended December 31, 1999, 1998 and 1997 to those persons who
were, at December 31, 1999:
- The Chief Executive Officer, and
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<PAGE> 116
- The other most highly compensated executive officers of
Sterling Financial Corporation. The table shows the
information only for those executives whose annual salary and
bonus exceeded $100,000.
The column "Other Annual Compensation" shows only perquisites and other
personal benefits that do not exceed the lesser of $50,000 or 10% or total
annual salary and bonus. The column "All Other Compensation" includes: $3,981,
$4,036 and $3,673 for Mr. Stefan; $3,981, $4,036 and $3,673 for Mr. Moyer;
$3,291, $3,140 and $2,732 for Mr. Obetz in 1999, 1998 and 1997, respectively,
and $3,981 for Mr. Dautrich in 1999 under the performance incentive feature of
the Employees Stock Plan. Also included in the column "All Other Compensation"
are employer provided automobile benefits of $2,254, $1,885 and $1,348 for Mr.
Stefan and $2,123, $2,129 and $2,181 for Mr. Moyer for 1999, 1998 and 1997. Also
included in "All Other Compensation" for Mr. Dautrich is $13,474 paid for moving
and relocation expenses. The Employee Stock Plan and other benefit plans for
Sterling are described elsewhere in this proxy statement.
107
<PAGE> 117
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUT
------------------- ------ ------
OTHER SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARDS SAR'S PAYOUT SATION
-------- ---- ------ ----- ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John E. Stefan 1999 $283,005 $76,037 --- none 12,500 none $6,235
Chairman of the 1998 $266,989 $65,796 --- none 9,750 none $5,921
Board, President 1997 $261,747 $53,619 --- none 8,269 none $5,021
and Chief Executive
Officer of Sterling
Financial
Corporation and
Bank of Lancaster
County, N.A.
J. Roger Moyer, Jr. 1999 $152,534 $36,682 --- none 6,500 none $6,104
Senior Executive 1998 $146,355 $27,958 --- none 6,250 none $6,165
Vice President of 1997 $141,945 $23,601 --- none 3,938 none $5,854
Sterling Financial
Corporation and
Bank of Lancaster
County, N.A.
Thomas P. Dautrich 1999 $150,876 $37,430 --- none 6,500 none $17,455
Senior Executive 1998 $ 17,309 $ 456 --- none none none none
Vice President of
Sterling Financial
Corporation and
Bank of Lancaster
County, N.A.
Jere L. Obetz 1999 $111,198 $26,816 --- none 3,600 none $3,291
Executive Vice 1998 $107,466 $21,052 --- none 3,750 none $3,140
President/Treasurer/and 1997 $ 99,923 $17,019 --- none 3,609 none $2,732
Chief Financial
Officer
of Sterling Financial
Corporation and
Executive Vice
President/Chief
Financial Officer of
Bank of Lancaster
County, N.A.
</TABLE>
Option Exercises and Fiscal Year-End Values
Sterling granted stock options under its Stock Incentive Plan to its
named executive officers during 1999 as we show in the table below. All options
were granted on December 13, 1999, under the terms of the Stock Incentive Plan.
The options are exercisable one third each year for three years beginning
December 13, 2000. The base price of all options granted in 1999
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<PAGE> 118
is adjustable in the event of any change in the number of issued and outstanding
shares of Sterling common stock that results from a stock split, reverse stock
split, payment of a stock dividend or any other change in Sterling's capital
structure.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
% OF TOTAL
OPTIONS/ OPTIONS/SARS
SARS GRANTED TO EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- --- ----------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
John E. Stefan 12,500 15.2% $29.00 12/13/09 $227,974 $577,732
J. Roger Moyer, Jr. 6,500 7.9% $29.00 12/13/09 $118,547 $300,420
Thomas P. Dautrich 6,500 7.9% $29.00 12/13/09 $118,547 $300,420
Jere L. Obetz 3,600 4.4% $29.00 12/13/09 $ 65,657 $166,387
</TABLE>
Aggregated Option Exercises and Fiscal Year-End Values
Information concerning:
- All exercises of stock options awarded to the named officers
of Sterling and the Bank of Lancaster County under Sterling
Financial Corporation's Stock Incentive Plan during 1999;
- All fiscal year-end option values for each named executive
officer under the Stock Incentive Plan and held by them at
December 31, 1999; and
- All stock options exercised under Sterling's Stock Incentive
Plan during 1999 are shown in the table below.
The column "Value Realized" shows the difference between the fair
market value on the date of exercise of the shares acquired by the exercise of
the options and the exercise price of the options exercised, if any options were
exercised. The market value of underlying securities was computed by averaging
the closing bid and ask quotations for five trading days immediately preceding
December 31, 1999, minus the exercise price.
109
<PAGE> 119
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
John E. Stefan --- --- 14,887/21,757 $99,300/$18,258
J. Roger Moyer, Jr. --- --- 8,646/11,980 $57,758/$8,695
Thomas P. Dautrich --- --- none/6,500 none/$0
Jere L. Obetz --- --- 6,938/7,302 $49,579/$7,960
</TABLE>
Board Compensation Committee Report on Executive Compensation
Role of the Compensation Committee and Compensation Philosophy
The objectives of the Compensation Committee are to establish the
corporation's compensation philosophy and to monitor compensation programs and
related practices for conformity with that philosophy. The Compensation
Committee believes that the corporation should maintain a competitive
compensation structure with a strong emphasis toward paying for an employee's
contribution and performance. Therefore, the financial interests of the
shareholders are served by closely aligning, particularly for executive
management, year end financial results with an employee's reward for
performance. Accordingly, the committee and the corporation adhere to the
concept of pay-for-performance thus increasing the opportunity to maximize
shareholder value.
The committee reviews compensation of the corporation's and the bank's
top executives annually. The top executives whose compensation is determined by
the committee include the President and Chief Executive Officer, all Senior
Executive Vice Presidents, all Executive Vice Presidents, all Senior Vice
Presidents and all senior management employees. As a guideline for review in
determining competitive base salaries, the committee uses information from
salary survey sources from Pennsylvania banks with assets from $500 million to
$1 billion, Pennsylvania banks with assets of $1 billion to $4 billion, as well
as peer banks located in the surrounding geographic region. Many local
competitors, represented in these peer groups, share similar performance results
to the Bank of Lancaster County. The committee used these peer group banks
because of common industry issues and competition for the same executive talent.
The compensation committee is comprised of five non-employee directors
who are listed below. The Committee met seven times during 1999.
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<PAGE> 120
Chief Executive Officer Compensation
The Board of Directors has determined that the Chief Executive
Officer's 1999 compensation of $359,042, comprised of $283,005 in base annual
salary and $76,037 in bonus is appropriate in light of the following 1999
corporation performance accomplishments:
- A 7.27% increase in net income;
- A 15.17% return on equity; and
- A 6.16% increase in assets.
While there is no direct correlation between the increase in Chief
Executive Officer base salary and these criteria, the Compensation Committee did
review 1998 corporate performance, as well as the peer bank comparisons
mentioned previously, in order to recommend a 6% increase in base salary over
the previous year. The Chief Executive Officer's annual performance incentive
(bonus) is tied directly to the organization's performance results by rewarding
Mr. Stefan for growth in the corporation's net income, return on shareholder
equity and efficiency ratio goals. Mr. Stefan's total bonus of $76,037
represents an increase of 15.5% from the total bonus paid in 1998.
In addition, Mr. Stefan was awarded an incentive stock option. The
option to purchase 12,500 shares of corporation common stock is listed in the
table listed above. In addition, the Incentive Stock Option program itself is
described elsewhere in this proxy statement.
Executive Officer Compensation
Base salary ranges for executive positions are determined by evaluating
the responsibilities of the positions, required skills and experiences and the
average compensation paid for similar positions within peer banks of similar
asset size and within Sterling's geographic market region. The committee
determined annual base salary increases based on its subjective analysis of the
individual's contribution to the corporation's strategic goals and objectives,
and by taking into account any additional or new responsibilities assumed by the
individual in connection with promotions or organizational changes. In
determining whether strategic goals and objectives have been achieved, the Board
of Directors considers among numerous factors the following:
- The corporation's performance as measured by earnings;
- Revenues;
- Return on assets;
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<PAGE> 121
- Return on equity;
- Market share;
- Total assets; and
- Non-performing loans.
Although the performance and increases in base salary were measured in
light of these factors, there is no direct correlation between any specific
criterion and the employees' base compensation, nor is there any specific weight
provided to any criteria in the committee's analysis. The determination by the
committee is subjective after review of all information it deems relevant.
The executive officers of Sterling and the bank have an annual
management incentive bonus tied directly to Sterling's performance results.
Similar to the Chief Executive Officer, the executive officers' bonuses are
directly dependent upon the organization's growth in net income, return on
shareholder's equity and Sterling's efficiency ratio. In addition, executive
officers have been awarded incentive stock options to encourage ownership in the
corporation and provide continued focus on enhancing shareholder value.
In addition to base salary and the management incentive bonus,
executive officers of the corporation and the bank may participate currently in
the following annual and long-term incentive plan:
Bank of Lancaster County, N.A.
Employees Stock Plan
Total compensation opportunities available to the employees of the bank
are influenced by general labor market conditions, the specific responsibilities
of the individual and the individual's contributions to Sterling's success.
Individuals are reviewed annually on an anniversary year basis. The bank strives
to offer compensation that is competitive with that offered by employers of
comparable size in the banking industry, as well as those within the
corporation's and the bank's reasonable market area.
Compensation Committee
Robert H. Caldwell, Chairman
J. Robert Hess
David E. Hosler
W. Garth Sprecher
Glenn R. Walz
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<PAGE> 122
1996 Stock Incentive Plan
Sterling maintains a Stock Incentive Plan that was approved by the
shareholders at the 1997 annual meeting. The purpose of the Stock Incentive Plan
is to advance the development, growth and financial condition of Sterling and
its subsidiaries by providing incentives through participation in the
appreciation of capital stock of the corporation in order to secure, retain and
motivate personnel responsible for the operation and management of Sterling and
its subsidiaries.
A committee of non-employee directors administers the Stock Incentive
Plan. Persons eligible to receive awards under the Stock Incentive Plan are
those key officers and other management employees of the corporation and its
subsidiaries as determined by the committee.
There were 82,350 options granted during 1999. There were 100 options
exercised during 1999. At December 31, 1999, there were 435,407 shares reserved
for future grants under the Stock Incentive Plan.
Employees Stock Plan/401(k)
The Bank of Lancaster County maintains an Employees Stock Plan that was
approved by the shareholders in 1982. All employees of the Bank of Lancaster
County who have attained the age of 18, have completed one year of service and
worked at least 1,000 hours per year are eligible to participate in the plan.
Outside directors are not eligible to participate in the plan. Employees of Town
& Country, Inc., a wholly-owned subsidiary of the Bank of Lancaster County,
participate only in the salary deferral feature of the plan. The plan has two
components:
- A salary deferral feature and
- A performance incentive feature.
Under the salary deferral feature of the plan, a participant may make
voluntary contributions to the plan each year of between 2% and 10% of
compensation. The Bank of Lancaster County will make a matching contribution
equal to 25% of each participant's voluntary contributions, up to the first 6%.
Under the performance incentive feature of the plan, the Bank of Lancaster
County contributes to the plan each year an amount determined by the Board of
Directors on the basis of the achievement by the Bank of Lancaster County of
certain performance objectives; contributions to the plan may not exceed the
amount which is deductible under the Internal Revenue Code. Contributions made
by the Bank of Lancaster County to the plan pursuant to the performance
incentive feature are allocated to participants who are employees of Bank of
Lancaster County in the same proportion that each participant's compensation
bears to the aggregate compensation of all participants.
In 1997, the plan was amended to allow participants to defer their
contributions to five different investment alternatives. Previously, all
contributions to this plan were invested in
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<PAGE> 123
Sterling common stock. In addition, as of July 1, 1997, participants could elect
to diversify their contributions in increments of 5% to models with the
following investment objectives:
- Guaranteed Principal
- Fixed Income
- Growth and Income
- Growth (Equity)
Sterling's matching contributions and the performance incentive feature
continue to be made in Sterling common stock. In addition, as of January 1,
1998, all participants may elect to diversify their existing holdings in the
pre-tax employee deferral account (those contributions made after January
1,1995) into the four different models. Those participants who are over age 55
and have 10 years of participation in the plan can elect to diversify up to 25%
of their entire post 1987 account balance in accordance with Internal Revenue
Code Section 401(a)(28).
Voluntary contributions to the plan are fully vested at all times.
Matching contributions and contributions made by the Bank of Lancaster County to
the plan vest at the rate of 20% per year for each year of service. In general
terms, benefits under the plan may be paid to participants upon retirement,
termination of employment, disability or death. A participant may under certain
circumstances make earlier withdrawals (to the extent of his/her interest in the
plan attributable to voluntary contributions made by him/her) upon a showing of
financial hardship.
Pension Plan
The Bank of Lancaster County Pension Plan is a qualified
non-contributory defined benefit pension plan that provides retirement benefits
to employees of the Bank of Lancaster County, including Messrs. Stefan, Moyer
and Obetz and to employees of Town & Country, Inc., a wholly-owned subsidiary of
the Bank of Lancaster County. All employees who have completed one year of
service, work at least 1,000 hours per year and who have attained the age of 21
are eligible to participate in the plan. Outside directors do not participate in
the plan. Employees become 100% vested upon the completion of five years of
service. Contributions to the plan are made by the Bank of Lancaster County and
are determined actuarially.
Benefits under the plan, which are not integrated with Social Security
benefits, are based upon average monthly compensation, determined on the basis
of the highest five consecutive years' base compensation preceding retirement
and years of credited service. For purposes of determining benefits payable
under the plan, the term "compensation" is defined to mean base salary only and
does not include overtime pay or bonuses. Compensation paid to Messrs. Stefan,
Moyer and Obetz during 1999 and covered by the plan was $160,000, $152,534 and
$111,198
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<PAGE> 124
respectively. As of December 31, 1999, Messrs. Stefan, Moyer and Obetz had
accrued 20, 22 and 28 years of credited service, respectively, under the plan
for benefit accrual purposes.
The following table indicates, for purposes of illustration, the
approximate annual retirement benefit that would be payable under the plan, in
the form of a straight life annuity with 120 months' certain period, at age 65,
under various assumptions as to average annual compensation and years of
credited service. The benefit amounts set forth below are not subject to further
deduction for Social Security or other offset amounts. Under the Internal
Revenue Code, the maximum annual retirement benefit that may be paid in the form
of a straight life annuity with 120 months' certain period under a qualified
defined benefit plan such as the Plan is $120,691, subject to adjustment based
upon increases in the Consumer Price Index. In addition, salary in excess of
$160,000, effective in the year 1997, is disregarded in determining a
participant's retirement benefit pursuant to regulations of the Internal Revenue
Service.
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
COMPENSATION YEARS OF CREDITED SERVICE
------------ -------------------------
10 20 30 40
-- -- -- --
<S> <C> <C> <C> <C> <C>
$100,000 $15,000 $30,000 $45,000 $60,000
$125,000 $18,750 $37,500 $56,250 $75,000
$150,000 $22,500 $45,000 $67,500 $90,000
$175,000 $24,000 $48,000 $72,000 $96,000
$200,000 $24,000 $48,000 $72,000 $96,000
$225,000 $24,000 $48,000 $72,000 $96,000
$250,000 $24,000 $48,000 $72,000 $96,000
$275,000 $24,000 $48,000 $72,000 $96,000
$300,000 $24,000 $48,000 $72,000 $96,000
</TABLE>
Retirement Restoration Plan
Bank of Lancaster County adopted a Restoration Plan during 1996 for any
officer whose compensation exceeded $160,000. The plan is designed to "restore"
the level of benefits lost to these employees under certain qualified retirement
plans because of Internal Revenue Code restrictions.
The plan is designed to mirror the provisions of the qualified
retirement plans available to all Bank of Lancaster County employees--the
Pension Plan, and the Employee Stock or 401(k)
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<PAGE> 125
plan. The Retirement Restoration Plan allows for the calculation of benefits on
an officer's salary in excess of $160,000. The effective date of the Plan is May
1, 1996.
Employment Agreement
In July of 1999, Sterling and Bank of Lancaster County entered into a
three year employment agreement and change of control agreement with John E.
Stefan engaging Mr. Stefan as its Chairman, President and Chief Executive
Officer. Unless previously terminated or unless notice of intention not to renew
is given by either party, the employment agreement is subject to automatic
renewal for additional terms of three years each. The employment agreement may
be terminated by Sterling or the Bank of Lancaster County, with or without
cause. If terminated with cause, Mr. Stefan's right to receive salary and
benefits under the employment agreement terminates as of the effective date of
termination. If terminated without cause, the employment agreement with Mr.
Stefan provides for:
- A severance payment in the amount of 2.99 times the average
annual compensation over the last five years paid in 36 equal
monthly installments or a lump sum;
- A supplemental payment in lieu of benefits equaling 25% of the
payments calculated for compensation or benefits continued
throughout the duration of the severance period; and
- All stock options granted are immediately 100% vested.
In the event of any change in control of Sterling or the Bank of
Lancaster County, the same conditions apply, except the severance payments will
be paid in 24 equal monthly installments, or a lump sum. The obligations of the
Bank of Lancaster County under the employment agreement have been jointly and
severally assumed by Sterling.
Change of Control Agreements
In July of 1999, Sterling and Bank of Lancaster County entered into
three year change of control agreements ending December 31, 2002, with J. Roger
Moyer, Jr., Thomas P. Dautrich and Jere L. Obetz for the purpose of focusing our
executives on the interests of the shareholders should a change in control of
Sterling occur. A "change of control" is defined as:
- An acquisition of 20% or more of Sterling's outstanding voting
securities;
- Execution of an agreement providing for a sale of
substantially all of its assets to an entity that is not a
direct or indirect subsidiary of Sterling; and
- Execution of an agreement providing for a reorganization,
merger, consolidation or similar transaction unless the
Sterling shareholders will initially own securities
representing a majority of the voting power of the resulting
corporation and Sterling directors will represent a majority
of the directors of the surviving corporation.
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<PAGE> 126
Unless previously terminated or unless notice of intention not to renew
is given, the change of control agreement is subject to automatic renewal every
year following the end of the first three year period.
Agreements with Mr. Moyer and Mr. Dautrich provide for:
- A severance payment in the amount of 2.5 times the average
annual compensation over the last five years paid either in 30
equal monthly installments or a lump sum;
- A supplemental payment in lieu of benefits equaling 25% of the
payments calculated for compensation or benefits continued
throughout the duration of the severance period; and
- All stock options granted are immediately 100% vested.
The agreement with Mr. Obetz provides for:
- A severance payment in the amount of 2 times the average
annual compensation for the last five years paid either in 24
equal monthly installments or a lump sum;
- A supplemental payment in lieu of benefits equaling 25% of the
payments calculated for compensation or benefits continued
throughout the duration of the severance period; and
- All stock options granted are immediately 100% vested.
Sterling Financial Corporation Directors' Compensation
The directors of Sterling do not receive any additional compensation
for their services, beyond the compensation paid to them as directors of the
Bank of Lancaster County. All directors of Sterling are directors of the Bank of
Lancaster County, with the exception of Ms. Argudo who is a director of Sterling
only. Sterling compensates Ms. Argudo as a director. Directors who are also
salaried officers of Sterling or the Bank of Lancaster County do not receive any
fees for board or committee meetings. Each year, the Bank of Lancaster County or
Sterling compensates all its non-employee directors by:
- Issuing 200 shares of Sterling common stock to each of them;
and
- Paying each of them cash equal to the value of the Sterling
common stock issued.
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<PAGE> 127
The Sterling common stock is issued to directors by July 15th of each
year and is valued at the average closing price for the first ten business days
of July. In addition, each non-employee director receives $100 for each meeting
attended of a Board of Directors committee of which he or she is a member.
Committee chairs receive $150 for each meeting attended. The director's cash
compensation is reduced by one-twelfth for each meeting missed in excess of
three if a director attends fewer than 75% of scheduled Board meetings.
In July, 1999, each non-employee director received 200 shares of
Sterling common stock, valued at $33.90 per share. The yearly cash portion of
the director's fees was $6,780 for the period beginning July 1, 1999. In the
aggregate, Bank of Lancaster County and Sterling paid $184,570 to non-employee
directors in cash and stock during 1999.
Transactions with Directors and Executive Officers
Some of the Sterling directors and executive officers and the companies
with which they are associated were customers of and had banking transactions
with the Bank of Lancaster County during 1999. All loans and loan commitments
made to them and to their companies were made in the ordinary course of bank
business, on substantially the same terms, including interest rates, collateral
and repayment terms, as those prevailing at the time for comparable transactions
with other customers of the bank, and did not involve more than a normal risk of
collectibility or present other unfavorable features. The Bank of Lancaster
County anticipates that it will enter into similar transactions in the future.
The Bank of Lancaster County has entered into several transactions with
businesses that are affiliates of Calvin G. High, a director of Sterling and of
the Bank of Lancaster County. The Bank of Lancaster County entered into a lease
agreement in 1984 with High Properties, in which Mr. High is a partner, under
which High Properties constructed and leased to the Bank of Lancaster County a
building at 525 Greenfield Road, Lancaster, Pennsylvania. Sterling and the Bank
of Lancaster County used the building for their administrative headquarters and
for a branch office from October of 1984 until August 1995. Sterling and the
Bank of Lancaster County moved their administrative headquarters to another
location in August 1995, but the Bank of Lancaster County continued to maintain
a branch office in the Greenfield Road building from October 1984. The term of
the lease for the building was 15 years and was not renewed. The monthly rent
was $12,331.70 and the Bank of Lancaster County paid a total of $49,326.80 in
rent to High Properties during 1999 for the Greenfield Road property.
On January 10, 1997, the Bank of Lancaster County sublet to High
Employee Services, Ltd., 4,424 square feet of the Greenfield Road building
formerly occupied by Sterling's and the bank's administrative headquarters. High
Employee Services, Ltd. is a division of High Industries, of which Mr. High is a
Director. The term of the sublease was two years eight months and ended on the
expiration date for the original 1984 lease. The Bank of Lancaster County
received $159,264 in rent from High Employee Services for the remaining term of
the sublease.
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<PAGE> 128
On October 28, 1998, the Bank of Lancaster County entered into a new
lease agreement with High Properties for its branch bank at the Greenfield Road
building. The lease term commenced on June 1, 1999, the expiration date of the
original lease. Under the terms of the lease, High Properties will lease to the
Bank of Lancaster County 4,424 square feet of space for a term of five years,
subject to renewal. Base rent over the five-year term is $370,999.92.
The Bank of Lancaster County paid $257,715.69 to D & E Communications
and $398,793.98 to D & E Computer Networking Services, a division of D & E
Communications, Inc. in 1999. The Bank of Lancaster County uses D & E
Communications for telecommunication services. In addition, the Bank of
Lancaster County purchased local area network and wide area network integration
services, personal computer hardware and software and data communications
equipment from D & E Computer Networking Services. W. Garth Sprecher, a Director
of Sterling and the Bank of Lancaster County, is Vice President, Corporate
Secretary and a Director of D & E Communications, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires
Sterling's directors, executive officers and shareholders who beneficially own
more than 10% of Sterling's outstanding equity stock to file initial reports of
ownership and reports of changes in ownership of common stock and other equity
securities of Sterling with the Commission. Based on a review of copies of
reports we received, and on the statements of the reporting persons, Sterling
believes that all Section 16(a) filing requirements were complied with in a
timely fashion during 1999, with the exception of Mr. Calvin G. High who
inadvertently did not timely file two Form 4's reporting changes in ownership
during 1999.
NOMINATIONS AND ELECTION OF DIRECTORS - HANOVER
Hanover's by-laws provide for the Board of Directors to manage
Hanover's business. Article III, Section 1 of the by-laws provides that the
number of directors not be less than five nor more than 25 and that the members
of the Board hold office for three years and until their successors are duly
elected and qualified. The Board determines the number of directors to be
elected at each annual shareholders meeting to serve during the ensuing year.
The Board may, within the limitations described above, increase the number of
directors by not more than two in any one year, provided that the directors
serve for a term to expire in accordance with the by-laws. Every director is a
shareholder of Hanover and owns, either outright, as tenant by the entirety with
their spouse, or beneficially, 100 shares of Hanover common stock. No person,
except those who were serving as directors as of June 2, 1982, is eligible for
election after he or she obtains the age of 70. Pursuant to Article III, Section
3 of the by-laws, vacancies on the Board may be filled by the remaining members
of the Board, even if less than a quorum, and any director or directors so
elected shall hold office for the unexpired term of the director or directors
who he, she or they replace, and until his, her or their successor or successors
are elected by the shareholders and qualify.
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<PAGE> 129
On the date of the annual meeting, the Board will consist of 11
members. Three nominees are to be elected to hold office for a three-year term
and until their successors are duly elected and qualified. The names and certain
information concerning the nominees for election and the other directors whose
terms continue following the annual meeting are shown below. Following the
annual meeting, the Board will consist of 11 members. The proxyholders will vote
"FOR" the nominees listed. If any nominee becomes unavailable for election
(which is not expected), the proxyholders will vote "FOR" other individuals as
the Board may recommend. All business experience shown for each director is for
a period of at least five years.
Management and the Board recommend the three nominees for election to
the Board and intend to vote their shares "FOR" the nominees.
Information about Nominees and Continuing Directors
CURRENT DIRECTORS WHOSE TERM EXPIRES IN 2000 AND
NOMINEES FOR DIRECTOR WHOSE TERM EXPIRES IN 2003
TERRENCE L. HORMEL, age 50, is President of KeyMan Distribution
Resources, a contract supply chain services company. He is also Managing Partner
of PennTown Properties and General Partner of Hormel Associates which are
commercial real estate development and management companies. All of these
companies are located in Hanover, Pennsylvania. He is the Chairman of the Board
of Trustees at Hanover Hospital and a Trustee at Hanover Healthcorp, Inc. and is
past Chairman of the York County Industrial Development Corporation. Mr. Hormel
has served as the Chairman of the Board of Directors of Hanover since 1991 and
of the bank since 1990. Mr. Hormel has served as a Director of Hanover since
August 1983, the bank since 1981 and HOVB Investment Co. since September, 1999.
He is Chairman of the bank's Executive and Finance Committees. He is an ex
officio member of all committees of the bank's Board of Directors.
CHARLES W. TEST, age 73, is Chairman of the Board of C.W. Test Builder,
Inc., general contractors (since 1958) and owner of C.W. Test Orchards, land
development. Mr. Test has served as a Director of Hanover since 1983 and the
bank since 1973. He is Chairman of the bank's Building Committee and a member of
the bank's Audit and Compliance Committee. He is serving or has served on the
bank's Loan Committee during the past year.
S. FORRY EISENHART, JR., age 50, is President and Chief Executive
Officer of Eisenhart Wallcoverings Company and Eisenhart Corp., a wallcoverings
manufacturer and distributor headquartered in Hanover, Pennsylvania. Mr.
Eisenhart has served as a Director of Hanover and the bank since August 1993. He
is Chairman of the bank's Investment Services Committee and a member of the
bank's Executive and Finance Committees. Mr. Eisenhart is serving or has served
on the Bank's Loan Committee during the past year.
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<PAGE> 130
DIRECTORS TO CONTINUE IN OFFICE UNTIL 2001
BERTRAM F. ELSNER, age 63, is President and Chief Executive Officer of
Elsner Engineering Works, Inc., which designs and manufactures automatic
rewinding machines and specialty machinery. He has served as Vice Chairman of
the Board of Directors of Hanover and the bank since 1998. He has served as
Director of Hanover and the bank since December 1985. Mr. Elsner is Chairman of
the bank's Audit and Compliance Committee and a member of the bank's Executive
and Building Committees. He is serving or has served on the bank's Loan
Committee during the past year.
J. DANIEL FROCK, age 60, is co-owner and President of Frock Bros.
Trucking, Inc., which provides 48-state truck service to manufacturers and
shippers of industrial goods, food and agricultural products, and consumer
wares. Prior to joining Frock Bros. Trucking, Inc., Mr. Frock was employed by
Hanover Wire Cloth Division of CCX, Inc., most recently as Vice President of
Operations. He has served as a Director of Hanover and the bank since December
1985. Mr. Frock is a member of the Bank's Audit and Compliance and Investment
Services Committees. He is serving or has served on the bank's Loan Committee
during the past year.
GORDON A. HAALAND, PHD, age 59, is the President of Gettysburg College.
He previously served on the Board of First New Hampshire Bancorp in New
Hampshire for five years. Dr. Haaland has served as a Director of Hanover and
bank since December 1997. He is a member of the bank's Finance and Investment
Services Committees. He is serving or has served on the bank's Loan Committee
during the past year.
STEWART E. HARTMAN, JR., age 68, is President of Rutter's Farm Stores
and Corporate Officer of Rutter's Corporations. Rutter's Farm Stores operates 53
convenience stores in Pennsylvania and Maryland. Mr. Hartman has served as a
Director of Hanover and bank since October 1998. He is a member of the bank's
Finance and Audit and Compliance Committees. He is serving or has served on the
bank's Loan Committee during the past year.
DIRECTORS TO CONTINUE IN OFFICE UNTIL 2002
MICHAEL D. BROSS, age 46, is President of Berwick Enterprises, Inc.
which is the operating company for The Bridges Golf Club. He is also owner of
Stonewood Farms which operates turkey farms and raises cutting horses. Prior to
the establishment of Stonewood Farms and Berwick Enterprises, Mr. Bross was
employed by Round Hill Foods, Inc., most recently as President. He is the son of
Director Thomas M. Bross, Jr. Mr. Bross has served as a Director of Hanover and
the bank since May 1987. He is a member of the bank's Building Committee. He is
serving or has served on the bank's Loan Committee during the past year.
THOMAS M. BROSS, JR., age 78, is the former President and Chairman of
the Board of Round Hill Foods, Inc., New Oxford, Pennsylvania, a food processor.
He is the father of Director Michael D. Bross. Mr. Bross has served as a
Director of Hanover since August 1983 and the bank
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since 1973. He served as Vice Chairman of the Board of Directors of Hanover and
the bank from 1983 to 1997. He is serving or has served on the bank's Loan
Committee during the past year.
EARL F. NOEL, JR., age 54, is President of Yazoo Mills, Inc., a
manufacturer of paper tubes and cores, located in New Oxford, Pennsylvania. Mr.
Noel has served as a Director of Hanover and the bank since September 1995. He
is a member of the bank's Finance and Investment Services Committees. He is or
has served on the bank's Loan Committee during the past year.
J. BRADLEY SCOVILL, age 40, has been a Director, President and Chief
Executive Officer of Hanover since January 1996 and of the bank since December
1994. Mr. Scovill has served as a Director of HOVB Investment Co. since
September, 1999. He is an ex officio member of all committees of the bank's
Board of Directors, with the exception of the Audit and Compliance Committee.
Mr. Scovill previously served as the Treasurer of Hanover and the Chief
Financial Officer of the bank.
Meetings and Committees of the Board of Directors
Hanover's Board met nine times in 1999. The Board of Directors of the
bank met 12 times in 1999. During 1999, each incumbent director attended at
least 75% of the aggregate number of meetings held by the Board of Directors of
Hanover and the bank, and the committees of which the director was a member,
except Dr. Gordon Haaland, who attended 69% of the meetings of the bank.
Hanover's Board has not provided for separate Audit, Nominating and Compensation
Committees. However, the normal functions of such committees are carried out by
the Board as a whole.
Any shareholder who desires to propose an individual for consideration
by the Board as a nominee for Director should submit a written proposal to
Hanover's Secretary in accordance with the Pennsylvania Business Corporation Law
of 1988, as amended.
The Board of Directors of the bank maintains the following standing
committees: Executive, Audit and Compliance, Investment Services, Finance, and
Building. The bank also has standing Loan Committee that rotates all of its
directors to serve for a period of at least three months each year. Terrence L.
Hormel, Chairman of the Board, is an ex officio member of all of the bank's
committees.
The bank's Audit and Compliance Committee met four times during 1999 to
review reports presented by the internal auditor and by the loan review and
compliance officer. The committee also reviews the annual audit performed by the
external auditors. The committee makes suggestions to management to improve
internal control and to protect against improper security for all assets and
records. This committee is comprised of Directors B.F. Elsner, Chairman, J.D.
Frock, S.E. Hartman, Jr. and C.W. Test.
Executive Officers
The following persons are executive officers of Hanover:
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<TABLE>
<CAPTION>
NUMBER OF
AGE DIRECTOR OR SHARES
AS OF OFFICER EMPLOYEE EMPLOYEE BENEFICIALLY
NAME MARCH 24, 2000 POSITION SINCE SINCE OWNED
- ---- -------------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Terrence L. Hormel 50 Chairman of the Board 1989 1983 25,360
Bertram F. Elsner 63 Vice Chairman 1998 1985 9,999
J. Bradley Scovill 40 President and 1991 1991 15,536
Chief Executive Officer
Thomas J. Paholsky 38 Treasurer/Secretary 1996 1996 1,532
</TABLE>
The following persons are executives officers of the bank:
<TABLE>
<CAPTION>
NUMBER OF
AGE DIRECTOR OR SHARES
AS OF OFFICER EMPLOYEE EMPLOYEE BENEFICIALLY
NAME MARCH 24, 2000 POSITION SINCE SINCE OWNED
---- -------------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Terrence L. Hormel 50 Chairman of the Board 1989 1981 25,360
Bertram F. Elsner 63 Vice Chairman 1998 1985 9,999
J. Bradley Scovill 40 President and Chief 1991 1991 15,536
Executive Officer
Chad M. Clabaugh 38 Executive Vice President 1991 1981 349
Sales Group
Thomas J. Paholsky 38 Executive Vice President 1996 1996 1,532
Finance and Technology
Group
Jeffrey K. Dice 51 Senior Vice President 1986 1982 1,459
Credit Services
Jacquelyn A. Lebow 42 Senior Vice President 1993 1993 303
Director of marketing
D. Kathleen Phillips 43 Senior Vice President 1999 1999 ---
Chief Technology Officer
Candy A. Sneeringer 29 Vice President 1998 1989 170
Director of Human
Resources
John T. Weber 42 Vice President 1998 1989 730
Internal Auditor
</TABLE>
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<PAGE> 133
PRINCIPAL OWNERS OF THE CORPORATION'S STOCK
As of February 29, 2000, the following shareholder of record is known
by the Board of Directors to be the beneficial owner of more than five percent
(5%) of the Corporation's outstanding common stock:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL AMOUNT AND NATURE OF PERCENT
OR IDENTITY OF GROUP BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C>
Bank of Hanover and Trust Co. 364,059 9.37%
25 Carlisle Street
Hanover, PA 17331
</TABLE>
Stock Ownership by the Corporation's
Directors, Nominees and Principal Officers
The following table sets forth information as of February 29, 2000,
regarding the amount and nature of ownership of common stock of the Corporation
by each director, each nominee and by all of the directors, nominees and
principal officers of the Corporation as a group. Each such individual has sole
voting and investment power with respect to the shares listed except as
otherwise indicated in the footnotes to the table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF INDIVIDUAL BENEFICIAL PERCENT
OR IDENTITY OF GROUP OWNERSHIP(1)(2)(3) OF CLASS(1)
<S> <C> <C>
Thomas M. Bross, Jr. 150,990 3.89%
Michael D. Bross 11,104 (4) .29%
S. Forry Eisenhart, Jr. 18,426 (5) .47%
Bertram F. Elsner 9,999 (6) .26%
J. Daniel Frock 23,642 (7) .61%
Gordon A. Haaland, PhD 1,776 (8) .05%
Stewart E. Hartman, Jr. 680 .02%
Terrence L. Hormel 25,360 (9) .65%
Earl F. Noel, Jr. 10,431 (10) .27%
J. Bradley Scovill 15,536 (11) .40%
Charles W. Test 16,387 (12) .42%
All directors and principal officers 288,874 7.44%
of the Corporation as a group
(18 persons)
</TABLE>
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<PAGE> 134
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in
the General Rules and Regulations of the Securities and Exchange
Commission and may include securities owned by or for the individual's
spouse and minor children and any other relative who has the same home,
as well as securities to which the individual has or shares voting or
investment power or has the right to acquire ownership within 60 days
after February 29, 2000.
(2) Information furnished by the directors and the Corporation.
(3) Unless otherwise indicated, shared voting power results from joint
ownership with the referenced persons.
(4) Includes 5,754 shares of which Mr. Bross shares voting power with his
wife, Nancy J. Bross.
(5) Includes 6,419 shares for which Mr. Eisenhart is trustee of accounts
for: his father, S. Forry Eisenhart, Sr. (4,091 shares), and for each
of his three children (776 shares each).
(6) Includes 471 shares of which Mr. Elsner shares voting power with his
wife, Joyce C. Elsner.
(7) Includes 22,276 shares of which Mr. Frock shares voting power with his
wife, Joanne K. Frock.
(8) Dr. Haaland shares voting power with his wife, Carol E. Haaland.
(9) Includes 3,596 shares held by Mr. Hormel's wife, Monna B. Hormel.
(10) Includes 8,661 shares of which Mr. Noel shares voting power with his
wife, Charmian E. Noel.
(11) Includes 4,836 shares of which Mr. Scovill shares voting power with his
wife, Joanne M. Scovill.
(12) Includes 438 shares held by Mr. Test's wife, Ingeborg G. Test.
Compensation of Directors
Directors of the bank, including the Chairman of the Board, who are not
also employees, are entitled to fees at the rate of $1,500 per quarter, $350 per
regular board meeting and $150 for special board meetings and committee
meetings.
Terrence L. Hormel, as Chairman of the Board, receives an annual
retainer of $14,400. He receives no fees for committee meetings. Mr. Hormel
earned total fees of $24,600 during 1999. Aggregate fees paid to all directors
in 1999 were $129,400.
The bank has deferred compensation agreements with five current or
former directors. Under these agreements, participating directors elected to
forego receipt of director's fees for a period of five years in return for a
defined benefit over a ten year period. In order to account for this benefit,
the bank is required to fund a liability which recognizes the bank's future
contractual obligation to the participants. The bank is providing for cost
recovery through the purchase of life insurance policies covering the
participants of which the bank is the owner and beneficiary. Also, the bank has
split dollar agreements with four current directors who had previously
participated in deferred compensation agreements. Under the split dollar
agreements, the bank agrees to purchase a life insurance policy for the
participant until age 65. This life insurance policy is then split to provide
the participant with an undefined amount of compensation over a ten year period
while the bank maintains the policy in force to provide cost recovery. Since
there is no contractual obligation to provide a defined future benefit, the bank
is not required to fund a liability on behalf of the participant. The 1999 costs
associated with the deferred compensation and split dollar agreements were
$38,055.
Compensation Committee Report
The Board has primary and ultimate responsibility for Hanover's
governance. The Board's fundamental task in discharging this responsibility,
which includes serving as steward for the
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<PAGE> 135
shareholders' investment and fiduciary for the customers' deposits, is to
provide a capable staff of executive officers, including the Chief Executive
Officer. The Board delegates to these executive officers the necessary authority
to operate and manage Hanover's resources to achieve the Board's stewardship and
fiduciary goals.
Compensation of executive officers, including the Chief Executive
Officer, is an essential aspect of the Board's governance responsibilities. The
Boards' Executive Committee implements Hanover's Executive Compensation Policy.
This policy provides and maintains a salary and benefit program that rewards
executive officers for service to Hanover at a level sufficient to attract and
retain in each position the appropriate quality individual.
The compensation range for each position is determined through
evaluation of internal and external equity, labor market conditions, and
specific responsibilities set forth in the position description. Specific
compensation for each executive officer is based primarily on the performance of
the incumbent, as measured in the annual performance review, with the goal of
matching the officer's compensation to his or her "value added" to Hanover. This
"value added" is comprised of two components:
- The dollar value of adequately discharging the duties of the
office as measured by the pay scale for the position; and
- The extra value added by the incumbent's extraordinary effort
and results. Thus, the compensation for executive officers
consists of base salary plus performance-based incentives.
Performance-based incentives are determined within the framework of
Hanover's Incentive Compensation Program. The program is based upon the
achievement by corporate employees of targeted annual corporate financial
objectives. Incentive pools exist for all staff and officers as a component of
base salary. A Black Scholes valuation model is utilized for option awards.
Specific awards are determined to recognize the value of individual
contributions during the year.
In 1999, Hanover awarded both short- and long-term incentives.
Short-term incentives consisted of cash payments. Long-term incentives consisted
of stock option awards. A total of 31,315 options were awarded, of which 6,000
stock options were granted to Mr. Scovill, Hanover's and the bank's Chief
Executive Officer and the Bank. The Board of Directors based this award on the
program parameters and its subjective assessment.
The Compensation Committee does not deem Section 162(m) of the Internal
Revenue Code to be applicable to Hanover at this time. The committee will
monitor the future application of Section 162(m) to the compensation paid to its
executive officers and in the event that this section becomes applicable, the
committee intends to amend Hanover's compensation plans to preserve the
deductibility of the compensation payable under such plans.
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<PAGE> 136
The following directors served as members of the Compensation
Committee: T.L. Hormel, Chairman, S.F. Eisenhart, Jr., B.F. Elsner, and J.B.
Scovill.
Compensation Committee Interlocks and Insider Participation
Mr. J. Bradley Scovill, President and Chief Executive Officer of the
Corporation and the Bank, is a member of the Executive Committee. As a member of
the Executive Committee, Mr. Scovill participated in discussions relating to
compensation of executive officers of the Bank but he did not participate in
discussions relating to his compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUT
OTHER SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARDS SAR'S(1) PAYOUT SATION(2)
-------- ---- ------ ----- ------ ------ -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Bradley Scovill, 1999 $179,596 $18,000 $4,520 --- 6,000 --- $8,200
President and 1998 $161,866 $12,000 $4,899 --- 8,133 --- $8,202
Chief Executive 1997 $134,829 --- $4,447 --- 6,133 --- $7,479
Officer
Chad M. Clabaugh, 1999 $94,839 $12,000 --- --- 2,800 --- $4,532
Executive 1998 $87,700 $6,000 --- --- 3,500 --- $3,054
Vice-President 1997 $72,358 --- --- --- 5,133 --- $2,097
</TABLE>
(1) The number of options are adjusted for a 4-for-3 stock split effective
June 1, 1998.
(2) Consists of Bank of Hanover's contribution to the Hanover Bancorp, Inc.
401(k) Plan.
Option Grants and Fiscal Year End Values
The following table shows all grants in 1999 of stock options to the
executive officer named in the summary compensation table above. All grants were
made under Hanover's Omnibus Stock Plan.
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<PAGE> 137
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
% OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES OR BASE
GRANTED IN FISCAL PRICE EXPIRATION
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
J. Bradley Scovill, 6,000 (1) 19.16% 17.38 01-01-09 34,200 106,200
President and Chief
Executive Officer
Chad M. Clabaugh, 2,800 (2) 8.94% 14.88 12-31-09 26,200 66,400
Executive Vice President
</TABLE>
(1) Options were issued on January 1, 1999, under Omnibus Stock Plan and
will become exercisable on January 1, 2000, with no partial vesting
Prior to January 1, 2002. All options must be exercised within ten
years of the grant date or they expire.
(2) Options were issued on December 31, 1999, under the Omnibus Stock Plan
and will become exercisable on December 31, 2000, with no partial
vesting prior to December 31, 2002. All options must be exercised
within ten years of the grant date or they expire.
Aggregated Option Exercises and Fiscal Year-End Values
The following table provides information concerning the option
exercises during the last fiscal year and the number and value of the
unexercised options to purchase Hanover's common stock granted to the executive
officer named in the summary compensation table above.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT FISCAL YEAR-END($)(2)
OPTIONS AT FISCAL YEAR-END(#)
SHARES
ACQUIRED
ON VALUE
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE (1)
<S> <C> <C> <C> <C> <C> <C>
J. Bradley Scovill --- --- 20,882 20,266 15,900 1,600
President and Chief
Executive Officer
Chad M. Clabaugh --- --- 6,576 11,433 4,300 ---
Executive
Vice President
</TABLE>
(1) Options are unexercisable because they have not yet vested under the
terms of Hanover's Omnibus Stock Plan.
(2) Based on the market price per share as of December 31, 1999 ($14.88)
and specific option exercise prices per share.
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<PAGE> 138
Pension Plan
On January 19, 1996, the Board of Directors authorized an amendment to
curtail the bank's defined benefit pension plan. Under the curtailment, pension
benefits were frozen and vested as of March 31, 1996. On September 16, 1996,
approximately two thirds of the plan's accumulated benefit obligation was
settled via the purchase of annuity contracts. The retirement plan was
terminated as of July 24, 1998 and all benefit obligations were settled through
the distribution of plan assets by December 31, 1998.
401(k) Plan
Effective January 1, 1985, the bank made available a 401(k) Plan to
eligible employees. The plan was designed to give employees a source of
financial security and an investment opportunity. The plan is intended to comply
with the requirements of Section 401(k) of the Internal Revenue Code and is
subject to the Employee Retirement Income Security Act of 1974. The plan is
administered by the bank's Investment Services Group which also acts as the
trustee of the plan.
All employees of Hanover and the bank who have completed at least one
year of employment as defined in the plan and are 21 years of age are eligible
to participate in the plan. In each pay period a participant may elect to defer
up to 15% of base salary/wages and to have that amount contributed to the plan
by the bank on the participant's behalf, up to the maximum allowable
contribution as established by the Internal Revenue Service. In addition,
contributions made on behalf of "highly compensated" employees may be further
restricted as provided for in the Internal Revenue Code. The total amount of a
participant's contributions for a given month is allocated to the plan according
to its terms. Except as may be restricted by the Internal Revenue Code, a
matching contribution is made by the bank equal to 50% of the participant's
contributions for the month, up to 4% of the participant's base salary/wages.
Beginning in 1996, the plan was amended to provide for discretionary
contributions by the bank to all eligible employees. All funds are held in trust
and are invested by the trustee in accordance with the participant's directions
within the scope of investment alternatives available under the plan. All
elective, matching and discretionary contributions are 100% vested upon
placement into the plan.
Personal after-tax voluntary contributions made prior to January 1,
1988, may be withdrawn at any time upon the required notice. Participants may no
longer make personal after-tax contributions to the plan. Amounts contributed to
the plan on the participant's behalf, as described above, may be withdrawn only
in the event of financial hardship; however, any such withdrawal may not include
any earnings on pre-tax contributions credited to the participant's account
after December 31, 1988. Upon termination of employment or upon attaining the
age of 59 1/2, a participant's entire interest in the plan becomes payable. A
participant may receive a lump sum distribution or may, in certain
circumstances, elect to defer or receive installment payments.
129
<PAGE> 139
Employer matching contributions and a discretionary contribution made
to all employees of Hanover and the bank during 1999 was $215,532.
Severance Agreement
On March 22, 1995, Hanover, the bank and J. Bradley Scovill, President
and Chief Executive Officer of Hanover and the bank, entered into a severance
agreement which is triggered upon a change of control of Hanover and the bank.
The agreement provides that if Mr. Scovill is discharged other than for cause,
or Mr. Scovill resigns from the successor to Hanover and/or the bank for good
reason within one year following a change of control of Hanover and/or the bank,
as defined in the agreement, he will receive, monthly, an amount equal to
one-twelfth of his base annual salary that is being paid to him on January 1st
of the year in which the change of control occurs. These monthly payments will
continue for a period of 18 months from the date of his discharge, for reasons
other than for cause, or resignation, for good reason. This 18 month period is
the severance benefit period. In addition, Mr. Scovill will receive, during the
severance benefit period, medical, health, accident and disability insurance and
a survivor's income benefit. These benefits will be equivalent in form,
substance and amount to that provided to him before the commencement of the
severance benefit period.
Under the terms of the agreement, Mr. Scovill will be required to
mitigate the amount of any payment or benefit provided him as described above by
seeking employment in a substantially similar position, and the successor to
Hanover and the bank will be entitled to setoff against the amount of any
payment or benefit provided to Mr. Scovill, under the terms of the agreement, by
any amounts earned by Mr. Scovill in other employment during the severance
benefit period.
Certain Transactions
It is not within the policies or practices of Hanover or of Bank of
Hanover to provide personal benefits to principal officers or directors, except
as a measure of reasonable compensation for services. There are no "fringe
benefits" paid or payable to any such person that are not available generally to
all other salaried employees. To facilitate the performance of his duties, the
President and Chief Executive Officer of the bank has been furnished with a
company automobile and a membership to a local country club. This officer pays
all charges attributed to his personal use of these items.
The corporation and the bank have engaged in, and expect to continue to
engage in, transactions in the ordinary course of business with its directors
and officers and their associates on the same terms, including interest rates
and collateral on loans, as those prevailing at the time for comparable
transactions with others. These transactions do not involve more than the normal
risk of collection, nor do they present other unfavorable features.
The largest aggregate amount of indebtedness outstanding at any time
during fiscal year 1999 to officers and directors of the corporation and the
bank was $4,656,325. The aggregate amount of
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<PAGE> 140
indebtedness outstanding as of the latest practicable date, February 29, 2000,
to the above described group was $4,437,332, approximately 13.86% of the total
equity capital of the corporation.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
corporation's officers and directors, and persons who own more than 10% of the
registered class of the Corporation's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors, and greater than 10% shareholders are required by SEC
regulation to furnish the Corporation with copies of all filed Section 16(a)
forms.
Based solely on its review of the copies of such forms received by it,
or on written representation from reporting persons that no Forms 5 were
required for those persons, the Corporation believes that during the period
January 1, 1999, through December 31, 1999, its officers and directors were in
compliance with all Section 16(a) filing requirements applicable to them.
Legal Proceedings
The nature of the corporation's and the bank's business generates a
certain amount of litigation involving matters arising in the ordinary course of
business. However, in the opinion of management of the corporation and the bank,
there are no proceedings pending to which the corporation and/or the bank are a
party or to which its property is subject which, if determined adversely to the
corporation and the bank, would be material in relation to the corporation's and
the bank's undivided profits or financial condition. No proceedings are pending
other than ordinary routine litigation incidental to the business of the
corporation and the bank. In addition, no material proceedings are pending or
are known to be threatened or contemplated against the corporation and the bank
by government authorities or others.
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<PAGE> 141
STERLING ANNUAL MEETING - OTHER MATTERS
In addition to voting on the approval and adoption of the agreement,
the Sterling adjournment proposal and the election of directors, we will ask the
Sterling shareholders to consider and vote upon the following matters:
- Ratification of the selection of Ernst & Young, LLP as the
corporation's independent certified public accountants for the
year ending December 31, 2000; and
- Transaction of any other business that may properly come
before the Sterling annual meeting.
132
<PAGE> 142
MATTER NO. 4
RATIFICATION OF SELECTION OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
The Board of Directors engaged Trout, Ebersole & Groff, LLP as
independent certified public accountants to audit Sterling's and the bank's
books, records and accounts for the year 1999. A representative of Trout,
Ebersole & Groff is expected to be present at the 2000 Annual Meeting to respond
to appropriate questions and to make a statement if the representative so
desires.
The Sterling Board of Directors at its meeting on October 26, 1999,
approved the recommendation of the Audit Committee to retain Ernst & Young LLP
as its independent public accountants for the examination of its financial
statements for the fiscal year ending December 31, 2000. On November 4, 1999,
Sterling agreed to retain Ernst & Young LLP as independent public accountants
for the examination of Sterling's financial statements for the fiscal year
ending December 31, 2000. During the last two most recent fiscal years and
interim periods, there were no disagreements with Trout, Ebersole & Groff, LLP
on matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which disagreement(s) if not resolved
to the satisfaction of Trout, Ebersole & Groff, LLP would have caused them to
make reference to the subject matter of the disagreement(s) in connection with
their report.
The Board of Directors recommends that the shareholders vote FOR
ratification of the selection of Ernst & Young LLP as independent certified
public accountants for the fiscal year ending December 31, 2000.
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<PAGE> 143
MISCELLANEOUS ADDITIONAL INFORMATION
CONDUCT OF THE MEETING
Management of Sterling knows of no business other than as described in
this proxy statement that is planned to be brought before the annual meeting.
Should any other matters arise, however, the persons named on the enclosed proxy
will vote on those matters according to their best judgment.
Abstentions or broker nonvotes will be counted for purposes of
determining whether a quorum is present at the annual meeting but will not be
counted as votes cast for or against any matter to be considered at the annual
meeting.
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the yearly dollar change in the cumulative
total shareholder return on Sterling's common stock against the cumulative total
return of the S&P 500 Stock Index and the NASDAQ Bank Index for the period of
five fiscal years commencing January 1, 1995, and ending December 31, 1999. The
shareholder return shown on the graph below is not necessarily indicative of
future performance.
SHAREHOLDER RETURN PERFORMANCE GRAPH
[INSERT PERFORMANCE GRAPH]
134
<PAGE> 144
Comparison of Five-Year Cumulative Total Return
Sterling Financial Corporation Common Stock, S&P 500 & NASDAQ Bank Indices
<TABLE>
<CAPTION>
Period Ending
Index 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sterling Financial Corp. 100.00 103.06 97.77 127.83 177.90 170.49
S & P 500 100.00 137.58 169.03 225.44 289.79 350.78
NASDAQ Bank Index 100.00 149.00 196.73 329.39 327.11 314.42
</TABLE>
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any shareholder proposal for consideration at the annual meeting of
shareholders of Sterling to be held in 2001, must be received by Sterling at its
principal offices not later than November 27, 2000, in order for it to be
included in Sterling's proxy materials relating to the 2001 annual meeting of
shareholders. A copy of the Sterling 1999 annual report to shareholders and
Sterling's annual report on Form 10-K for its fiscal year ended December 31,
1999, as filed with the Commission, on March 29, 2000, are included with this
proxy statement/prospectus. Copies of other filings that Sterling has made with
the Commission are available, without charge upon request addressed to Ronald L.
Bowman, Vice President/Secretary, Sterling Financial Corporation, 101 North
Pointe Boulevard, Lancaster, Pennsylvania 17601-4133.
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<PAGE> 145
HANOVER ANNUAL MEETING - OTHER MATTERS
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly change in the
cumulative total shareholder return on Hanover's common stock against the
cumulative total return of representative indices and a selected peer group for
the period of five (5) years commencing on January 1, 1995, and ended December
31, 1999. Shareholder return shown on the graph is not necessarily indicative of
future performance.
136
<PAGE> 146
Comparison of Five Year Cumulative Total Return
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Hanover Bancorp, Inc. 100.00 99.53 101.99 127.51 132.60 118.30
Peer Group Index(1) 100.00 111.93 126.26 183.80 235.55 192.17
NASDAQ Bank Index 100.00 149.00 196.73 329.39 327.11 314.42
Russell 2000 Index 100.00 126.39 145.04 174.81 168.78 201.90
S&P 500 Index 100.00 137.58 169.03 225.44 289.79 350.78
</TABLE>
(1) Peer group information includes the following companies: ACNB Corp.,
CNB Financial Corp., Citizens and Northern Corp., Drovers Bancshares
Corp., First West Chester Corp., Franklin Financial Services Corp.,
Penn Security Bank and Trust Company, Pennrock Financial Services,
Penns Woods Bancorp, Inc., and Sterling Financial Corp. These bank
holding companies were originally selected based on four criteria:
total assets between $200 million and $750 million; market
capitalization greater than $25 million; headquarters located in
Pennsylvania; and not listed on NASDAQ national market.
SHAREHOLDER PROPOSALS
If the merger has not been completed, the Hanover Board will consider
and include in the proxy statement for the annual meeting of shareholders in
2001 proposals that meet the regulations of the Commission and Pennsylvania law.
In order to be considered for inclusion, proposals must be submitted to Hanover
by November 18, 2000. Proposals should be addressed to the attention of Thomas
J. Paholsky, Secretary, Hanover Bancorp, Inc. 33 Carlisle Street, Hanover,
Pennsylvania 17331.
OTHER MATTERS
The Board of Directors does not intend to bring any other matter before
the Hanover annual meeting and is not presently informed of any other business
that others may bring before the Hanover annual meeting other than as set forth
in the Notice of Annual Meeting of Shareholders. If any other matters should
properly come before the annual meeting, or any postponement or adjournment of
the meeting, however, proxy holders intend to vote on these matters as they, in
their discretion, may determine.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Ernst & Young LLP, Certified Public Accountants of Harrisburg,
Pennsylvania, has been retained as the Corporation's principal accountants for
the year ending December 31, 2000. A representative of Ernst & Young LLP will be
present at the annual shareholders meeting and will be available to respond to
appropriate questions.
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<PAGE> 147
EXPERTS
The consolidated financial statements of Sterling and subsidiaries as
of December 31, 1999, and 1998, and for each of the years in the three-year
period ended December 31, 1999, have been incorporated by reference herein and
in the registration statement in reliance upon the report of Trout, Ebersole &
Groff, LLP, independent certified public accountants, and upon the authority of
the firm as experts in accounting and auditing.
The consolidated financial statements of Hanover Bancorp, Inc.
incorporated by reference in Hanover Bancorp, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1999, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report incorporated by reference
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
LEGAL OPINIONS
The legality of the shares of Sterling common stock to be issued in
connection with the merger and certain other legal matters relating to the
transaction will be passed upon by the law firm of Shumaker Williams, P.C., Camp
Hill, Pennsylvania, Special Counsel to Sterling.
WHERE YOU CAN FIND MORE INFORMATION
Sterling and Hanover are subject to the informational requirements of
the Exchange Act, and, accordingly, file reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information are available for inspection and copying at the Public Reference
Room at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The public may obtain information on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. Sterling and
Hanover are electronic filers with the Commission. The Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission Web site is http://www.sec.gov.
You may also inspect materials and other information concerning
Sterling at the offices of the National Association of Securities Dealers, Inc.
at 1735 K Street, N.W., Washington, D.C., because Sterling's common stock is
authorized for quotation on the National Market System of The National
Association of Securities Dealers Automated Quotation System.
This proxy statement/prospectus forms a part of a Registration
Statement that Sterling has filed with the Commission under the Securities Act,
with respect to the Sterling common stock to be issued in the merger. This proxy
statement/prospectus does not contain all of the information in the Registration
Statement. The Commission's rules and regulations permit omission of certain
information. You may inspect and copy the Registration Statement, including any
amendments and
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<PAGE> 148
exhibits, at the locations mentioned above. Statements contained in this proxy
statement/prospectus as to the contents of any contract or other document are
not necessarily complete. We refer you to the copy of the contract or other
document, filed as an exhibit to the Registration Statement. We also qualify our
discussions by these documents.
Documents incorporated by reference are available from Sterling and
Hanover without charge (except for exhibits to the documents unless the exhibits
are specifically incorporated in this document by reference). You may obtain
documents incorporated by reference in this document by requesting them in
writing or by telephone from Sterling or Hanover at the following addresses:
- Sterling Financial Corporation
101 North Pointe Boulevard
Lancaster, Pennsylvania 17601
(717) 735-5608
Attention: Ronald L. Bowman
- Hanover Bancorp, Inc.
33 Carlisle Street
Hanover, Pennsylvania 17331
(717)637-2201
Attention: Thomas J. Paholsky
If you would like to request documents, please do so by May 15, 2000,
in order to receive them before the annual meetings. If you request any
incorporated documents from us, we will mail them to you by first-class mail, or
other equally prompt means, within one business day of our receipt of your
request.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the meeting. We have not
authorized anyone to provide you with information that is different from what is
contained or incorporated by reference in this document. This document is dated
April __, 2000. You should not assume that the information contained in this
document is accurate as of any date other than that date, and neither the
mailing of this document to shareholders nor the issuance of Sterling's
securities in the merger creates any implication to the contrary.
Sterling provided all information in this proxy statement/prospectus
that relates to Sterling. Hanover provided all information that relates to
Hanover. Sterling and Hanover have also enclosed the following documents with
this joint proxy statement/prospectus:
- Sterling 1999 Annual Report to Shareholders;
- Sterling Annual Report on Form 10-K for the year ended
December 31, 1999, as filed with the Commission;
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- Hanover 1999 Annual Report to Shareholders; and
- Hanover Annual Report on Form 10-K for the year ended December
31, 1999, as filed with the Commission
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ANNEX A
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AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 25th DAY OF JANUARY, 2000
BY AND BETWEEN
STERLING FINANCIAL CORPORATION
AND
HANOVER BANCORP, INC.
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TABLE OF CONTENTS
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Page(s)
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ARTICLE I
THE PLAN OF MERGER
SECTION 1.1 The Merger, Closing: Effective Time .......................................... 2
ARTICLE II
CONVERSION OF SHARES AND
EXCHANGE OF STOCK CERTIFICATES
SECTION 2.1 Conversion of Shares ........................................................ 3
SECTION 2.2 Exchange of Stock Certificates .............................................. 5
SECTION 2.3 Other Matters ............................................................... 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of HBI ....................................... 9
SECTION 3.2 Representations and Warranties of Sterling .................................. 24
ARTICLE IV
COVENANTS OF HBI
SECTION 4.1 Conduct of Business ......................................................... 36
SECTION 4.2 Best Efforts ................................................................ 39
SECTION 4.3 Regulatory Matters and Consents ............................................. 40
SECTION 4.4 Access to Properties and Records ............................................ 40
SECTION 4.5 Subsequent Financial Statements ............................................. 41
SECTION 4.6 Board and Committee Minutes ................................................. 41
SECTION 4.7 Update Schedule ............................................................. 41
SECTION 4.8 Notice ...................................................................... 41
SECTION 4.9 Other Proposals ............................................................. 41
SECTION 4.10 Dividends .................................................................. 42
SECTION 4.11 Core Deposits .............................................................. 42
SECTION 4.12 Affiliate Letters .......................................................... 42
SECTION 4.13 No Purchases or Sales of Sterling Common
Stock During Price Determination Period .................................... 43
SECTION 4.14 Accounting Treatment ....................................................... 43
SECTION 4.15 Press Releases ............................................................. 43
SECTION 4.16 Phase I Environmental Audit ................................................. 43
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ARTICLE V
CONDITIONS TO CONSUMMATION
SECTION 5.1 Common Conditions ........................................................... 44
SECTION 5.2 Conditions to Obligations of Sterling ....................................... 46
SECTION 5.3 Conditions to the Obligations of HBI ........................................ 48
ARTICLE VI
TERMINATION
SECTION 6.1 Termination ................................................................. 49
SECTION 6.2 Effect of Termination ....................................................... 50
SECTION 6.3 Expenses .................................................................... 50
ARTICLE VII
POST MERGER AGREEMENTS
SECTION 7.1 Employees and Benefits ..................................................... 51
SECTION 7.2 Officers. .................................................................. 51
SECTION 7.3 Hanover Board of Directors. ................................................ 52
SECTION 7.4 Board Appointments and Sterling Management Committee ....................... 52
SECTION 7.5 Indemnification and Director and Officer Liability Insurance ............... 53
SECTION 7.6 Certain Matters ............................................................ 53
ARTICLE VIII
OTHER MATTERS
SECTION 8.1 Certain Definitions; Interpretation ......................................... 54
SECTION 8.2 Survival .................................................................... 54
SECTION 8.3 Parties in Interest ......................................................... 55
SECTION 8.4 Captions .................................................................... 55
SECTION 8.5 Severability ................................................................ 55
SECTION 8.6 Access; Confidentiality ..................................................... 55
SECTION 8.7 Waiver and Amendment ........................................................ 55
SECTION 8.8 Counterparts ................................................................ 56
SECTION 8.9 Governing Law ............................................................... 56
SECTION 8.10 Expenses ................................................................... 56
SECTION 8.11 Change of Control Fee ....................................................... 56
SECTION 8.12 Notices .................................................................... 57
SECTION 8.13 Entire Agreement: Etc. ..................................................... 58
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AGREEMENT AND PLAN OF MERGER dated as of the 25th day of January, 2000
(this "Plan" or this "Agreement"), is entered into by and between Sterling
Financial Corporation, a Pennsylvania corporation ("Sterling"), and Hanover
Bancorp, Inc., a Pennsylvania corporation ("HBI").
RECITALS:
WHEREAS, Sterling is a Pennsylvania corporation and multi-institution
bank holding company; and
WHEREAS, HBI is a Pennsylvania corporation and bank holding company;
and
WHEREAS, the boards of directors of Sterling and HBI have each
determined that it is in the best interests of their respective shareholders and
other constituencies for HBI to statutorily merge with and into Sterling (the
"Merger"), upon the terms and subject to the conditions set forth herein; and
WHEREAS, Sterling and HBI desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement and to
set forth the conditions to the Merger; and
WHEREAS, HBI and Sterling desire to merge in the manner provided for
herein and to adopt this Agreement as a plan of merger and to consummate such
plan in accordance with the provisions of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code"); and
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to Sterling's willingness to enter into this
Plan, HBI has executed and delivered an Investment Agreement with Sterling (the
"Investment Agreement") in substantially the form attached hereto as Exhibit
"A", pursuant to which HBI is granting to Sterling an option to purchase, under
certain circumstances, shares of HBI Common Stock.
NOW, THEREFORE, in consideration of their mutual promises and
obligations hereunder, the parties hereto, intending to be legally bound hereby,
adopt and make this Agreement and prescribe the terms and conditions hereof and
the manner and basis of carrying it into effect, which shall be as follows:
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ARTICLE I
THE PLAN OF MERGER
SECTION 1.1 The Merger, Closing: Effective Time.
(a) Subject to the terms and conditions of this Agreement and in
accordance with the applicable laws of the Commonwealth of
Pennsylvania, at the Effective Time (as defined in Section 1.
1 (c)), HBI shall be merged with and into Sterling and the
separate corporate existence of HBI shall thereupon cease.
Sterling shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving
Corporation") and shall continue to be governed by the laws of
the Commonwealth of Pennsylvania and shall be a registered
bank holding company under the Bank Holding Company Act of
1956, as amended, and the separate corporate existence of
Sterling with all its rights, privileges, immunities, powers
and franchises shall continue unaffected by the Merger. The
name of the Surviving Corporation shall be "Sterling Financial
Corporation". The Merger shall have the effects specified in
the Pennsylvania Business Corporation Law of 1988, as amended
(the "PBCL"').
(b) The closing of the Merger (the "Closing") shall take place at
such place and time and on such date, following three (3)
business days' notice to HBI, as shall be agreed upon by all
parties, which date shall not be later than the 30th business
day after the last of: (i) the last approval of required
governmental authorities is granted and any related waiting
periods expire, (ii) the lifting, discharge or dismissal of
any stay of any such governmental approval or of any
injunction against the Merger and (iii) all shareholder
approvals required by the parties hereunder are received.
(c) Immediately following the Closing, and provided that this
Agreement has not been terminated or abandoned pursuant to
Article VI hereof, Sterling and HBI will cause articles of
merger (the "Articles of Merger") to be delivered and properly
filed with the Department of State of the Commonwealth of
Pennsylvania (the "Department of State"). The Merger shall
become effective on 11:59 p.m. on the day on which the Closing
occurs and Articles of Merger are filed with the Department of
State or such later date and time as may be agreed upon by the
parties and specified in the Articles of Merger (the
"Effective Time"). The "Effective Date" when used herein means
the day on which the Effective Time for the Merger occurs.
(d) At the Effective Time, the articles of incorporation and
bylaws of Sterling in effect immediately prior to the
Effective Time shall be the articles of incorporation and
bylaws of the Surviving Corporation. At the Effective Time,
the directors and officers of Sterling immediately prior to
the Effective Time shall be and become the directors and
officers of the Surviving Corporation with such additions as
provided in this Agreement.
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(e) As a result of the Merger, Bank of Hanover and Trust Company
("Hanover") shall be a wholly-owned operating subsidiary of
Sterling subject to the provisions of Section 7.6 of this
Agreement.
ARTICLE II
CONVERSION OF SHARES AND
EXCHANGE OF STOCK CERTIFICATES
SECTION 2.1 Conversion of Shares.
On the Effective Date, the shares of HBI Common Stock (defined below)
then outstanding shall be converted into shares of Sterling Common Stock
(defined below), as follows:
(a) General. Subject to the provisions of this Article II, each
share of HBI Common Stock, par value $0.83 per share ("HBI
Common Stock") issued and outstanding immediately before the
Effective Date (other than (i) shares of HBI Common Stock then
owned by Sterling or any direct or indirect subsidiary of
Sterling, except for trust account shares or shares acquired
in connection with debts previously contracted (ii) shares the
holders of which (each a "Dissenting Shareholder") are
exercising appraisal rights pursuant to the PBCL (the
"Dissenters' Shares"), if any), shall, on the Effective Date,
be converted into and become, automatically and without any
action on the part of the holder thereof, the right to receive
shares of common stock, par value, $5.00 per share, of
Sterling ("Sterling Common Stock") determined in conformity
with the Exchange Ratio set forth at Schedule 2.1 hereof. As
of the Effective Time, each share of HBI Common Stock held
directly or indirectly by Sterling, other than shares held in
a fiduciary capacity or in satisfaction of a debt previously
contracted, shall be canceled and retired and cease to exist,
and no exchange or payment shall be made with respect thereto.
(b) Anti-dilution Provision. In the event that Sterling shall at
any time before the Effective Date: (i) declare or pay a
dividend in shares of Sterling Common Stock, (ii) combine the
outstanding shares of Sterling Common Stock into a smaller
number of shares, or (iii) subdivide the outstanding shares of
Sterling Common Stock into a greater number of shares, or (iv)
reclassify the shares of Sterling Common Stock, then the
Exchange Ratio shall be proportionately adjusted accordingly.
(c) Assumption of Stock Options. Sterling shall assume the
obligations of HBI under the stock options, outstanding as of
the date of this Agreement, to purchase 132,657 shares of HBI
Common Stock which remain unexercised on the Effective Date
(the "HBI Options"). The holder(s) of the HBI Options shall
receive stock options (the "Exchange Options") to purchase, on
the same terms and conditions as were applicable under the
assumed HBI Options, a number of shares of Sterling Common
Stock equal to the product of the Exchange Ratio and the
number of shares of HBI
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Common Stock subject to such HBI Options. The option exercise
price per share of the Exchange Options shall be equal to the
option exercise price per share of HBI Common Stock divided by
the Exchange Ratio (the option price per share, as so
determined, being rounded upward to the nearest full cent).
The Exchange Options to be received by the HBI Option holders
shall be subject to proportional adjustment under Section
2.1(b) of this Agreement; provided, however, that the
obligation to assume the HBI Options by Sterling is
conditioned upon receipt of copies of all executed outstanding
options as disclosed on Annex 2.1(c) and receipt of agreements
from each of the holders of HBI Options to accept the Exchange
Options in exchange therefor. Each Exchange Option shall be
exercisable in accordance with the terms of the corresponding
HBI Option (including any acceleration of exercisability as a
result of the Merger and giving effect to the Exchange Ratio,
as provided herein). To the extent an HBI Option qualifies as
an incentive stock option under Section 422 of the Code, the
corresponding Exchange Option shall also so qualify, to the
extent permitted by the PCBL, the federal tax laws and the
"pooling of interest"accounting rules. Prior to the Effective
Time, Sterling shall reserve for issuance and, if not
previously registered pursuant to the Securities Act of 1933,
as amended, register the number of shares of Sterling Common
Stock necessary to satisfy Sterling's obligations with respect
to the issuance of Sterling's Common Stock pursuant to the
exercise of the Exchange Options.
(d) No Fractional Shares. No fractional shares of Sterling Common
Stock, and no scrip or certificates therefor, shall be issued
in connection with the Merger. In lieu of the issuance of any
fractional share to which he would otherwise be entitled, each
former shareholder of HBI shall receive in cash an amount
equal to the fair market value of his fractional interest,
which fair market value shall be determined by multiplying
such fraction by the Closing Market Price (as defined in
Schedule 2.1 to this Agreement).
(e) HBI Treasury Stock. Each share of HBI Common Stock (other than
trust account shares or shares acquired in connection with
debts previously contracted) owned by HBI or any direct or
indirect subsidiary of HBI on the Effective Date, if any,
shall be canceled.
(f) HBI Common Stock held by Sterling. Each share of HBI Common
Stock (other than trust account shares or shares acquired in
connection with debts previously contracted) owned by Sterling
or any direct or indirect subsidiary of Sterling on the
Effective Date, if any, shall be canceled.
(g) Sterling Common Stock.
(i) Each share of Sterling Common Stock issued and
outstanding immediately prior to the Effective Date,
shall, on and after the Effective Date, continue to
be issued and outstanding as an identical share of
Sterling Common Stock.
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(ii) Each share of Sterling Common Stock issued and held
in the treasury of Sterling as of the Effective Date,
if any, shall, on and after the Effective Date,
continue to be issued and held in the treasury of
Sterling.
SECTION 2.2 Exchange of Stock Certificates.
HBI Common Stock certificates shall be exchanged for Sterling Common
Stock certificates in accordance with the following procedures:
(a) Exchange Agent. The transfer agent of Sterling shall act as
exchange agent (the "Exchange Agent") to receive HBI Common
Stock certificates from the holders thereof and to exchange
such stock certificates for Sterling Common Stock certificates
and (if applicable) to pay cash for fractional shares of HBI
Common Stock pursuant to Section 2.1(d) above. The Exchange
Agent shall, on or promptly after the Effective Date, mail to
each former shareholder of HBI a notice specifying the
procedures to be followed in surrendering such shareholder's
HBI Common Stock certificates.
(b) Surrender of Certificates. As promptly as possible after
receipt of the Exchange Agent's notice, each former
shareholder of HBI shall surrender his HBI Common Stock
certificates to the Exchange Agent; provided, that if any
former shareholder of HBI shall be unable to surrender his HBI
Common Stock certificates due to loss or mutilation thereof,
he may make a constructive surrender by following procedures
comparable to those customarily used by Sterling for issuing
replacement certificates to Sterling shareholders whose
Sterling Common Stock certificates have been lost or
mutilated. Upon receiving a proper actual or constructive
surrender of HBI Common Stock certificates from a former HBI
shareholder, the Exchange Agent shall issue to such
shareholder, in exchange therefor, a Sterling Common Stock
certificate representing the whole number of shares of
Sterling Common Stock into which such shareholder's shares of
HBI Common Stock have been converted in accordance with this
Article II, together with a check in the amount of any cash to
which such shareholder is entitled, pursuant to Section 2.1(d)
of this Agreement, in lieu of the issuance of a fractional
share.
(c) Dividend Withholding. Dividends, if any, payable by Sterling
after the Effective Date to any former shareholder of HBI who
has not prior to the payment date surrendered his HBI Common
Stock certificates may, at the option of Sterling, be
withheld. Any dividends so withheld shall be paid, without
interest, to such former shareholder of HBI upon proper
surrender of his HBI Common Stock certificates.
(d) Failure to Surrender Certificates. All HBI Common Stock
certificates must be surrendered to the Exchange Agent within
two (2) years after the Effective Date. In the event that any
former shareholder of HBI shall not have properly surrendered
his HBI Common Stock certificates within two (2) years after
the Effective Date, the
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shares of Sterling Common Stock that would otherwise have been
issued to him may, at the option of Sterling, be sold and the
net proceeds of such sale, together with the cash (if any) to
which he is entitled in lieu of the issuance of a fractional
share and any previously accrued dividends, shall be held in a
non-interest bearing account for his benefit. From and after
any such sale, the sole right of such former shareholder of
HBI shall be the right to collect such net proceeds, cash and
accumulated dividends. Subject to all applicable laws of
escheat, such net proceeds, cash and accumulated dividends
shall be paid to such former shareholder of HBI, without
interest, upon proper surrender of his HBI Common Stock
certificates.
(e) Expenses of Share Surrender and Exchange. All costs and
expenses associated with the foregoing surrender and exchange
procedure shall be borne by Sterling. Notwithstanding the
foregoing, no party hereto will be liable to any holder of HBI
Common Stock for any amount paid in good faith to a public
official or agency pursuant to any applicable abandoned
property, escheat or similar law.
(f) Exchange Procedures. Each certificate for shares of HBI Common
Stock delivered for exchange under this Article II must be
endorsed in blank by the registered holder thereof or be
accompanied by a power of attorney to transfer such shares
endorsed in blank by such holder. If more than one certificate
is surrendered at one time and in one transmittal package for
the same shareholder account, the number of whole shares of
Sterling Common Stock for which certificates will be issued
pursuant to this Article II will be computed on the basis of
the aggregate number of shares represented by the certificates
so surrendered. If shares of HBI Common Stock or payments of
cash are to be issued or made to a person other than the one
in whose name the surrendered certificate is registered, the
certificate so surrendered must be properly endorsed in blank,
with signature(s) guaranteed, or otherwise in proper form for
transfer, and the person to whom certificates for shares of
Sterling Common Stock is to be issued or to whom cash is to be
paid shall pay any transfer or other taxes required by reason
of such issuance or payment to a person other than the
registered holder of the certificate for shares of HBI Common
Stock which are surrendered. As promptly as practicable after
the Effective Date, Sterling shall send, or cause to be sent,
to each shareholder of record of HBI Common Stock, transmittal
materials for use in exchanging certificates representing HBI
Common Stock for certificates representing Sterling Common
Stock into which the former have been converted in the Merger.
(g) Closing of Stock Transfer Books; Cancellation of HBI
Certificates. Upon the Effective Date, the stock transfer
books for HBI Common Stock will be closed and no further
transfers of shares of HBI Common Stock will thereafter be
made or recognized. All certificates for shares of HBI Common
Stock surrendered pursuant to this Article II will be canceled
by Sterling.
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(h) Rights Evidenced by Certificate. Each certificate for shares
of Sterling Common Stock issued in exchange for certificates
of HBI Common Stock pursuant to Section 2.2(f) hereof will be
dated as of the Effective Date and be entitled to dividends
and all other rights and privileges pertaining to such shares
of Sterling Common Stock from the Effective Date. Until
surrendered, each certificate theretofore evidencing shares of
HBI Common Stock will, from and after the Effective Date,
evidence solely the right to receive certificates for shares
of Sterling Common Stock pursuant to Section 2.2(f) hereof. If
certificates for shares of HBI Common Stock are exchanged for
Sterling Common Stock at a date following one or more record
dates for the payment of dividends or of any other
distribution on the shares of Sterling Common Stock subsequent
to the Effective Date, Sterling will pay cash in an amount
equal to dividends theretofore payable on such Sterling Common
Stock and pay or deliver any other distribution to which
holders of shares of Sterling Common Stock have theretofore
become entitled. No interest will accrue or be payable in
respect of dividends or cash otherwise payable under this
Section 2.2 upon surrender of certificates for shares of
Sterling Common Stock. Notwithstanding the foregoing, no party
hereto will be liable to any holder of HBI Common Stock for
any amount paid in good faith to a public official or agency
pursuant to any applicable abandoned property, escheat or
similar law. Until such time as certificates for shares of HBI
Common Stock are surrendered by a HBI shareholder to Sterling
for exchange, Sterling shall have the right to withhold
dividends or any other distributions, without interest, on the
shares of the Sterling Common Stock issuable to such
shareholder.
(i) Payment Procedures. As soon as practical after the Effective
Date, Sterling shall make payment of the cash consideration
provided for in Section 2.1(d) to each person entitled
thereto.
(j) Unclaimed Shares. In the event that any certificates for
shares of HBI Common Stock have not been surrendered for
exchange in accordance with this Section on or before the
second anniversary of the Effective Time, Sterling may at any
time thereafter, with or without notice to the holders of
record of such certificates, sell for the accounts of any or
all of such holders any or all of the shares of Sterling
Common Stock which such holders are entitled to receive under
Section 2.1(a) hereof (the "Unclaimed Shares"). Any such sale
may be made by public or private sale or sale at any broker's
board or on any securities exchange in such manner and at such
times as Sterling shall determine. If, in the opinion of
counsel for Sterling, it is necessary or desirable, any
Unclaimed Shares may be registered for sale under the
Securities Act of 1933, as amended (the "Securities Act") and
applicable state laws. Sterling shall not be obligated to make
any sale of Unclaimed Shares if it shall determine not do so,
even if notice of sale of the Unclaimed Shares has been given.
The net proceeds of any such sale of Unclaimed Shares shall be
held for holders of the unsurrendered certificates for shares
of HBI Common Stock whose Unclaimed Shares have been sold, to
be paid to them upon surrender of the certificates for shares
of HBI Common Stock. From and after any such sale, the sole
right of the holders
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of the unsurrendered certificates for shares of HBI Common
Stock whose Unclaimed Shares have been sold shall be the right
to collect the net sale proceeds held by Sterling for their
respective accounts, and such holders shall not be entitled to
receive any interest on such net sale proceeds held by
Sterling.
SECTION 2.3 Other Matters.
Nothing set forth in this Agreement or any Exhibit hereto shall be
construed:
(a) to preclude Sterling from acquiring or assuming, or
to limit in any way the right of Sterling to acquire
or assume, prior to or following the Effective Time,
the stock, assets or liabilities of any other
financial services institution or other corporation
or entity, whether by issuance or exchange of
Sterling Common Stock, or otherwise;
(b) to preclude Sterling from issuing, or to limit in any
way the right of Sterling to issue, prior to or
following the Effective Date, Sterling Common Stock,
Sterling Preferred Stock or other securities;
(c) to preclude Sterling from granting options at any
time with respect to Sterling Common Stock, Sterling
Preferred Stock or other securities;
(d) to preclude option holders of Sterling from
exercising options at any time with respect to
Sterling Common Stock, Sterling Preferred Stock or
other securities; or
(e) to preclude Sterling from taking, or to limit in any
way its right to take, any other action not expressly
and specifically prohibited by the terms of this
Agreement; provided, however, that in the event
Sterling desires to (A) take any action described in
Section 2.3(a) above, (B) merge or consolidate with
or into, or convert to, any other person or entity,
or otherwise effect a change of control of Sterling,
and, as a result of such action(s) taken pursuant to
(A) or (B) hereof, Sterling shall become obligated to
issue shares in an amount in excess of twenty percent
(20%) of the number of shares of Sterling Common
Stock then outstanding, or (C) enter into an
agreement relating to, or effect, a Change of Control
(as defined in Section 8.11 hereof) of Sterling,
Sterling shall notify HBI simultaneously with taking
any such action (including entering into any
agreement relating thereto), and HBI shall have the
right, in its sole discretion, to terminate this
Agreement without cost, expense or liability on its
part to any other party.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of HBI.
HBI represents and warrants to Sterling (and the word "it" in this
Section 3.1 refers to HBI, and each subsidiary of HBI) that, as of even date
herewith and except as specifically disclosed in the Annex of disclosure
schedules included herewith, as follows:
(a) Corporate Organization and Qualification. HBI is a corporation
duly incorporated, validly existing and in good standing under
the laws of the Commonwealth of Pennsylvania and is in good
standing as a foreign corporation in each jurisdiction where
the properties owned, leased or operated, or the business
conducted, by HBI requires such qualification, except for such
failure to qualify or be in such good standing which, when
taken together with all other such failures, would not have a
Material Adverse Effect on HBI and its subsidiaries, taken as
a whole. HBI is a registered bank holding company under the
Bank Holding Company Act of 1956, as amended. HBI owns,
directly or indirectly all of the issued and outstanding
shares of capital stock of Hanover. Hanover is a Pennsylvania
chartered bank and trust company, duly organized, validly
existing and in good standing under the laws of the
Commonwealth of Pennsylvania. HBI and Hanover each have the
requisite corporate and other power and authority (including
all federal, state, local and foreign governmental
authorizations) to carry on their respective businesses as now
being conducted and to own its properties and assets. HBI has
made available to Sterling a complete and correct copy of the
articles of incorporation and bylaws of HBI, and Hanover has
made available to Sterling a complete and correct copy of the
charter and bylaws of Hanover and such charter or articles, as
applicable, and such bylaws are in full force and effect as of
the date hereof.
(b) Authorized Capital. The authorized capital stock of HBI
consists of 9,000,000 shares of HBI Common Stock and 2,000,000
shares of preferred stock, of which 3,884,198 shares of HBI
Common Stock were issued and outstanding as of the date of
this Agreement. The stock of Hanover consists of 600,000
shares of common stock, $2.50 par value per share, of which
399,574 shares of common stock were issued and outstanding as
of the date of this Agreement; all of these are held by HBI.
All of the outstanding shares of capital stock of HBI have
been duly authorized and are validly issued, fully paid and
nonassessable. Neither HBI nor Hanover has any shares of
capital stock reserved for issuance except pursuant to the
Investment Agreement and the HBI Options. Neither HBI nor
Hanover has any outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or
convertible into or exercisable for securities having the
right to vote) with shareholders on any matter. The shares of
Hanover's common stock owned by HBI are owned free and clear
of all liens, pledges, security interests, claims or other
encumbrances. The outstanding shares of capital stock of HBI
have not been issued in violation of any
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preemptive rights. Except as set forth in Annex 3.1 (b) and in
Annex 3.1(m), and as provided in the Investment Agreement,
there are no outstanding subscriptions, options, warrants,
rights, convertible securities or other agreements or
commitments of any character relating to the issued or
unissued capital stock or other securities of HBI. After the
Effective Time, HBI will have no obligation which is being
assumed by Sterling which will result in any obligation to
issue, transfer or sell any shares of capital stock pursuant
to any HBI/Hanover Employee Plan (as defined in Section 3.1
(m)).
(c) Subsidiaries. The only subsidiaries of HBI are as listed and
described at Annex 3.l(c). The only subsidiaries of Hanover
are as listed and described at Annex 3.1(c). Each such
subsidiary is duly organized and existing as a corporation, is
in good standing under the laws of the jurisdiction in which
it was organized, and has adequate corporate power to carry on
its business as now conducted. All of the outstanding capital
stock of all such subsidiaries has been validly issued, is
fully paid and nonassessable and is owned by HBI or Hanover,
free and clear of all liens, security interests and
encumbrances. Except as set forth in Annex 3.1(c), all such
subsidiaries are organized under Pennsylvania law and make no
use of fictitious names in the conduct of their respective
businesses.
(d) Corporate Authority. Subject only to approval of this
Agreement by the holders of the number of votes required by
HBI's articles of incorporation or bylaws cast by all holders
of HBI Common Stock (without any minority, class or series
voting requirement), and, subject to the regulatory approvals
specified in Section 5.1(b) hereof, HBI has the requisite
corporate power and authority, and legal right, and has taken
all corporate action necessary in order to execute and deliver
this Agreement and to consummate the transactions applicable
to either HBI or Hanover contemplated hereby. This Agreement
has been duly and validly executed and delivered by HBI and
constitutes the valid and binding obligations of HBI
enforceable against each, in accordance with its terms, except
to the extent enforcement is limited by bankruptcy, insolvency
and other similar laws affecting creditors' rights or the
application by a court of equitable principles.
(e) No Violations. The execution, delivery and performance of this
Agreement by it does not, the execution, delivery and
performance of the Investment Agreement by it will not, and
the consummation of the transactions contemplated hereby by it
will not, constitute (i) subject to receipt of the required
regulatory approvals specified in Section 5.1(b), a breach or
violation of, or a default under, any law, rule or regulation
or any judgment, decree, order, governmental permit or
license, to which it (or any of its respective properties) is
subject, which breach, violation or default would have a
Material Adverse Effect on it, or enable any person to enjoin
the Merger, (ii) a breach or violation of, or a default under
HBI's articles of incorporation, the charter of Hanover, or
the bylaws of either of them, or (iii) except as disclosed in
Annex 3.1(e), a breach or violation of, or a default under (or
an event which with due notice
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or lapse of time or both would constitute a default under), or
result in the termination of, accelerate the performance
required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the
properties or assets of it under any of the terms, conditions
or provisions of any note, bond, indenture, deed of trust,
loan agreement or other agreement, instrument or obligation to
which it is a party, or to which any of its respective
properties or assets may be bound, or affected, except for any
of the foregoing that, individually or in the aggregate, would
not have a Material Adverse Effect on it or enable any person
to enjoin the Merger; and the consummation of the transactions
contemplated hereby or, upon its execution and delivery, the
Investment Agreement, will not require any approval, consent
or waiver under any such law, rule, regulation, judgment,
decree, order, governmental permit or license or the approval,
consent or waiver of any other party to any such agreement,
indenture or instrument, other than (w) all required
approvals, consents and waivers of governmental authorities,
(x) the approval of its shareholders referred to in Section
5.1(a), (y) any such approval, consent or waiver that already
has been obtained, and (z) any other approvals, consents or
waivers, the absence of which, individually or in the
aggregate, would not result in a Material Adverse Effect on it
or enable any person to enjoin the Merger.
(f) Reports.
(i) HBI's consolidated statement of financial condition
as of September 30, 1999 previously provided to
Sterling and each statement of financial condition
provided after the date hereof to Sterling (including
in each case any related notes and schedules) as
required by Section 4.5 hereof fairly presents or
will fairly present the financial position of it as
of its date and each of the statements of income and
shareholders' equity and of cash flows provided
therewith (including in each case any related notes
and schedules), fairly presents or will fairly
present the results of operations, shareholders'
equity and cash flows, as the case may be, of it for
the periods set forth therein (subject, in the case
of unaudited interim statements, to normal year-end
audit adjustments that are not material in amount or
effect), in each case in accordance with generally
accepted accounting principles consistently applied
during the periods involved, except as maybe noted
therein.
(ii) Except as set forth in Annex 3.1(f), it has timely
filed all material reports, registrations and
statements, together with any amendments required to
be made with respect thereto, that it was required to
file since January 1, 1999 with (A) the Pennsylvania
Department of Banking (the "PDB"), (B) the Federal
Deposit Insurance Corporation (the "FDIC"), (C) the
Board of Governors of the Federal Reserve System (the
"Board"), (D) the Securities and Exchange Commission
(the "SEC"), and collectively with the SEC, the PDB,
the FDIC, and the Board, the "HBI/Hanover Regulatory
Agencies", and (F) any other regulatory authority,
and all other material reports and
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statements required to be filed by it since January
1, 1999, including, without limitation, any report or
statement required to be filed pursuant to the laws,
rules or regulations of the United States or any
HBI/Hanover Regulatory Agency, and has paid all fees
and assessments due and payable in connection
therewith, and no such report, registration or
statement contains any material misstatement or
omission or is otherwise in material noncompliance
with any law, regulation or requirement.
(g) Absence of Certain Changes or Events. Since September 30, 1999
to the date hereof, it has not incurred any material
liability, except in the ordinary course of its business
consistent with past practice, nor has there been any material
change in the financial condition, properties, assets,
business, results of operations or prospects of it which,
individually or in the aggregate, has had, or might reasonably
be expected to result in, a Material Adverse Effect on it.
(h) Taxes. Its federal income tax returns have been examined and
closed or otherwise closed by operation of law through 1995.
All federal, state, local and foreign tax returns, including,
but not limited to, any and all Pennsylvania tax filings
arising under the Bank Shares Tax, Single Excise Tax and the
Amended 1989 Bank Shares Tax and/or similar taxes, required to
be filed by it or on its behalf, have been timely filed, or
requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and,
to the knowledge of management, all such filed returns are
complete and accurate in all material respects. All taxes
shown on such returns, and all taxes required to be shown on
returns for which extensions have been granted, have been paid
in full or adequate provision has been made for any such taxes
on its balance sheet (in accordance with generally accepted
accounting principles) other than those taxes which are being
contested in appropriate forums in proceedings which are being
diligently pursued. Adequate provision has been made on its
balance sheet (in accordance with generally accepted
accounting principles consistently applied) for all federal,
state, local and foreign tax liabilities for periods
subsequent to those for which returns have been filed. There
is no audit examination, deficiency, or refund litigation
pending or, to the knowledge of HBI or Hanover, threatened,
with respect to any taxes that could result in a determination
that would have a Material Adverse Effect on it. All taxes,
interest, additions and penalties due with respect to
completed and settled examinations or concluded litigation
relating to it have been paid in full or adequate provision
has been made for any such taxes on its balance sheet (in
accordance with generally accepted accounting principles). It
has not executed an extension or waiver of any statute of
limitations on the assessment or collection of any tax due
that is currently in effect.
(i) Litigation and Liabilities. Except as set forth in Annex
3.1(i), there are no (i) civil, criminal or administrative
actions, suits, claims, hearings, investigations or
proceedings before any court, governmental agency or otherwise
pending or, to the
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knowledge of management, threatened against it or (ii)
obligations or liabilities, whether or not accrued (contingent
or otherwise, including, without limitation, those relating to
environmental and occupational safety and health matters, or
any other facts or circumstances of which its management is
aware that could reasonably be expected to result in any
claims against or obligations or liabilities of it), that,
alone or in the aggregate, are reasonably likely to have a
Material Adverse Effect on it or to hinder or delay, in any
material respect, consummation of the transactions
contemplated by this Agreement.
(j) Absence of Regulatory Actions. It is not a party to any cease
and desist order, written agreement or memorandum of
understanding with, or a party to any commitment letter or
similar undertaking to, or is subject to any order or
directive by, or is a recipient of any extraordinary
supervisory letter from, or has adopted any board resolutions
at the request of, federal or state governmental authorities,
including, without limitation, the HBI/Hanover Regulatory
Agencies, charged with the supervision or regulation of
financial or depository institutions or engaged in the
insurance of bank deposits, nor has it been advised by any
HBI/Hanover Regulatory Agency that such body is contemplating
issuing or requesting (or is considering the appropriateness
of issuing or requesting) any such order, directive, written
agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolution or
similar undertaking.
(k) Agreements.
(i) Except for the Investment Agreement and as set forth
in Annex 3.1(k) attached hereto, as of the date of
this Agreement, it is not a party to, or bound by,
any oral or written:
(A) "material contract" as such term is defined
in Item 601(b)(10) of Regulation S-K
promulgated by the SEC;
(B) consulting agreement not terminable on
thirty (30) days or less notice involving
the payment of more than $20,000 per annum,
in the case of any such agreement;
(C) agreement with any officer or other key
employee the benefits of which are
contingent, or the terms of which are
materially altered, upon the occurrence of a
transaction of the nature contemplated by
this Agreement;
(D) agreement with respect to any officer
providing any term of employment or
compensation guarantee extending for a
period longer than one year or for a payment
in excess of $10,000.00;
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(E) agreement or plan, including any stock
option plan, stock appreciation rights plan,
employee stock ownership plan, restricted
stock plan or stock purchase plan, any of
the benefits of which will be increased, or
the vesting of the benefits of which will be
accelerated, by the occurrence of any of the
transactions contemplated by this Agreement
or the value of any of the benefits of which
will be calculated on the basis of any of
the transactions contemplated by this
Agreement;
(F) agreement containing covenants that limit
its ability to compete in any line of
business or with any person, or that involve
any restriction on the geographic area in
which, or method by which, it may carry on
its business (other than as may be required
by law or any regulatory agency);
(G) agreement, contract or understanding, other
than this Agreement, and the Investment
Agreement, regarding the capital stock of
HBI and/or Hanover or committing to dispose
of some or all of the capital stock or
substantially all of the assets of HBI
and/or Hanover; or
(H) collective bargaining agreement, contract,
or other agreement or understanding with a
labor union or labor organization.
(ii) It is not in default under or in violation of any
provision of any note, bond, indenture, mortgage,
deed of trust, loan agreement, lease or other
agreement to which it is a party or to which any of
its respective properties or assets is subject, other
than such defaults or violations as could not
reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on it.
(1) Labor Matters. It is not the subject of any proceeding
asserting that it has committed an unfair labor practice or
seeking to compel it to bargain with any labor organization as
to wages and conditions of employment, nor is there any
strike, other labor dispute or organizational effort involving
it pending or threatened.
(m) Employee Benefit Plans. Annex 3.1(m) contains a complete list
of all pension, retirement, stock option, stock purchase,
stock ownership, savings, stock appreciation right, profit
sharing, deferred compensation, consulting, bonus, group
insurance, severance and other employee benefits, incentive
and welfare policies, contracts, plans and arrangements, and
all trust agreements related thereto, in respect to any of its
present or former directors, officers or other employees
(hereinafter referred to collectively as the "HBI/Hanover
Employee Plans").
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(i) All of the HBI/Hanover Employee Plans comply in all
material respects with all applicable requirements of
the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), the Code and other applicable
laws; it has not engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to any
HBI/Hanover Employee Plan which is likely to result
in any material penalties, taxes or other events
under Section 502(i) of ERISA or Section 4975 of the
Code which would have a Material Adverse Effect on
it.
(ii) No liability to the Pension Benefit Guaranty
Corporation has been or is expected by it to be
incurred with respect to any HBI/Hanover Employee
Plan which is subject to Title IV of ERISA ("Pension
Plan"), or with respect to any "single-employer plan"
(as defined in Section 4001 (a)(15) of ERISA)
currently or formerly maintained by it or any entity
which is considered one employer with HBI or Hanover
under Section 4001 of ERISA or Section 414 of the
Code (an "ERISA Affiliate").
(iii) No Pension Plan or single-employer plan of an ERISA
Affiliate had an "accumulated funding deficiency" (as
defined in Section 302 of ERISA (whether or not
waived)) as of the last day of the end of the most
recent plan year ending prior to the date hereof; all
contributions to any Pension Plan or single-employer
plan of an ERISA Affiliate that were required by
Section 302 of ERISA and were due prior to the date
hereof have been made on or before the respective
dates on which such contributions were due; the fair
market value of the assets of each Pension Plan or
single-employer plan of an ERISA Affiliate exceeds
the present value of the "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA) under such
Pension Plan or single employer plan of an ERISA
Affiliate as of the end of the most recent plan year
with respect to the respective Pension Plan or
single-employer plan of an ERISA Affiliate ending
prior to the date hereof, calculated on the basis of
the actuarial assumptions used in the most recent
actuarial valuation for such Pension Plan or
single-employer plan of an ERISA Affiliate as of the
date hereof; and no notice of a "reportable event"
(as defined in Section 4043 of ERISA) for which the
30-day reporting requirement has not been waived has
been required to be filed for any Pension Plan or
single-employer plan of an ERISA Affiliate within the
12-month period ending on the date hereof.
(iv) Neither has it provided, nor is it required to
provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant
to Section 401(a)(29) of the Code.
(v) Neither it nor any ERISA Affiliate has contributed to
any "multi-employer plan," as defined in Section
3(37) of ERISA, on or after September 26, 1980.
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(vi) Each HBI/Hanover Employee Plan of it which is an
"employee pension benefit plan" (as defined in
Section 3(2) of ERISA) and which is intended to be
qualified under Section 401(a) of the Code (a
"Qualified Plan") has received a favorable
determination letter from the Internal Revenue
Service ("IRS") covering the requirements of the Tax
Equity and Fiscal Responsibility Act of 1982, the
Retirement Equity Act of 1984 and the Deficit
Reduction Act of 1984 and the Tax Reform Act of 1986;
it is not aware of any circumstances likely to result
in revocation of any such favorable determination
letter; each such HBI/Hanover Employee Plan has been
amended to reflect the requirements of subsequent
legislation applicable to such plans; and each
Qualified Plan has complied at all relevant times in
all material respects with all applicable
requirements of Section 401(a) of the Code.
(vii) Each Qualified Plan which is an "employee stock
ownership plan" (as defined in Section 4975(e)(7) of
the Code) has at all relevant times satisfied all of
the applicable requirements of Sections 409 and
4975(e)(7) of the Code and the regulations
thereunder.
(viii) Neither it nor any ERISA Affiliate has committed any
act or omission or engaged in any transaction that
has caused it to incur, or created a material risk
that it may incur, liability for any excise tax under
Sections 4971 through 4980B of the Code, other than
excise taxes which heretofore have been paid and
fully reflected in its financial statements.
(ix) There is no pending or threatened litigation,
administrative action or proceeding relating to any
HBI/Hanover Employee Plan, other than routine claims
for benefits.
(x) There has been no announcement or legally binding
commitment by it to create an additional HBI/Hanover
Employee Plan, or to amend an HBI/Hanover Employee
Plan, except for amendments required by applicable
law which do not materially increase the cost of such
HBI/Hanover Employee Plan, and it does not have any
obligations for retiree health and life benefits
under any HBI/Hanover Employee Plan that cannot be
terminated without incurring any liability
thereunder.
(xi) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
will not result in any payment or series of payments
by HBI or Hanover to any person which is an "excess
parachute payment" (as defined in Section 280G of the
Code) under any HBI/Hanover Employee Plan, increase
any benefits payable under any HBI/Hanover Employee
Plan, or, except as set forth in Annex 3.1(m),
accelerate the time of payment or vesting of any such
benefit.
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(xii) All annual reports have been filed timely with
respect to each HBI/Hanover Employee Plan, it has
made available to Sterling a true and correct copy of
(A) reports on the applicable form of the Form 5500
series filed with the IRS for plan years beginning
after 1987, (B) such HBI/Hanover Employee Plan,
including amendments thereto, (C) each trust
agreement and insurance contract relating to such
HBI/Hanover Employee Plan, including amendments
thereto, (D) the most recent summary plan description
for such HBI/Hanover Employee Plan, including
amendments thereto, if the HBI/Hanover Employee Plan
is subject to Title I of ERISA, (E) the most recent
actuarial report or valuation if such HBI/Hanover
Employee Plan is a Pension Plan and (F) the most
recent determination letter issued by the IRS if such
HBI/Hanover Employee Plan is a Qualified Plan.
(xiii) There are no retiree health benefit plans except as
required to be maintained by COBRA.
(n) Title to Assets. It has good and marketable title to its
properties and assets (other than property as to which it is
lessee), except for (i) such items shown in the HBI
consolidated financial statements or notes thereto, (ii) liens
on real property for current real estate taxes not yet
delinquent, or (iii) such defects in title which would not,
individually or in the aggregate, have a Material Adverse
Effect on it. With respect to any property leased by it, there
are no defaults by it, or, to its knowledge, any of the other
parties thereto, or any events which, with the giving of
notice or lapse of time or both, would become defaults by it
or, to its knowledge, any of the other parties thereto, under
any of such leases, except for such defaults or events which
would not, individually or in the aggregate, have a Material
Adverse Effect on it; and all such leases are in full force
and effect and are enforceable against it, as the case may be,
and, to its knowledge, there is no circumstance existing as of
the date of this Agreement which causes or would cause such
leases to be unenforceable against any of the other parties
thereto except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally as well as
principles of equity to the extent enforcement by a court of
equity is required.
(o) Compliance with Laws. It has all permits, licenses,
certificates of authority, orders and approvals of, and has
made all filings, applications and registrations with,
federal, state, local and foreign governmental or regulatory
bodies that are required in order to permit it to carry on its
business as it is presently conducted and the absence of which
could, individually or in the aggregate, have a Material
Adverse Effect on it; all such permits, licenses, certificates
of authority, orders and approvals are in full force and
effect, and no suspension or cancellation of any of them is
threatened.
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(p) Fees. Except as set forth in Annex 3.1(p) attached hereto,
neither it nor any of its respective officers, directors,
employees or agents have employed any broker or finder or
incurred any liability for any financial advisory fees,
brokerage fees, commissions, or finder's fees, and no broker
or finder has acted directly or indirectly for it in
connection with this Agreement or the transactions
contemplated hereby.
(q) Environmental Matters. For purposes of this Section 3.1, the
following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree,
injunction or agreement with any governmental entity relating
to: the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor,
surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other
natural resource); and the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Substances. The
term Environmental Law includes without limitation: the
Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section 9601, et seq.,
the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Section 6901, et seq., the Clean Air Act, as amended,
42 U.S.C. Section 7401, et seq., the FEDERAL Water Pollution
Control Act, as amended, 33 U.S.C. Section 1251, et seq., the
Toxic Substances Control Act, as amended, 15 U.S.C. Section
9601, et seq., the Emergency Planning and Community Right to
Know Act, 42 U.S.C. Section 11001, et seq., the Safe Drinking
Water Act, 42 U.S.C. Section 300f, et seq., and all comparable
state and local lawS; and any common law (including without
limitation common law that may impose strict liability) that
may impose liability or obligation for injuries or damages due
to, or threatened as a result of, the presence of or exposure
to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed,
defined, designated or classified as hazardous, toxic,
radioactive or dangerous or otherwise regulated under any
Environmental Law, whether by type or by quantity, including
any material containing any such substance as a component.
Hazardous Substances include without limitation petroleum or
any derivative or by-product thereof, asbestos, radioactive
material, and polychlorinated biphenyls.
"Hanover Loan Portfolio Properties and Other Properties Owned"
means those properties serving as collateral for loans in
Hanover's loan portfolio, or properties owned or operated by
Hanover (including, without limitation, in a fiduciary
capacity).
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Except as set forth on Annex 3.1(q) hereto:
(i) Neither HBI nor Hanover has been or is in violation
of or liable under any Environmental Law.
(ii) To the knowledge of HBI, none of the Hanover Loan
Portfolio Properties and Other Properties Owned have
been or are in violation of or liable under any
Environmental Law.
(iii) Neither HBI nor Hanover has any knowledge that any
environmental contaminant, pollutant, toxic or
hazardous waste or other similar substance has been
generated, used, stored, processed, disposed of or
discharged onto any of the real estate now or
previously owned or acquired (including without
limitation any real estate acquired by means of
foreclosure or exercise of any other creditor's
right) or leased by Hanover, except as disclosed on
Annex 3.1(q). In particular, without limiting the
generality of the foregoing sentence, except as
disclosed on Annex 3.1(q), neither HBI nor Hanover
have any knowledge that: (i) any materials containing
asbestos have been used or incorporated in any
building or other structure or improvement located on
any of the real estate now or previously owned or
acquired (including without limitation any real
estate acquired by means of foreclosure or exercise
of any other creditor's right) or leased by HBI or
Hanover; (ii) any electrical transformers,
fluorescent light fixtures with ballasts or other
equipment containing PCB's are or have been located
on any of the real estate now or previously owned or
acquired (including without limitation any real
estate acquired by means of foreclosure or exercise
of any other creditor's right) or leased by HBI or
Hanover; (iii) any underground storage tanks for the
storage of gasoline, petroleum products or other
toxic or hazardous substances are or have ever been
located on any of the real estate now or previously
owned or acquired (including without limitation any
real estate acquired by means of foreclosure or
exercise of any other creditor's right) or leased by
HBI or Hanover.
(iv) Except as previously disclosed in Annex 3.1(q), there
is no legal, administrative, arbitration or other
proceeding, claim, action, cause of action or
governmental investigation of any nature seeking to
impose, or that, to the knowledge of HBI, could
result in the imposition on HBI or Hanover of any
liability arising under any local, state or federal
environmental statute, regulation or ordinance
including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability
Act of 1980, as amended, pending or threatened
against HBI or Hanover; to the knowledge of HBI,
there is no reasonable basis for any such proceeding,
claim, action or governmental investigation; and
neither HBI nor Hanover is subject to any agreement,
order, judgment, decree or memorandum by or with any
court,
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governmental authority, regulatory agency or third
party imposing any such liability.
(r) Allowance. The allowance for loan and lease losses shown on
HBI's consolidated statement of financial condition as of
December 31, 1998 was, and the allowance for loan and lease
losses shown on HBI's consolidated statement of financial
condition for periods ending after the date of this Agreement
will be, in the opinion of management of HBI, adequate, as of
the date thereof, under generally accepted accounting
principles applicable to commercial banks and all other
applicable regulatory requirements for all losses reasonably
anticipated in the Ordinary Course of Business as of the date
thereof based on information available as of such date. It has
disclosed to Sterling in writing prior to the date hereof the
amounts of all loans, leases, advances, credit enhancements,
other extensions of credit, commitments and interest- bearing
assets of it that it has classified internally as "Other Loans
Specially Mentioned," "Special Mention," "Substandard,"
"Doubtful," "Loss," "Classified," "Criticized," "Credit Risk
Assets," "Concerned Loans" or words of similar import, and it
shall disclose promptly to Sterling after the end of each
quarter after the date hereof and on the Effective Date the
amount of each such classification. It has disclosed to
Sterling in writing prior to the date hereof the amounts of
all overdrafts occurring since January 1, 1999 and it shall
disclose promptly to Sterling after the end of each quarter
after the date hereof and on the Effective Date the amount of
such overdrafts. The OREO and in-substance foreclosures
included in any of its non-performing assets are carried net
of reserves at the lower of cost or market value based on
current independent appraisals or current management
appraisals.
(s) Material Interests of Certain Persons. Except as noted in
Annex 3.1(s), none of its respective officers or directors, or
any "associate" (as such term is defined in Rule 12b-2 under
the Securities Exchange Act of 1934 (the "Exchange Act")) of
any such officer or director, has any material interest in any
material contract or property (real or personal), tangible or
intangible, used in or pertaining to its business.
(t) Insurance. It is presently insured, and has been insured, in
the amounts, with the companies and since the periods set
forth in Annex 3.1(t). All of the insurance policies and bonds
maintained by it are in full force and effect, it is not in
default thereunder and all material claims thereunder have
been filed in due and timely fashion. In the judgment of its
management, such insurance coverage is adequate.
(u) Dividends. The only dividends or other distributions which it
has made on its capital stock since January 1, 1999 are set
forth in Annex 3.1(u).
(v) Books and Records. Its books and records have been, and are
being, maintained in accordance with applicable legal and
accounting requirements and reflect in all material respects
the substance of events and transactions that should be
included therein.
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(w) Board Action. Its board of directors (at a meeting duly called
and held) has been duly convened and by the requisite vote of
the directors (a) determined that the Merger is advisable and
in the best interests of it and its shareholders, (b) approved
this Agreement, the Investment Agreement and the transactions
contemplated hereby and thereby and (c) directed that the
Agreement be submitted for consideration by its shareholders
at the HBI Shareholders' Meeting (as hereafter defined) with
the recommendation of the board of directors that the
shareholders approve the merger and the transactions
contemplated thereby.
(y) Fairness Opinions. Its board of directors has received a
written opinion, a copy of which has been furnished to
Sterling, to the effect that the Exchange Ratio specified in
this Agreement, at the time of its execution, is fair to HBI
shareholders from a financial point of view.
(y) Fidelity Bonds. Since at least December 31, 1994, Hanover has
continuously maintained fidelity bonds insuring it against
acts of dishonesty by its employees in such amounts as is
customary for a bank of its size. Since December 31, 1994, the
aggregate amount of all potential claims under such bonds has
not exceeded $100,000 and neither HBI nor Hanover is aware of
any facts which would reasonably form the basis of a claim
under such bonds. Neither HBI nor Hanover has reason to
believe that its fidelity coverage will not be renewed by its
carrier on substantially the same terms as its existing
coverage.
(z) Condition of Tangible Assets. Except as set forth in Annex
3.1(z), all buildings, structures and improvements on the real
property owned or leased by it are in good condition, ordinary
wear and tear excepted, and are free from structural defects
in all material respects. The equipment, including heating,
air conditioning and ventilation equipment owned by it, is in
good operating condition, ordinary wear and tear excepted. The
operation and use of the property in the business conform in
all material respects to all applicable laws, ordinances,
regulations, permits, licenses and certificates.
(aa) Owned Software. To its knowledge, HBI and Hanover do not use
any software material to either of their operations that has
been designed or developed by HBI"s or Hanover's management
information or development staff or by consultants on HBI's or
Hanover's behalf.
(bb) Licensed Software. The software material to its operations
that is used by HBI and Hanover is licensed from third party
licensors or constitutes "off-the-shelf" software, is held by
HBI or Hanover legitimately and, except as set forth on Annex
3.1(bb), is fully transferable hereunder without any third
party consent. All of HBI's or Hanover's computer hardware has
legitimately licensed software installed therein.
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(cc) No Errors; Nonconformity. The software material to its
operations that is used by HBI or Hanover is free from any
material defect or programming or documentation error,
operates and runs in a reasonable and efficient business
manner and conforms to the stated specifications thereof.
(dd) No Bugs or Viruses. Neither HBI nor Hanover has knowingly
altered its data, or any software material to its operations
which may, in turn, damage the integrity of the data, stored
in electronic, optical, or magnetic or other form. Except as
set forth on Annex 3.1(dd) hereto, neither HBI nor Hanover has
knowledge of the existence of any bugs or viruses with respect
to such software.
(ee) Annual Reports and Financial Statements. HBI has delivered to
Sterling true and complete copies of (i) its Balance Sheets,
Statements of Earnings, Statements of Stockholders' Equity and
Statements of Cash Flows of HBI for the years ended December
31, 1998, 1997 and 1996, certified by independent public
accountants, and (ii) HBI's Quarterly Reports for the quarter
ended September 30, 1999, containing unaudited consolidated
balance sheets of HBI as at such dates and unaudited
consolidated statements of earnings and cash flows of HBI for
the three month period reflected therein. HBI has also
delivered to Sterling true and correct copies of its annual
reports to shareholders for the years 1998, 1997 and 1996. All
such reports (collectively, the "HBI Reports") (i) comply in
all material respects with the requirements of the Financial
Accounting Standards Board ("FASB") and the American Institute
of Certified Public Accountants, (ii) do not contain any
untrue statement of a material fact and (iii) do not omit to
state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
No documents to be filed by HBI with the SEC or any regulatory
agency in connection with this Agreement, or the transactions
contemplated hereby will contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not
misleading. All documents which HBI is responsible for filing
with the SEC or any regulatory agency in connection with the
Merger will comply as to form in all material respects with
the requirements of applicable law.
(ff) Proxy Statement/Prospectus., Etc. Except for information
relating to Sterling and its subsidiaries and pro forma
financial information reflecting the combined operations of
Sterling and HBI, neither (i) the Proxy Statement/Prospectus
(as defined herein at Section 4.3(b)) or any amendment or
supplement thereto, at the time it is filed with the SEC, at
the time the Registration Statement (as defined hereinafter at
Section 4.3(b)) is declared effective, at the time the Proxy
Statement/Prospectus is mailed to the shareholders of HBI or
at the date of the meeting of the HBI shareholders at which
the shareholders will consider this Agreement (the "HBI
Shareholders' Meeting") nor (ii) any other documents to be
filed by HBI with the SEC or any regulatory agency in
connection with this Agreement, or the transactions
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contemplated hereby, will contain any untrue statement of
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not
misleading.
(gg) Complete and Accurate Disclosure. Neither this Agreement
(insofar as it relates to HBI, HBI Common Stock and HBI's
involvement in the transactions contemplated hereby) nor any
financial statement, schedule (including without limitation
the Annexes attached hereto, certificate, or other statement
or document delivered by HBI to Sterling in connection
herewith contains any statement which, at the time and in
light of the circumstances under which it is made, is false or
misleading with respect to any material fact or omits to state
any material fact necessary to make the statements contained
herein or therein not false or misleading. In particular,
without limiting the generality of the foregoing sentence, the
information provided and the representations made by HBI to
Sterling in connection with the Registration Statement, both
at the time such information and representations are provided
and made and at the time of the Closing, will be true and
accurate in all material respects and will not contain any
false or misleading statement with respect to any material
fact or omit to state any material fact necessary (i) to make
the statements made therein not false or misleading, or (ii)
to correct any statement contained in an earlier communication
with respect to such information or representations which has
become false or misleading.
(hh) Beneficial Ownership of Sterling Common Stock. Prior to the
Effective Date, HBI and its officers and directors will not in
the aggregate own beneficially (within the meaning of SEC Rule
13d-3(d)(1)) more than five percent (5%) of the outstanding
shares of Sterling Common Stock.
(ii) Assumability of Contracts and Leases. Except as disclosed on
Annex 3.1(ii), all Material Contracts between HBI or Hanover
and any other entity or person are assumable and assignable
and do not contain any term or provision that would accelerate
or increase payments that would otherwise be due by HBI or
Hanover to such person or entity, or change or modify the
provisions or terms of such leases, contracts and agreements
by reason of this Agreement or the transactions contemplated
hereby. Except as disclosed on Annex 3.1(ii), each lease
pursuant to which HBI or Hanover, as lessee, leases real or
personal property is valid and in effect in accordance with
its respective terms, and there is not, under any of such
leases, on the part of the lessee any material existing
default or any event which with notice or lapse of time, or
both, would constitute such a default, other than defaults
which would not individually or in the aggregate have a
material adverse effect on the financial condition, business,
prospects, or operating results of HBI.
(jj) Absence of Questionable Payments. From and after December 31,
1994 neither HBI nor Hanover has, nor, to the knowledge of HBI
or Hanover, has any director, officer,
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agent, employee, consultant or other person associated with or
acting on behalf of, HBI or Hanover (i) used any HBI or
Hanover corporate funds for unlawful contributions, gifts,
entertainment or unlawful expenses relating to political
activity; or (ii) made any direct or indirect unlawful
payments to governmental officials from any HBI or Hanover
corporate funds, or established or maintained any unlawful or
unrecorded accounts with funds received from HBI or Hanover.
(kk) Powers of Attorney; Guarantees. Except as set forth on Annex
3.1(kk), neither HBI nor Hanover has any power of attorney
outstanding, or any obligation or liability either actual,
constructive or contingent, as guarantor, surety, cosigner,
endorser, co-maker or indemnitor in respect of the obligation
of any person, corporation, partnership, joint venture,
association, organization or other entity, except for letters
of credit issued in the Ordinary Course of Business which are
listed on Annex 3.1(ll)
(ll) Accuracy of Representations. Until and as of Closing, HBI will
promptly notify Sterling if any of the representations
contained in this Section 3.1 cease to be true and correct
subsequent to the date hereof. Further, no representations
made by HBI or Hanover pursuant to this Agreement contain any
untrue statement of material fact or omit to state a material
fact necessary to make the statements not misleading.
SECTION 3.2 Representations and Warranties of Sterling.
Sterling represents and warrants to HBI (and the word "it" in this
Section 3.2 refers to Sterling, and each subsidiary of it) that, as of even date
herewith and except as specifically disclosed in the Annex of disclosure
schedules included herewith, as follows:
(a) Corporate Organization and Qualification. Sterling is a
corporation duly incorporated, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania
and is in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased or operated,
or the business conducted, by Sterling requires such
qualification, except for such failure to qualify or be in
such good standing which, when taken together with all other
such failures, would not have a Material Adverse Effect on
Sterling and its subsidiaries, taken as a whole. Sterling is a
registered bank holding company under the Bank Holding Company
Act of 1956, as amended. Sterling has the requisite corporate
and other power and authority (including all federal, state,
local and foreign governmental authorizations) to carry on its
businesses as now being conducted and to own its properties
and assets. Sterling owns, directly or indirectly all of the
issued and outstanding shares of capital stock of Bank of
Lancaster County, N.A. ("Bank of Lancaster County"), Northeast
Bancorp, Inc. and The First National Bank of North East. Bank
of Lancaster County and the First National Bank of North East
are national banking associations duly organized, validly
existing and in good standing under the laws of the United
States, and are duly authorized to engage in the banking
business as an insured bank under the Federal Deposit
Insurance Act, as amended.
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Bank of Lancaster County is authorized to engage in trust
activities. Northeast Bancorp, Inc. is a Delaware corporation
and a registered bank holding company under the Bank Holding
Company Act of 1956, as amended. Northeast Bancorp, Inc. has
the requisite corporate and other power and authority
(including all federal, state, local and foreign governmental
authorizations) to carry on its businesses as now being
conducted and to own its properties and assets. Northeast
Bancorp, Inc. directly owns all of the issued and outstanding
shares of The First National Bank of North East. Sterling has
made available to HBI a complete and correct copy of the
articles of incorporation and bylaws of Sterling, and such
articles and such bylaws are in full force and effect as of
the date hereof.
(b) Authorized Capital. The authorized capital stock of Sterling
consists of 35,000,000 shares of Sterling Common Stock of
which 8,931,568 shares were issued and outstanding as of the
date of this Agreement, and 3,220 shares were issued and held
as treasury shares as of the date of this Agreement. All of
the outstanding shares of capital stock of Sterling have been
duly authorized and are validly issued, fully paid and
nonassessable. Sterling has no shares of capital stock
reserved for issuance. Sterling has no outstanding bonds,
debentures, notes or other obligations the holders of which
have the right to vote (or convertible into or exercisable for
securities having the right to vote) with shareholders on any
matter. The outstanding shares of capital stock of Sterling
have not been issued in violation of any preemptive rights.
Except as set forth in Annex 3.2 (b) and in Annex 3.2(m),
there are no outstanding subscriptions, options, warrants,
rights, convertible securities or other agreements or
commitments of any character relating to the issued or
unissued capital stock or other securities of Sterling. After
the Effective Time, Sterling will have no obligation which is
being assumed by HBI which will result in any obligation to
issue, transfer or sell any shares of capital stock pursuant
to any Sterling Employee Plan (as defined in Section 3.2 (m)).
(c) Subsidiaries. The subsidiaries of Sterling are as listed and
described at Annex 3.2(c). Each such subsidiary is duly
organized and existing as a corporation, is in good standing
under the laws of the jurisdiction in which it was organized,
and has adequate corporate power to carry on its business as
now conducted. All of the outstanding capital stock of all
such subsidiaries has been validly issued, is fully paid and
nonassessable (other than as provided at 12 U.S.C.Section55)
and is owned by Sterling, free and clear of all liens,
security interests and encumbrances. Except as set forth in
Annex 3.2(c), all such subsidiaries are organized under
Pennsylvania law and make no use of fictitious names in the
conduct of their respective businesses.
(d) Corporate Authority. Subject only to approval of this
Agreement by the holders of the number of votes required by
Sterling's articles of incorporation or bylaws cast by all
holders of Sterling Common Stock (without any minority, class
or series voting requirement), and, subject to the regulatory
approvals specified in Section 5.1(b) hereof, Sterling has the
requisite corporate power and authority, and legal right, and
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has taken all corporate action necessary in order to execute
and deliver this Agreement and to consummate the transactions
applicable to Sterling contemplated hereby. This Agreement has
been duly and validly executed and delivered by Sterling and
constitutes the valid and binding obligations of Sterling
enforceable against it, in accordance with its terms, except
to the extent enforcement is limited by bankruptcy, insolvency
and other similar laws affecting creditors' rights or the
application by a court of equitable principles.
(e) No Violations. The execution, delivery and performance of this
Agreement by it does not, and the consummation of the
transactions contemplated hereby by it will not, constitute
(i) subject to receipt of the required regulatory approvals
specified in Section 5.1(b), a breach or violation of, or a
default under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, to which it (or
any of its respective properties) is subject, which breach,
violation or default would have a Material Adverse Effect on
it, or enable any person to enjoin the Merger, (ii) a breach
or violation of, or a default under Sterling's articles of
incorporation or its bylaws, or (iii) except as disclosed in
Annex 3.2(e), a breach or violation of, or a default under (or
an event which with due notice or lapse of time or both would
constitute a default under), or result in the termination of,
accelerate the performance required by, or result in the
creation of any lien, pledge, security interest, charge or
other encumbrance upon any of the properties or assets of it
under any of the terms, conditions or provisions of any note,
bond, indenture, deed of trust, loan agreement or other
agreement, instrument or obligation to which it is a party, or
to which any of its respective properties or assets may be
bound, or affected, except for any of the foregoing that,
individually or in the aggregate, would not have a Material
Adverse Effect on it or enable any person to enjoin the
Merger; and the consummation of the transactions contemplated
hereby will not require any approval, consent or waiver under
any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent or
waiver of any other party to any such agreement, indenture or
instrument, other than (w) all required approvals, consents
and waivers of governmental authorities, (x) the approval of
its shareholders referred to in Section 5.1(a), (y) any such
approval, consent or waiver that already has been obtained,
and (z) any other approvals, consents or waivers, the absence
of which, individually or in the aggregate, would not result
in a Material Adverse Effect on it or enable any person to
enjoin the Merger.
(f) Reports.
(i) Except as previously disclosed to HBI, Sterling's
consolidated statement of financial condition as of
September 30, 1999, previously provided to HBI, and
each statement of financial condition provided after
the date hereof to HBI (including in each case any
related notes and schedules) as required by Section
4.5 hereof fairly presents or will fairly present the
financial position of it as of its date and each of
the statements of income and shareholders'
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equity and of cash flows provided therewith
(including in each case any related notes and
schedules), fairly presents or will fairly present
the results of operations, shareholders' equity and
cash flows, as the case may be, of it for the periods
set forth therein (subject, in the case of unaudited
interim statements, to normal year-end audit
adjustments that are not material in amount or
effect), in each case in accordance with generally
accepted accounting principles consistently applied
during the periods involved, except as maybe noted
therein.
(ii) Except as set forth in Annex 3.2(f), it has timely
filed all material reports, registrations and
statements, together with any amendments required to
be made with respect thereto, that it was required to
file since 1994 with (A) the Office of the
Comptroller of the Currency (the "OCC"), (B) the
Federal Deposit Insurance Corporation (the "FDIC"),
(C) the Board of Governors of the Federal Reserve
System (the "Board"), (D) the Securities and Exchange
Commission (the "SEC"), and collectively with the
SEC, the OCC, the FDIC, and the Board, the "Sterling
Regulatory Agencies", and (F) any other regulatory
authority, and all other material reports and
statements required to be filed by it since January
1, 1999 including, without limitation, any report or
statement required to be filed pursuant to the laws,
rules or regulations of the United States or any
Sterling Regulatory Agency, and has paid all fees and
assessments due and payable in connection therewith,
and no such report, registration or statement
contains any material misstatement or omission or is
otherwise in material noncompliance with any law,
regulation or requirement.
(g) Absence of Certain Changes or Events. Since September 30, 1999
to the date hereof, it has not materially changed its dividend
policy, nor incurred any material liability, except in the
ordinary course of its business consistent with past practice,
nor has there been any material change in the financial
condition, properties, assets, business, results of operations
or prospects of it which, individually or in the aggregate,
has had, or might reasonably be expected to result in, a
Material Adverse Effect on it.
(h) Taxes. Its federal income tax returns have been examined and
closed or otherwise closed by operation of law through 1990.
All federal, state, local and foreign tax returns, including,
but not limited to, any and all Pennsylvania tax filings
arising under the Bank Shares Tax, Single Excise Tax and the
Amended 1989 Bank Shares Tax and/or similar taxes, required to
be filed by it or on its behalf, have been timely filed, or
requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and,
to the knowledge of management, all such filed returns are
complete and accurate in all material respects. All taxes
shown on such returns, and all taxes required to be shown on
returns for which extensions have been granted, have been paid
in full or adequate provision has been made for any such taxes
on its balance sheet (in accordance with generally accepted
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accounting principles) other than those taxes which are being
contested in appropriate forums in proceedings which are being
diligently pursued. Adequate provision has been made on its
balance sheet (in accordance with generally accepted
accounting principles consistently applied) for all federal,
state, local and foreign tax liabilities for periods
subsequent to those for which returns have been filed. There
is no audit examination, deficiency, or refund litigation
pending or, to the knowledge of Sterling, threatened, with
respect to any taxes that could result in a determination that
would have a Material Adverse Effect on it. All taxes,
interest, additions and penalties due with respect to
completed and settled examinations or concluded litigation
relating to it have been paid in full or adequate provision
has been made for any such taxes on its balance sheet (in
accordance with generally accepted accounting principles). It
has not executed an extension or waiver of any statute of
limitations on the assessment or collection of any tax due
that is currently in effect.
(i) Litigation and Liabilities. Except as set forth in Annex
3.2(i), there are no (i) civil, criminal or administrative
actions, suits, claims, hearings, investigations or
proceedings before any court, governmental agency or otherwise
pending or, to the knowledge of management, threatened against
it or (ii) obligations or liabilities, whether or not accrued
(contingent or otherwise, including, without limitation, those
relating to environmental and occupational safety and health
matters, or any other facts or circumstances of which its
management is aware that could reasonably be expected to
result in any claims against or obligations or liabilities of
it), that, alone or in the aggregate, are reasonably likely to
have a Material Adverse Effect on it or to hinder or delay, in
any material respect, consummation of the transactions
contemplated by this Agreement.
(j) Absence of Regulatory Actions. It is not a party to any cease
and desist order, written agreement or memorandum of
understanding with, or a party to any commitment letter or
similar undertaking to, or is subject to any order or
directive by, or is a recipient of any extraordinary
supervisory letter from, or has adopted any board resolutions
at the request of, federal or state governmental authorities,
including, without limitation, the Sterling Regulatory
Agencies, charged with the supervision or regulation of
financial or depository institutions or engaged in the
insurance of bank deposits, nor has it been advised by any
Sterling Regulatory Agency that such body is contemplating
issuing or requesting (or is considering the appropriateness
of issuing or requesting) any such order, directive, written
agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolution or
similar undertaking.
(k) Agreements. It is not in default under or in violation of any
provision of any note, bond, indenture, mortgage, deed of
trust, loan agreement, lease or other agreement to which it is
a party or to which any of its respective properties or assets
is subject, other than such defaults or violations as could
not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect on it.
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(1) Labor Matters. It is not the subject of any proceeding
asserting that it has committed an unfair labor practice or
seeking to compel it to bargain with any labor organization as
to wages and conditions of employment, nor is there any
strike, other labor dispute or organizational effort involving
it pending or threatened.
(m) Employee Benefit Plans. Sterling has provided to HBI a
complete list of all pension, retirement, stock option, stock
purchase, stock ownership, savings, stock appreciation right,
profit sharing, deferred compensation, consulting, bonus,
group insurance, severance and other employee benefits,
incentive and welfare policies, contracts, plans and
arrangements in respect to any of its present or former
directors. officers or other employees (hereinafter referred
to collectively as the "Sterling Employee Plans")
(i) All of the Sterling Employee Plans comply in all
material respects with all applicable requirements of
the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), the Code and other applicable
laws; it has not engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to any
Sterling Employee Plan which is likely to result in
any material penalties, taxes or other events under
Section 502(i) of ERISA or Section 4975 of the Code
which would have a Material Adverse Effect on it.
(ii) No liability to the Pension Benefit Guaranty
Corporation has been or is expected by it to be
incurred with respect to any Sterling Employee Plan
which is subject to Title IV of ERISA ("Pension
Plan"), or with respect to any "single-employer plan"
(as defined in Section 4001 (a)(15) of ERISA)
currently or formerly maintained by it or any entity
which is considered one employer with Sterling under
Section 4001 of ERISA or Section 414 of the Code (an
"ERISA Affiliate").
(iii) No Pension Plan or single-employer plan of an ERISA
Affiliate had an "accumulated funding deficiency" (as
defined in Section 302 of ERISA (whether or not
waived)) as of the last day of the end of the most
recent plan year ending prior to the date hereof; all
contributions to any Pension Plan or single-employer
plan of an ERISA Affiliate that were required by
Section 302 of ERISA and were due prior to the date
hereof have been made on or before the respective
dates on which such contributions were due; the fair
market value of the assets of each Pension Plan or
single-employer plan of an ERISA Affiliate exceeds
the present value of the "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA) under such
Pension Plan or single employer plan of an ERISA
Affiliate as of the end of the most recent plan year
with respect to the respective Pension Plan or
single-employer plan of an ERISA Affiliate ending
prior to the date hereof, calculated on the basis of
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the actuarial assumptions used in the most recent
actuarial valuation for such Pension Plan or
single-employer plan of an ERISA Affiliate as of the
date hereof; and no notice of a "reportable event"
(as defined in Section 4043 of ERISA) for which the
30-day reporting requirement has not been waived has
been required to be filed for any Pension Plan or
single-employer plan of an ERISA Affiliate within the
12-month period ending on the date hereof.
(iv) Neither has it provided, nor is it required to
provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant
to Section 401(a)(29) of the Code.
(v) Neither it nor any ERISA Affiliate has contributed to
any "multi-employer plan," as defined in Section
3(37) of ERISA, on or after September 26, 1980.
(vi) Each Sterling Employee Plan of it which is an
"employee pension benefit plan" (as defined in
Section 3(2) of ERISA) and which is intended to be
qualified under Section 401(a) of the Code (a
"Qualified Plan") has received a favorable
determination letter from the Internal Revenue
Service ("IRS") covering the requirements of the Tax
Equity and Fiscal Responsibility Act of 1982, the
Retirement Equity Act of 1984 and the Deficit
Reduction Act of 1984 and the Tax Reform Act of 1986;
it is not aware of any circumstances likely to result
in revocation of any such favorable determination
letter; each such Sterling Employee Plan has been
amended to reflect the requirements of subsequent
legislation applicable to such plans; and each
Qualified Plan has complied at all relevant times in
all material respects with all applicable
requirements of Section 401(a) of the Code.
(vii) Each Qualified Plan which is an "employee stock
ownership plan" (as defined in Section 4975(e)(7) of
the Code) has at all relevant times satisfied all of
the applicable requirements of Sections 409 and
4975(e)(7) of the Code and the regulations
thereunder.
(viii) Neither it nor any ERISA Affiliate has committed any
act or omission or engaged in any transaction that
has caused it to incur, or created a material risk
that it may incur, liability for any excise tax under
Sections 4971 through 4980B of the Code, other than
excise taxes which heretofore have been paid and
fully reflected in its financial statements.
(ix) There is no pending or threatened litigation,
administrative action or proceeding relating to any
Sterling Employee Plan, other than routine claims for
benefits.
(x) There has been no announcement or legally binding
commitment by it to create an additional Sterling
Employee Plan, or to amend a Sterling
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Employee Plan, except for amendments required by
applicable law which do not materially increase the
cost of such Sterling Employee Plan, and it does not
have any obligations for retiree health and life
benefits under any Sterling Employee Plan that cannot
be terminated without incurring any liability
thereunder.
(xi) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby
will not result in any payment or series of payments
by Sterling to any person which is an "excess
parachute payment" (as defined in Section 280G of the
Code) under any Sterling Employee Plan, increase any
benefits payable under any Sterling Employee Plan, or
accelerate the time of payment or vesting of any such
benefit.
(xii) All annual reports have been filed timely with
respect to each Sterling Employee Plan.
(n) Title to Assets. It has good and marketable title to its
properties and assets (other than property as to which it is
lessee), except for (i) such items shown in the Sterling
consolidated financial statements or notes thereto; (ii) liens
on real property for current real estate taxes not yet
delinquent, or (iii) such defects in title which would not,
individually or in the aggregate, have a Material Adverse
Effect on it. With respect to any property leased by it, there
are no defaults by it, or to its knowledge, any of the other
parties thereto, or any events which, with the giving of
notice or lapse of time or both, would become defaults by it
or to its knowledge any of the other parties thereto, under
any of such leases, except for such defaults or events which
would not, individually or in the aggregate, have a Material
Adverse Effect on it; and all such leases are in full force
and effect and are enforceable against it, as the case may be,
and to its knowledge there is no circumstance existing as of
the date of this Agreement which causes or would cause such
leases to be unenforceable against any of the other parties
thereto except as the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally as well as
principles of equity to the extent enforcement by a court of
equity is required.
(o) Compliance with Laws. It has all permits, licenses,
certificates of authority, orders and approvals of, and has
made all filings, applications and registrations with,
federal, state, local and foreign governmental or regulatory
bodies that are required in order to permit it to carry on its
business as it is presently conducted and the absence of which
could, individually or in the aggregate, have a Material
Adverse Effect on it; all such permits, licenses, certificates
of authority, orders and approvals are in full force and
effect, and no suspension or cancellation of any of them is
threatened.
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(p) Fees. Except as set forth in Annex 3.2(p) attached hereto,
neither it nor any of its respective officers, directors,
employees or agents have employed any broker or finder or
incurred any liability for any financial advisory fees,
brokerage fees, commissions, or finder's fees, and no broker
or finder has acted directly or indirectly for it in
connection with this Agreement or the transactions
contemplated hereby.
(q) Environmental Matters. Other than as disclosed on Annex
3.2(q), there are no legal, administrative, arbitration or
other proceeding, claim, action, cause of action or
governmental investigation of any nature seeking to impose, or
that, to the knowledge of Sterling, could result in the
imposition on Sterling of any liability arising under any
local, state or federal environmental statute, regulation or
ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended, pending or threatened against Sterling; to
the knowledge of Sterling, there is no reasonable basis for
any such proceeding, claim, action or governmental
investigation; Sterling is not subject to any agreement,
order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party
imposing any such liability.
To the knowledge of Sterling, there are and have been no
Hazardous Substances or other conditions at any property
(whether or not owned operated, or otherwise used by, or the
subject of a security interest on behalf of, Sterling or any
of its subsidiaries), and there are no reasonably anticipated
future events, conditions circumstances, practices, plans. or
legal requirements that could give rise to obligations under
any Environmental Law.
For purposes of this Section 3.2, the following terms shall have the
indicated meaning:
"Environmental Law" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree,
injunction or agreement with any governmental entity relating
to: the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor,
surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other
natural resource); and the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Substances. The
term Environmental Law includes without limitation: the
Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section9601, et seq., the
Resource Conservation and Recovery Act, as amended, 42 U.S.C.
Section6901, et seq., the Clean Air Act, as amended, 42 U.S.C.
Section7401, et seq., the FEDERAL Water Pollution Control Act,
as amended, 33 U.S.C. Section1251, et seq., the Toxic
Substances Control Act, as amended, 15 U.S.C. Section9601, et
seq., the Emergency Planning and Community Right to Know Act,
42 U.S.C. Section11001, et seq., the Safe Drinking Water Act,
42 U.S.C. Section300f, et seq., and all comparable state and
local laws; and any common law (including without limitation
common law that may
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impose strict liability) that may impose liability or
obligation for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous
Substance.
"Hazardous Substance" means any substance presently listed,
defined, designated or classified as hazardous, toxic,
radioactive or dangerous or otherwise regulated under any
Environmental Law, whether by type or by quantity, including
any material containing any such substance as a component.
Hazardous Substances include without limitation petroleum or
any derivative or by-product thereof, asbestos, radioactive
material, and polychlorinated biphenyls.
(r) Allowance. The allowance for loan and lease losses shown on
Sterling's consolidated statement of financial condition as of
September 30, 1999, was, and the allowance for loan and lease
losses shown on Sterling's consolidated statement of financial
condition for periods ending after the date of this Agreement
will be, in the opinion of management of Sterling and Bank of
Lancaster County, adequate, as of the date thereof, under
generally accepted accounting principles applicable to
commercial banks and all other applicable regulatory
requirements for all losses reasonably anticipated in the
Ordinary Course of Business as of the date thereof based on
information available as of such date.
(s) Material Interests of Certain Persons. Except as noted in
Annex 3.2(s), none of its respective officers or directors, or
any "associate" (as such term is defined in Rule 12b-2 under
the Securities Exchange Act of 1934 (the "Exchange Act")) of
any such officer or director, has any material interest in any
material contract or property (real or personal), tangible or
intangible, used in or pertaining to its business.
(t) Insurance. All of the insurance policies and bonds maintained
by it are in full force and effect, it is not in default
thereunder and all material claims thereunder have been filed
in due and timely fashion. In the judgment of its management,
such insurance coverage is adequate.
(u) Dividends. The only dividends or other distributions which it
has made on its capital stock since January 1, 1999 are set
forth in Annex 3.2(u).
(v) Books and Records. Its books and records have been, and are
being, maintained in accordance with applicable legal and
accounting requirements and reflect in all material respects
the substance of events and transactions that should be
included therein.
(w) Board Action. Its board of directors (at a meeting duly called
and held) has been duly convened and by the requisite vote of
the directors (a) determined that the Merger is advisable and
in the best interests of it and its shareholders, (b) approved
this Agreement and the transactions contemplated hereby and
thereby and (c)
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directed that the Agreement be submitted for consideration by
its shareholders at the Sterling Shareholders' Meeting (as
hereafter defined) with the recommendation of the board of
directors that the shareholders approve the merger and the
transactions contemplated thereby.
(x) Fairness Opinions. Its board of directors has received a
written opinion, a copy of which has been furnished to HBI, to
the effect that the Exchange Ratio specified in this
Agreement, at the time of its execution, is fair to Sterling's
shareholders from a financial point of view.
(y) Fidelity Bonds. Since at least December 31, 1992, each
Sterling subsidiary has continuously maintained fidelity bonds
insuring it against acts of dishonesty by its employees in
such amounts as is customary for a bank of its size. Since
December 31, 1992, the aggregate amount of all potential
claims under such bonds has not exceeded $100,000 and Sterling
is not aware of any facts which would reasonably form the
basis of a claim under such bonds. Sterling has no reason to
believe that its fidelity coverage will not be renewed by its
carrier on substantially the same terms as its existing
coverage.
(z) Condition of Tangible Assets. All buildings, structures and
improvements on the real property owned or leased by it are in
good condition, ordinary wear and tear excepted, and are free
from structural defects in all material respects. The
equipment, including heating, air conditioning and ventilation
equipment owned by it, is in good operating condition,
ordinary wear and tear excepted. The operation and use of the
property in the business conform in all material respects to
all applicable laws, ordinances, regulations, permits,
licenses and certificates.
(aa) Annual Reports and Financial Statements. Except as previously
disclosed, Sterling has delivered to HBI true and complete
copies of (i) its Balance Sheets, Statements of Earnings,
Statements of Stockholders' Equity and Statements of Cash
Flows of Sterling for the years ended December 31, 1998, 1997
and 1996, certified by independent public accountants, and
(ii) Sterling's Quarterly Reports for the quarter ended
September 30, 1999, containing unaudited consolidated balance
sheets of Sterling as at such dates and unaudited consolidated
statements of earnings and cash flows of Sterling for the
three month period reflected therein. Except as previously
disclosed, Sterling has also delivered to HBI true and correct
copies of its annual reports to shareholders for the years
1998, 1997 and 1996. Except as previously disclosed to HBI,
all such reports (collectively, the "Sterling Reports") (i)
comply in all material respects with the requirements of the
Financial Accounting Standards Board ("FASB") and the American
Institute of Certified Public Accountants, (ii) do not contain
any untrue statement of a material fact and (iii) do not omit
to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
No documents to be filed by Sterling with the SEC or any
regulatory
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agency in connection with this Agreement, or the transactions
contemplated hereby will contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not
misleading. All documents which Sterling is responsible for
filing with the SEC or any regulatory agency in connection
with the Merger will comply as to form in all material
respects with the requirements of applicable law.
(bb) Proxy Statement/Prospectus., Etc. Except for information
relating to HBI and its subsidiaries and pro forma financial
information reflecting the combined operations of Sterling and
HBI, neither (i) the Proxy Statement/Prospectus (as defined
herein at Section 4.3(b)) or any amendment or supplement
thereto, at the time it is filed with the SEC, at the time the
Registration Statement is declared effective, at the time the
Proxy Statement/Prospectus is mailed to the shareholders of
Sterling or at the date of the meeting of the Sterling
shareholders at which the shareholders will consider this
Agreement (the "Sterling Shareholders' Meeting") nor (ii) any
other documents to be filed by Sterling with the SEC or any
regulatory agency in connection with this Agreement, or the
transactions contemplated hereby, will contain any untrue
statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
they are made, not misleading.
(cc) Complete and Accurate Disclosure. Neither this Agreement
(insofar as it relates to Sterling, Sterling Common Stock and
Sterling's involvement in the transactions contemplated
hereby) nor any financial statement, schedule (including
without limitation the Annexes attached hereto, certificate,
or other statement or document delivered by Sterling to HBI in
connection herewith contains any statement which, at the time
and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact or omits
to state any material fact necessary to make the statements
contained herein or therein not false or misleading. In
particular, without limiting the generality of the foregoing
sentence, the information provided and the representations
made by Sterling to HBI in connection with the Registration
Statement, both at the time such information and
representations are provided and made and at the time of the
Closing, will be true and accurate in all material respects
and will not contain any false or misleading statement with
respect to any material fact or omit to state any material
fact necessary (i) to make the statements made therein not
false or misleading, or (ii) to correct any statement
contained in an earlier communication with respect to such
information or representations which has become false or
misleading.
(dd) Beneficial Ownership of HBI Common Stock. To the knowledge of
Sterling, prior to the Effective Date, Sterling and its
officers and directors will not in the aggregate own
beneficially (within the meaning of SEC Rule 13d-3(d)(1)) more
than five percent (5%) of the outstanding shares of HBI Common
Stock.
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(ee) Absence of Questionable Payments. From and after December 31,
1994, Sterling nor has not, nor, to the knowledge of Sterling,
has any director, officer, agent, employee, consultant or
other person associated with or acting on behalf of, Sterling
(i) used any Sterling corporate funds for unlawful
contributions, gifts, entertainment or unlawful expenses
relating to political activity; or (ii) made any direct or
indirect unlawful payments to governmental officials from any
Sterling corporate funds, or established or maintained any
unlawful or unrecorded accounts with funds received from
Sterling.
(ff) Accuracy of Representations. Until and as of Closing, Sterling
will promptly notify HBI if any of the representations
contained in this Section 3.2 cease to be true and correct
subsequent to the date hereof. Further, no representations
made by Sterling pursuant to this Agreement contain any untrue
statement of material fact or omit to state a material fact
necessary to make the statements not misleading.
ARTICLE IV
COVENANTS OF THE PARTIES
SECTION 4.1 Conduct of Business.
Except as otherwise consented to the other party in writing, HBI and
Sterling and their respective subsidiaries (and the word "it" in this Section
4.1 refers to HBI, Sterling and each subsidiary of either) shall each:
(a) use all reasonable efforts to carry on its business in, and
only in, the ordinary course of business consistent with
customary business practices of prudently managed banks
(hereinafter referred to as "Ordinary Course of Business");
(b) to the extent consistent with prudent business judgment, use
all reasonable efforts to preserve its present business
organization, to retain the services of its present officers
and employees, to maintain good relationships with its
employees, and to maintain its relationships with customers,
suppliers and others having business dealings with it;
(c) maintain all of its structures, equipment and other real
property and tangible personal property in good repair, order
and condition, except for ordinary wear and tear and damage by
unavoidable casualty;
(d) use all reasonable efforts to preserve or collect all material
claims and causes of action belonging to it;
(e) keep in full force and effect all insurance policies now
carried by it;
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(f) perform in all material respects each of its obligations under
all material agreements, contracts, instruments and other
commitments to which it is a party or by which it may be bound
or which relate to or affect its properties, assets and
business;
(g) maintain its books of account and other records in the
Ordinary Course of Business;
(h) comply in all material respects with all statutes, laws,
ordinances, rules and regulations, decrees, orders, consent
agreements, examination reports, memoranda of understanding
and other federal, state, county, local and municipal
governmental directives applicable to it and to the conduct of
its business;
(i) not amend its Articles of Incorporation or Bylaws, except in
accordance with the terms hereof;
(j) not take or permit to be taken any action which would
constitute a breach of any representation, warranty or
covenant set forth in this Agreement;
(k) not take any action which would result in any of its
representations and warranties set forth in this Agreement
becoming untrue as of any date after the date hereof;
(l) not knowingly take any action that would, under any statute,
regulation or administrative practice of any regulatory
agency, materially or adversely affect the ability of any
party to this Agreement to obtain any required approvals for
consummation of the transaction;
and additionally, in the case of HBI and/or Hanover:
(m) not enter into or assume any material contract, incur any
material liability or obligation, make any material
commitment, acquire or dispose of any property or asset or
engage in any transaction or subject any of its properties or
assets to any material lien, claim, charge, or encumbrance of
any kind whatsoever, except for actions taken in the ordinary
course of business, consistent with past practice and
consistent with the HBI 2000 budget previously delivered to
Sterling.
(n) not declare, set aside or pay any dividend or make any other
distribution in respect of its common stock, except as
provided in Section 4.10 of this Article IV;
(o) not make any loan or other credit facility commitment in
excess of $3,000,000 (including without limitation, lines of
credit and letters of credit) or compromise, expand, renew or
modify any such outstanding commitment;
(p) not authorize, purchase, issue or sell (or authorize, issue or
grant options, warrants or rights to purchase or sell) any
shares of its common stock or any other of its equity
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or debt securities or any securities convertible into its
common stock except pursuant to the HBI Options;
(q) not increase the rate of compensation of, pay a bonus or
severance compensation to, or enter into any employment,
severance, deferred compensation or other agreement with any
of its officers, directors, employees or consultants; except
that it may grant general salary increases to individual
employees in the ordinary course of business consistent with
past practice and as indicated in the HBI budget previously
delivered to Sterling;
(r) not enter into any related party transaction of the kind
contemplated in Section 3.1(k) or Section 3.2(k) of this
Agreement except such related party transactions relating to
extensions of credit made in accordance with all applicable
laws, regulations and rules and in the Ordinary Course of
Business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for
comparable arm's length transactions with other persons that
do not involve more than the normal risk of collectability or
present other unfavorable features and after disclosure of
such to the other party;
(s) except pursuant to the HBI Options, not change the presently
outstanding number of shares or effect any capitalization,
reclassification, stock dividends, stock split or like change
in capitalization;
(t) not enter into or substantially modify (except as may be
required by applicable law) any pension, retirement, stock
option, stock warrant, stock purchase, stock appreciation
right, savings, profit sharing, deferred compensation,
severance, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, or plan or
arrangement, or any trust agreement related thereto, in
respect to any of its directors, officers, or other employees;
(u) except as may be permitted by Section 4.9 hereof, not merge
with or into, or consolidate with, or be purchased or acquired
by, any other corporation, financial institution, entity, or
person (or agree to any such merger, consolidation,
affiliation, purchase or acquisition) or permit (or agree to
permit) any other corporation, financial institution, entity
or person to be merged with it or consolidate or affiliate
with any other corporation, financial institution, entity or
person; acquire control over any other firm, financial
institution, corporation or organization or create any
subsidiary; acquire, liquidate, sell or dispose (or agree to
acquire, liquidate, sell or dispose) of any assets other than
in the Ordinary Course of Business and consistent with prior
practice; and
(v) not change any method, practice or principle of accounting
except as may be required by generally accepted accounting
principles or any applicable regulation or take any
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action that would preclude satisfaction of the condition to
closing contained in Section 5.2(e) relating to financial
accounting treatment of the Merger.
(w) not open any new branches, enter into any contracts or make
any expenditures with respect to any new branches without the
prior written consent of Sterling, with the exception of the
branch to be located in Red Lion, Pennsylvania, the business
bank branch to be located in Westminster, Maryland and the
relocation of the branch in New Oxford, Pennsylvania.
SECTION 4.2 Best Efforts.
HBI and Sterling shall each use its reasonable best efforts in good
faith, and each of them shall cause its subsidiaries to use their reasonable
best efforts in good faith to do or cause to be done all things necessary or
appropriate on its part in order to fulfill the conditions precedent set forth
in Article V of this Agreement and to consummate this Agreement. In particular,
without limiting the generality of the foregoing sentence, each shall:
(a) cooperate with the other party in the preparation of all
required applications for regulatory approval of the
transactions contemplated by this Agreement and in the
preparation of the Registration Statement;
(b) call a special or annual meeting of its shareholders and take,
in good faith, all actions which are necessary or appropriate
on its part in order to secure the approval and adoption of
this Agreement by its shareholders at that meeting, including
recommending the approval of such agreements by the
shareholders. Unless, prior to calling such meeting, the party
receives a written opinion consistent with the standard set
forth in Section 4.9 of this Agreement;
(c) after receipt of all required regulatory approvals, cooperate
with the other party in making employees reasonably available
for training prior to the Effective Date, to the extent that
such training is deemed reasonably necessary to ensure that
all offices of Hanover will be properly operated as a
subsidiary of Sterling after the Merger;
(d) make additions to loan loss reserves and make loan write-offs,
write-downs and other adjustments that reasonably should be
made in light of generally accepted accounting principles,
directives of governmental authorities, and all regulations,
rules and directives of the PDB, OCC and FDIC;
(e) in the case of HBI, execute and deliver the Investment
Agreement;
(f) in the case, of HBI, suspend its dividend reinvestment plan,
employee stock purchase plan and the option to purchase HBI
Common Stock in its 401(k) plan; and
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(g) modify the Articles of Incorporation or Bylaws or any other
documents reasonably requested by the other party necessary to
effectuate the transactions contemplated hereby.
SECTION 4.3 Regulatory Matters and Consents
(a) Applications for Regulatory Approval. Sterling and HBI shall
promptly prepare and file, and use their reasonable best
efforts to obtain, all required applications for regulatory
approval of the transactions contemplated by this Agreement.
Sterling shall provide copies of all applications for
regulatory approval to HBI and its counsel for comment and
review at least five (5) business days in advance of the
anticipated filing date.
(b) Registration Statement. Sterling and HBI shall promptly
prepare and Sterling shall file with the SEC, a registration
statement under the 1933 Act (the "Registration Statement")
for the purpose of registering the shares of Sterling Common
Stock to be issued under the provisions of this Agreement.
Each party may rely upon all information provided to it by the
other party in this connection and each party shall not be
liable for any untrue statement of a material fact or any
omission to state a material fact in the Registration
Statement or in the proxy statement and prospectus (the "Proxy
Statement/Prospectus") which is prepared as a part thereof, if
such statement is made by it in reliance upon any information
provided to by the other party or by its agents and
representatives. Sterling will advise HBI, after it receives
notice thereof, of the time when the Registration Statement or
any Pre- or Post-Effective Amendment thereto has become
effective or any supplement or amendment has been filed.
Sterling shall provide a copy of the Registration Statement to
HBI and its counsel for comment and review at least ten (10)
business days in advance of the anticipated filing date.
(c) State Securities Laws. Sterling, with the cooperation of HBI,
shall promptly take all such actions as may be necessary or
appropriate in order to comply with all applicable securities
laws of any state having jurisdiction over the transactions
contemplated by this Agreement. Sterling shall provide a copy
of any anticipated application or filing to HBI for comment
and review at least five (5) days in advance of the
anticipated filing date.
SECTION 4.4 Access to Properties and Records.
Each party shall give to the other party and their authorized
representatives (including without limitation their counsel, accountants,
economic and environmental consultants and other designated representatives)
reasonable access during normal business hours to all of its properties, books,
contracts, documents and records as the other party may reasonably request,
subject to the obligation, including the obligation of that party's authorized
representatives, to maintain the confidentiality of all non-public information
obtained by reason of such access.
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SECTION 4.5 Subsequent Financial Statements.
Between the date of execution of this Agreement and the Effective Date,
each party shall promptly prepare and deliver to the other party, as soon as
practicable, all internal monthly and quarterly financial statements, reports to
shareholders and reports to regulatory authorities it has prepared, including
all audit reports submitted to it by independent auditors in connection with
each annual, interim or special audit of its books made by such accountants. In
particular, without limiting the generality of the foregoing sentence, HBI shall
deliver to Sterling, and Sterling shall deliver to HBI as soon as practicable a
balance sheet as of December 31, 1999 and a related statement of income for the
three (3) months then ended (which financial statements are hereinafter referred
to as the "December 31, 1999 Financial Statements"). The representations and
warranties set forth in Sections 3.1(f) and 3.2(f) of this Agreement shall apply
to the December 31, 1999 Financial Statements
SECTION 4.6 Board and Committee Minutes.
HBI shall provide to Sterling, within 10 days after any meeting of the
Board of Directors, or any committee thereof, or any senior or executive
management committee, a copy of the minutes of such meeting.
SECTION 4.7 Update Schedule.
Each party shall promptly disclose to the other in writing any change,
addition, deletion or other modification to the information set forth in the
Annexes to this Agreement. Notwithstanding the foregoing, disclosures made
subsequent to the date of this Agreement shall not relieve any party from any
and all liabilities for prior statements and disclosures to the other party.
SECTION 4.8 Notice.
Each party shall promptly notify the other party in writing of any
actions, claims, investigations, proceedings or other developments which, if
pending or in existence on the date of this Agreement, would have been required
to be disclosed to that party in order to ensure the accuracy of the
representations and warranties set forth in this Agreement or which otherwise
could materially and adversely affect the condition (financial or otherwise),
assets, liabilities, business operations or future prospects of the party with
the burden of disclosure.
SECTION 4.9 Other Proposals.
(a) HBI shall not solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or
participate in any negotiations or discussions concerning any
acquisition or purchase of all or a substantial equity
interest or portion of the assets in or of HBI or any business
combination with HBI other than as contemplated by this
Agreement, or authorize or permit any officer, director, agent
or affiliate of it to do any of the above, provided, however,
that it may respond to an unsolicited,
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bona fide, written offer, if the directors of HBI shall have
determined in good faith, based of the written opinion of
outside counsel (subject to appropriate qualifications) that
failure to respond would be reasonably likely to constitute a
breach of the HBI board of directors' fiduciary duty under
Pennsylvania law; or fail to notify Sterling immediately if
any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations are
sought to be initiated with HBI;
(b) HBI shall not authorize or permit any officer, director,
employee, agent, consultant, counsel, financial advisor or
other representative to, directly or indirectly, solicit,
encourage, initiate or engage in discussions or negotiations
with, or respond to requests for information, inquiries or
other communications from any persons other than Sterling
concerning the fact of, or the terms and conditions of, this
Agreement, or concerning any acquisition of HBI, or any assets
or business thereof (except that HBI officers may respond to
inquiries from analysts, regulatory authorities and holders of
HBI Common Stock in the Ordinary Course of Business); and HBI
shall notify Sterling immediately if any such discussions or
negotiations are sought to be initiated with HBI by any such
person other than Sterling or if any such requests for
information, inquiries, proposals or communications are
received from any person other than Sterling. Provided,
however, that HBI may respond to an unsolicited bona fide
written offer if the directors of HBI shall have determined in
good faith, based on the written opinion of outside counsel
(subject to appropriate qualifications) that the failure to
respond would be reasonably likely to constitute a breach of
the HBI board of directors' fiduciary duty under applicable
law.
SECTION 4.10 Dividends.
Between the date of this Agreement and the Effective Date, HBI shall
only declare and pay cash dividends as provided herein. HBI shall only pay
regular quarterly cash dividends in an amount not in excess of $0.12 per share
during each of the first, second and third calendar quarters of 2000. HBI
dividend declaration and payment dates shall be consistent with prior practices
of HBI. Provided, however, that if the Effective Date of the Merger were to
entitle HBI shareholders to a quarterly cash dividend for the respective
calendar quarter from HBI and subsequently from Sterling, then HBI shall not pay
a dividend in said quarter.
SECTION 4.11 Core Deposits.
HBI shall cause Hanover to use commercially reasonable efforts to
maintain its deposits.
SECTION 4.12 Affiliate Letters.
HBI shall deliver or cause to be delivered to Sterling, at or before
the Closing (as defined in Section 1.1(c) of this Agreement), a letter or
agreement from its officers, directors and shareholders who may be deemed to be
an "affiliate" (as that term is defined for purposes of Rules 145 and 405
promulgated by the SEC under the 1933 Act) of HBI or Hanover, in form and
substance satisfactory
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to Sterling, under the terms of which each such officer, director or shareholder
acknowledges and agrees to abide by all limitations imposed by the 1933 Act and
by all rules, regulations and releases promulgated thereunder with respect to
the sale or other disposition of the shares of Sterling Common Stock to be
received by such person pursuant to this Agreement.
SECTION 4.13 No Purchases or Sales of Sterling Common Stock During
Price Determination Period.
Neither party nor any of its executive officers or directors nor any of
its shareholders who may be deemed to be an "affiliate" (as that term is defined
for purposes of Rules 145 and 405 promulgated by the SEC under the 1933 Act)
shall purchase or sell or submit a bid to purchase or an offer to sell, directly
or indirectly, any shares of Sterling Common Stock or any options, rights or
other securities convertible into shares of Sterling Common Stock during the
Price Determination Period; provided, however, that Sterling may purchase shares
of Sterling Common Stock in the Ordinary Course of Business during the Price
Determination Period pursuant to Sterling's employee benefit plans, stock option
plans or Sterling's dividend reinvestment and stock purchase plan.
SECTION 4.14 Accounting Treatment.
Each party acknowledges that the other party presently intends to treat
the business combination contemplated by this Agreement as a "pooling of
interests" for financial reporting purposes. Neither party shall take (and shall
use its best efforts not to permit any of its directors, officers, employees,
shareholders, agents, consultants or other representatives to take) any action
which would preclude treating such business combination as a "pooling of
interests" for financial reporting purposes.
SECTION 4.15 Press Releases.
Neither party shall issue any press release related to this Agreement
or the transactions contemplated hereby or thereby as to which the other party
has not given its prior written consent, which shall not be unreasonably
withheld, and shall consult with the other party as to the form and substance of
other public disclosures related thereto; provided, however, that nothing
contained herein shall prohibit Sterling or HBI from making any disclosure which
its counsel deems reasonably necessary.
SECTION 4.16 Phase I Environmental Audit.
Each party shall permit the other party, if it elects to do so at its
own expense, a "phase I environmental audit" to be performed at any physical
location owned or occupied on the date hereof by it or any of its subsidiaries.
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ARTICLE V
CONDITIONS TO CONSUMMATION
SECTION 5.1 Common Conditions.
The respective obligations of the parties to effect the Merger shall be
subject to the satisfaction or waiver prior to the Effective Time of the
following conditions:
(a) The Agreement and the transactions contemplated hereby and
thereby shall have been approved by the requisite vote of the
shareholders of HBI and Sterling in accordance with applicable
law.
(b) All approvals, consents or waivers required by any of the HBI
Regulatory Agencies or the Sterling Regulatory Agencies with
respect to this Agreement (including the Merger) and the
transactions contemplated hereby and thereby including,
without limitation, the approvals, notices to, consents or
waivers of (i) the Board and (ii) the Pennsylvania Department
of Banking (the HBI Regulatory Agencies and the Sterling
Regulatory Agencies, are, collectively the "Regulatory
Agencies") shall have been obtained and shall remain in full
force and effect, and all applicable statutory waiting periods
(including without limitation all applicable statutory waiting
periods relating to the Merger) shall have expired; and the
parties shall have procured all other regulatory approvals,
consents or waivers of governmental authorities or other
persons that are necessary or appropriate to the consummation
of the transactions contemplated by this Agreement, except
those approvals, consents or waivers, if any, of which failure
to obtain would not, individually or in the aggregate, have a
Material Adverse Effect on Sterling, HBI or Hanover (after
giving effect to the transaction contemplated hereby);
provided, however, that no such approval shall have imposed
any condition or requirement which would: (i) require or could
reasonably be expected to require (A) any divestiture by
Sterling of a portion of the business of Sterling or of any
subsidiary or affiliate of Sterling, or (B) any divestiture by
HBI or any of its subsidiaries of a portion of its business
which Sterling in its good faith judgment believes will have a
significant adverse impact on HBI's business or prospects; or
(ii) impose any condition upon Sterling or any of its
subsidiaries or affiliates, which in Sterling's good faith
judgment (x) would be materially burdensome to Sterling and
its subsidiaries taken as whole, (y) would significantly
increase the costs incurred or that would be incurred by
Sterling as a result of consummating the Merger, or (z) would
prevent Sterling from obtaining a material benefit
contemplated to be attained as a result of the Merger.
(c) All other requirements prescribed by law which are necessary
to the consummation of the transactions contemplated by this
Agreement shall have been satisfied.
(d) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the Merger
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or any other transaction contemplated by this Agreement, and
no litigation or proceeding shall be pending against any of
the parties herein or any of their subsidiaries brought by any
governmental agency seeking to prevent consummation of the
transactions contemplated hereby.
(e) No statute, rule, regulation, order, injunction or decree
shall have been enacted, entered, promulgated or enforced by
any governmental authority which prohibits, restricts or makes
illegal consummation of the Merger or any other transaction
contemplated by this Agreement.
(f) The Registration Statement shall have been filed (the date of
which is referred to herein as the "Filing Date") by Sterling
with the SEC under the 1933 Act, and shall have been declared
effective prior to the time the Proxy Statement/ Prospectus is
first mailed to the respective shareholders of Sterling and
HBI, and no stop order with respect to the effectiveness of
the Registration Statement shall have been issued; the
Sterling Common Stock to be issued pursuant to this Agreement
shall be duly registered or qualified under the securities or
"blue sky" laws of all states in which such action is required
for purposes of the initial issuance of such shares and the
distribution thereof to the shareholders of HBI entitled to
receive such shares.
(g) An opinion of Shumaker Williams, P.C., or from Ernst & Young,
LLP, shall have been received by Sterling and HBI to the
effect that:
(i) The Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code and HBI and
Sterling will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by HBI or Sterling
by reason of the Merger;
(iii) Except for cash received in lieu of fractional shares
and cash received by HBI Shareholders who exercise
their dissenter's rights, no gain or loss will be
recognized by the shareholders of HBI who receive
solely Sterling Common Stock upon the exchange of
their shares of HBI Common Stock for shares of
Sterling Common Stock;
(iv) The tax basis of the Sterling Common Stock to be
received by the HBI shareholders will be, in each
instance, the same as the basis of the HBI Common
Stock surrendered in exchange therefor;
(v) The holding period of the Sterling Common Stock
received by a HBI shareholder receiving Sterling
Common Stock will include the period during which the
HBI Common Stock surrendered in exchange therefor was
held;
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(vi) Cash received by a HBI shareholder in lieu of a
fractional share interest of Sterling Common Stock or
upon exercise of dissenter's rights will be treated
as having been received as a distribution in full
payment in exchange for the fractional share interest
of Sterling Common Stock, or the tax basis in the
shares surrendered, as the case may be, which he
would otherwise be entitled to receive and will
qualify as capital gain or loss; and
(vii) Subject to any limitations imposed under Sections 381
and 382 of the Code, Sterling, as the survivor to the
Merger, will carry-over and take into account all
accounting items and tax attributes of HBI, including
but not limited to earning and profits, methods of
accounting, and tax basis and holding periods of HBI.
In case a ruling from the IRS is sought, HBI and Sterling shall
cooperate and each shall furnish to the other and to the IRS such
information and representations as shall, in the opinion of counsel for
Sterling and HBI, be necessary or advisable to obtain such ruling.
SECTION 5.2 Conditions to Obligations of Sterling.
The obligations of Sterling to effect the Merger shall be subject to
the satisfaction or waiver prior to the Effective Time of the following
additional conditions:
(a) Each of the representations and warranties of HBI contained in
this Agreement shall be true and correct in all material
respects as of the Effective Date as if made on such date (or
on the date when made in the case of any representation or
warranty which specifically relates to an earlier date); HBI
shall have performed each of its covenants and agreements
contained in this Agreement; and Sterling shall have received
certificates signed by the President or Vice President and the
Secretary or Assistant Secretary of HBI, dated as of the date
of the Closing, to the foregoing effect.
(b) Ernst & Young, LLP, or such other accounting firm as is
acceptable to the parties, shall have furnished to Sterling an
"agreed upon procedures" letter, dated the Effective Date, in
form and substance satisfactory to Sterling to the effect
that, based upon a procedure performed with respect to the
financial condition of HBI, Hanover and affiliates, for the
period from December 31, 1999 to a specified date not more
than five (5) days prior to the date of such letter, including
but not limited to (a) their inspection of the minute books of
HBI, Hanover and affiliates, (b) inquiries made by them of
officers and other employees of HBI, Hanover and affiliates
responsible for financial and accounting matters as to
transaction, and events during the period, as to consistency
of accounting procedures with prior periods and as to the
existence and disclosure of any material contingent
liabilities, and (c) of other specified procedures and
inquiries performed by them, nothing has come to their
attention that would indicate that (A) during the period from
December 31, 1999 to a specified date not more than five (5)
days prior to the date of such letter, there was any change in
the
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capitalization of HBI or Hanover on a consolidated basis, or
(B) any material adjustments would be required to the audited
financial statements for the period ended December 31, 1999 in
order for them to be in conformity with generally accepted
accounting principles applied on a consistent basis with that
of prior periods.
(c) Sterling shall have received an opinion or opinions dated as
of the Effective Date, from Barley, Snyder, Senft and Cohen,
LLC, substantially in the form attached hereto as Exhibit "B".
(d) There shall not have occurred any change in the financial
condition, properties, assets, business or results of
operation of HBI or Hanover which, individually or in the
aggregate, has had or might reasonably be expected to result
in a Material Adverse Effect on HBI or Hanover.
(e) The Merger shall as of the date of the Closing meet the
requirements for pooling-of-interests accounting treatment
under generally accepted accounting principles and under the
accounting rules of the SEC, and Sterling shall have received
a letter from Ernst & Young, LLP in form and substance
reasonably satisfactory to Sterling as to the matters
specified in Section 5.2(e).
(f) Sterling shall have received from each of the persons
identified by HBI pursuant to Section 4.12 hereof an executed
counterpart of an affiliate's agreement in the form
contemplated by such Section.
(g) Except as otherwise provided in this Agreement, prior to
Closing, all issued and outstanding options, warrants or
rights to acquire HBI Common Stock or any capital stock of
Hanover ("Hanover Common Stock") shall have been canceled. No
compensation or other rights will be payable or exchangeable
in the Merger in respect of any such rights which remain
unexercised at the Effective Time.
(h) Holders of no more than six percent (6%) of the issued and
outstanding shares of HBI Common Stock and holders of no more
that five percent (5%) of the issued and outstanding shares of
Sterling Common Stock shall have exercised their statutory
appraisal or Dissenters' Rights.
(i) No environmental problem of the kind contemplated in Section
3.1(q) of Article III of this Agreement and not previously
disclosed on Annex 3.1(q) shall have been discovered which
would, or which potentially could, materially and adversely
affect the condition (financial or otherwise), assets,
liabilities, business, operations or future prospects of HBI
or Hanover; provided, that for purposes of determining the
materiality of an undisclosed environmental problem or
problems, the definition of "material" shall be governed by
the proviso to Section 8.1 of this Agreement. The result of
any "phase I environmental audit" conducted pursuant to
Section 4.16 with
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respect to owned or occupied bank premises shall be reasonably
satisfactory to Sterling.
(j) Sterling shall have received an updated opinion from Garland
McPherson & Associates, Inc. as of a date no later than the
date of the Proxy Statement/Prospectus mailed to the Sterling
shareholders in connection with the Merger to the effect that
the Exchange Ratio is fair to Sterling's shareholders from a
financial point of view.
(k) All litigation pending against HBI or Hanover which,
individually or in the aggregate, would have a Material
Adverse Effect on HBI's consolidated operations, business or
future prospects, shall have been settled or otherwise
resolved on terms satisfactory to Sterling.
SECTION 5.3 Conditions to the Obligations of HBI.
The obligations of HBI to effect the Merger shall be subject to the
satisfaction or waiver prior to the Effective Time of the following additional
conditions:
(a) Each of the representations, warranties and covenants of
Sterling contained in this Agreement shall be true and correct
in all material respects on the Effective Date as if made on
such date (or on the date when made in the case of any
representation or warranty which specifically relates to an
earlier date); Sterling shall have performed each of its
covenants and agreements contained in this Agreement; and HBI
shall have received certificates signed by the President or
Vice President and Secretary or Assistant Secretary of
Sterling.
(b) HBI shall have received an opinion dated as of the Effective
Date, from Shumaker Williams, P.C., counsel to Sterling,
substantially in the form attached hereto as Exhibit "C".
(c) Ernst & Young, LLP, or such other accounting firm as is
acceptable to the parties, shall have furnished to HBI an
"agreed upon procedures" letter, dated the Effective Date, in
form and substance satisfactory to HBI to the effect that,
based upon a procedure performed with respect to the financial
condition of Sterling and its affiliates, for the period from
December 31, 1999 to a specified date not more than five (5)
days prior to the date of such letter, including but not
limited to (a) their inspection of the minute books of
Sterling and its affiliates, (b) inquiries made by them of
officers and other employees of Sterling and its affiliates
responsible for financial and accounting matters as to
transaction, and events during the period, as to consistency
of accounting procedures with prior periods and as to the
existence and disclosure of any material contingent
liabilities, and (c) of other specified procedures and
inquiries performed by them, nothing has come to their
attention that would indicate that (A) during the period from
December 31, 1999 to a specified date not more than five (5)
days prior to the date of such letter, there was any change in
the
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capitalization of Sterling on a consolidated basis, or (B) any
material adjustments would be required to the audited
financial statements for the period ended December 31, 1999 in
order for them to be in conformity with generally accepted
accounting principles applied on a consistent basis with that
of prior periods.
(d) There shall not have occurred any material change in the
dividend policy of Sterling nor any material change in the
financial condition, properties, assets or business or results
of operation of Sterling which, individually or in the
aggregate, has had or might reasonably be expected to result
in a Material Adverse Effect on Sterling.
(e) The Merger shall as of the date of the Closing meet the
requirements for pooling-of-interests accounting treatment
under generally accepted accounting principles and under the
accounting rules of the SEC, and HBI shall have received a
letter from Ernst & Young, LLP, in form and substance
reasonably satisfactory to HBI as to the matters specified in
Section 5.3(e).
(f) HBI shall have received an updated opinion from McConnell,
Budd & Downes, Inc. as of a date no later than the date of the
Proxy Statement/Prospectus mailed to the HBI shareholders in
connection with the Merger to the effect that the Exchange
Ratio is fair to HBI's shareholders from a financial point of
view.
(g) The shares of Sterling Common Stock to be issued in the Merger
shall have been authorized to be listed for quotation on the
NASDAQ National Market System.
ARTICLE VI
TERMINATION
SECTION 6.1 Termination.
This Agreement may be terminated, and the Merger abandoned, prior to
the Effective Date, either before or after its approval by the shareholders of
Sterling and HBI:
(a) by the mutual, written consent of HBI and Sterling if the
board of directors of each so determines by a vote of a
majority of the members of the entire Board;
(b) by HBI if (i) by written notice to Sterling that there has
been a material breach by Sterling of any representation,
warranty, covenant or agreement contained herein and such
breach is not cured or not curable within thirty (30) days
after written notice of such breach is given to Sterling by
HBI or (ii) by written notice to Sterling that any condition
precedent to HBI's obligations as set forth in Article V of
this Agreement has not been met or waived by HBI at such time
as such condition can no longer be satisfied through no fault
of HBI or Hanover, on September 30, 2000.
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(c) by Sterling by written notice to HBI, in the event (i) of a
material breach by HBI or Hanover of any representation,
warranty, covenant or agreement contained herein and such
breach is not cured or not curable within thirty (30) days
after written notice of such breach is given to HBI by
Sterling or (ii) any condition precedent to Sterling's
obligations as set forth in Article V of this Agreement has
not been met or waived by Sterling at such time as such
condition can no longer be satisfied, through no fault of
Sterling, on September 30, 2000.
(d) by Sterling or HBI by written notice to the other, in the
event that the Merger is not consummated by September 30,
2000, unless the failure to so consummate by such time is due
to the breach of any representation, warranty or covenant
contained in this Agreement by the party seeking to terminate,
provided, however, that such date may be extended by the
written agreement of the parties hereto.
(e) by HBI, whether before or after approval of the Merger by the
HBI shareholders, by giving written notice to Sterling within
one (1) business day following a determination that the
conditions described in subsection (c) of Schedule 2.1 have
been met.
(f) by Sterling, whether before or after approval of the Merger by
the Sterling shareholders, by giving written notice to HBI
within one (1) business day following a determination that the
conditions described in subsection (d) of Schedule 2.1 have
been met.
(g) by HBI, pursuant to Section 2.3(e) of this Agreement.
SECTION 6.2 Effect of Termination.
In the event of the termination of this Agreement as provided above,
this Agreement shall thereafter become void and have no effect, except that the
provisions of Section 3.1(p) (Fees), Sections 4.4 (relating to confidentiality
and return of documents), Section 4.15 (Press Releases and Publicity) and
Sections 6.3 and 8.10 (Expenses) of this Agreement shall survive any such
termination and abandonment.
SECTION 6.3 Expenses.
Any termination of this Agreement pursuant to Sections 6.1(a), (d),
(e), (f) or (g) hereof shall be without cost, expense or liability on the part
of any party to the other. Any termination of this Agreement pursuant to Section
6.1(b) or 6.1(c) hereof shall also be without cost, liability or expense on the
part of any party to the other, unless the breach of a representation or
warranty or covenant is caused by the willful conduct or gross negligence of a
party or the circumstances of, in which event said party shall be liable to the
other party for all out-of pocket costs and expenses, including without
limitation, reasonable legal, accounting and investment banking fees and
expenses, incurred by such other party in connection with their entering into
this Agreement and their carrying out of any and all acts contemplated hereunder
("Expenses").
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ARTICLE VII
POST MERGER AGREEMENTS
SECTION 7.1 Employees and Benefits.
(a) Except as otherwise provided in this Agreement, Sterling and
Hanover shall use their best efforts (but shall be under no
obligation) to employ, as officers and employees of Hanover
immediately following the Effective Date, any persons who are
officers and employees of Hanover immediately before the
Effective Date (the "Continuing Employees"), provided that
such employment shall be on an "at will" basis. It shall be a
condition to employment by Sterling or Hanover that any
Continuing Employee agree to cancel any existing employment
contract, agreement or understanding between himself or
herself and HBI or Hanover, including without limitation all
benefits related to severance arrangements upon a change of
control or otherwise, prior to accepting such new employment
and without accepting any of the severance benefits or other
benefits or payments associated with such contract, agreement
or understanding.
(b) After the Effective Date, all benefits of each of the
Continuing Employees will be maintained at a level at least
equal to the benefits enjoyed by the employee of Hanover prior
to the Effective Date, with such changes to compensation and
benefits in the future as may be appropriate, as determined by
Sterling's and Hanover's Board of Directors.
(c) After the Effective Date, Continuing Employees shall be
eligible to apply for any positions available at Sterling, or
any of its subsidiaries.
(d) As provided herein, Sterling will permit, after the Merger,
severance payments to employees of HBI and Hanover (other than
employees whose severance benefits are provided for in written
employment agreements) whose employment is terminated (other
than for cause) on or after the Effective Date, and before the
expiration of six (6) months following the Effective Date and
who sign a release of any and all claims the employee may have
against HBI, Hanover, Sterling or a Sterling affiliate.
Sterling, HBI and Hanover shall consult and mutually agree
upon the individual amounts to be received by former HBI or
Hanover employees who are eligible for severance payments.
SECTION 7.2 Officers.
Hanover's senior executive officers who are employed in good standing
and actively at work as of the Effective Date (the "Continuing Officers") shall
be employed and retained in their current management positions with compensation
initially at least equal to their current levels of compensation, with such
changes to employment status, compensation and benefits in the future as
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may be appropriate, as determined by Sterling's and Hanover's Board of
Directors. Notwithstanding the foregoing, Sterling shall retain the right to
terminate any of the Continuing Officers at any time following the Effective
Date for "Good Reason", as that term shall be reasonably defined by Sterling.
SECTION 7.3 Hanover Board of Directors.
Immediately following the Effective Date, the Board of Directors of
Hanover shall consist of the members of the board immediately preceding the
Effective Time, with the addition of Mr. John E. Stefan. Non-employee director's
compensation for services as a member of the Hanover board of directors for
service in all capacities shall remain the same as on the date of this Agreement
for a period of three (3) years after the Effective Date, subject thereafter to
change based on the ongoing needs of Sterling and Hanover. Each person serving
on the board of directors of Hanover immediately following the Effective Date
shall, absent a breach of such director's fiduciary duty to Hanover, be
nominated and recommended by the board of directors of Sterling to serve three
(3) successive one year terms, and to serve until such time as his successor has
been duly elected, qualified or appointed.
SECTION 7.4 Board Appointments and Sterling Management Committee.
(a) Immediately following the Effective Date, subject to any necessary
regulatory approval or notice, three (3) persons who are mutually
agreed upon by Sterling and HBI and who previously served as directors
of HBI shall be appointed to the board of directors of Sterling, one
person to serve in the Class of Director to be elected at the year 2001
Sterling Annual Meeting of Shareholders, one person to serve in the
Class of Director to be elected at the year 2002 Sterling Annual
Meeting of Shareholders, and one person to serve in the Class of
Director to be elected at the year 2003 Sterling Annual Meeting of
Shareholders , so long as each such person qualifies for service as a
director in accordance with the bylaws of Sterling. Upon the expiration
of the initial term of the person appointed to the board of directors
of Sterling to serve in the Class of Director to be elected at the year
2001 Sterling Annual Meeting of Shareholders, and consistent with the
board members' fiduciary duties and law, the board of directors of
Sterling shall nominate and recommend to the shareholders of Sterling,
at the year 2001 Sterling Annual Meeting of Shareholders, the election
of said person to the board of directors of Sterling for an additional
three (3) year term, to serve until such time as his successor has been
duly elected, qualified, or appointed. Each person so appointed shall
serve until such time as his successor has been duly elected,
qualified, or appointed.
(b) Immediately after the Effective Date, subject to any necessary
regulatory approval or notice, a person selected by HBI and agreed upon
by Sterling shall be appointed to the board of directors of Bank of
Lancaster County.
(c) Immediately following the Effective Date, Sterling's Board of
Directors shall elect or appoint (i) J. Bradley Scovill as President
and Chief Executive Officer of Hanover and an Executive Vice President
of Sterling, and (ii) Chad M. Clabaugh as Executive Vice President of
Hanover and a Vice President of Sterling.
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(d) Immediately following the Effective Date, Sterling agrees to
appoint J. Bradley Scovill and Chad M. Clabaugh as members of the
Sterling Management Committee to be established by the Board of
Directors of Sterling.
SECTION 7.5 Indemnification and Director and Officer Liability Insurance.
(a) For six (6) years after the Effective Date (except as
described below), Sterling shall indemnify, defend and hold
harmless the present and former directors, and executive
officers of HBI (each, an "Indemnified Party") against all
costs or expenses(including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of
actions or omissions occurring at or prior to the Effective
Date (and also advance expenses incurred to the fullest extent
permitted by applicable law), with the exception of (i)
actions or omissions occurring in connection with the
transactions contemplated by this Agreement and the Investment
Agreement, whether asserted or claimed prior to, at or after
the Effective Date, and (ii) liability for fraud, deception or
intentional misrepresentation.; provided, however, that
Sterling shall not have an obligation hereunder to any
Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such
determination shall become final and non-appealable, that the
indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law.
(b) For a period of six (6) years following the Effective Date,
Sterling shall pay the premiums for a Director and Officer
Liability Insurance Tail Policy for the Directors and Officers
of HBI as of the Effective Date and for all former directors
and officers of HBI, if so permitted by the insurance carrier
and within the financial limitations of this Section 7.5(b),
with conditions and terms substantially comparable to the
Director and Officer Liability Policy of HBI as of the date of
this Agreement, so long as such policy can be obtained at a
cost not in excess of 150% of the rate for such Director and
Officer Liability Insurance Tail Policy in effect as of the
date of this Agreement. In the event Sterling is unable to
obtain such a Director and Officer Liability Insurance Tail
Policy at a cost not in excess of 150% of such rate, Sterling
shall obtain a Director and Officer Liability Insurance Tail
Policy with the maximum coverage reasonably available for a
cost that is equal to 150% of such rate.
SECTION 7.6 Certain Matters.
(a) Sterling shall continue the separate corporate existence of
Hanover as an operating subsidiary for a period not less than
three (3) years following the Effective Date, with the
corporate name "Bank of Hanover and Trust Company", and until
such time as the Sterling and Hanover Board of Directors
determine otherwise. Sterling shall use its best efforts to
maintain the level of customer service and community support
as has been the custom of HBI.
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(b) Notwithstanding anything herein to the contrary, the Board of
Directors of Hanover, consistent with the board members'
fiduciary duties and law, may by majority vote, modify or
waive any of all of the provisions of Sections 7.3 or 7.6.
ARTICLE VIII
OTHER MATTERS
SECTION 8.1 Certain Definitions; Interpretation.
As used in this Agreement, the following terms shall have the meanings
indicated:
"Material" means material to the party in question (as the
case may be) and its respective subsidiaries, taken as a
whole.
"Material Adverse Effect," with respect to a person, means any
condition, event, change or occurrence that has or results in
an effect which is material and adverse to (A) the financial
condition, properties, assets, business or results of
operations of such person and its subsidiaries, taken as a
whole, or (B) the ability of such person to perform its
obligations under, and to consummate the transactions
contemplated by, this Agreement.
"Person" includes an individual, corporation, partnership,
association, trust or unincorporated organization.
"Subsidiary," with respect to a person, means any other person
controlled by such person.
When a reference is made in this Agreement to Exhibits, Sections,
Annexes or Schedules, such reference shall be to a Section of, or Annex or
Schedule to, this Agreement unless otherwise indicated. The table of contents,
tie sheet and headings contained in this Agreement are for ease of reference
only and shall not affect the meaning or interpretation of this Agreement.
Whenever the words "include," "includes," or "including" are used in this
Agreement, they shall be deemed followed by the words "without limitation". Any
singular term in this Agreement shall be deemed to include the plural, and any
plural term the singular.
SECTION 8.2 Survival.
Except as otherwise provided in this Agreement, the representations,
warranties and agreements of the parties set forth in this Agreement shall not
survive the Effective Time, and shall be terminated and extinguished at the
Effective Time, and from and after the Effective Time none of
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the parties hereto shall have any liability to the other on account of any
breach or failure of any of those representations, warranties and agreement;
provided, however, that the foregoing clause shall not apply to agreements of
the parties which by their terms are intended to be performed either in whole or
in part after the Effective Time.
SECTION 8.3 Parties in Interest.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto and their respective successors and assigns, and, other than
the right to receive the consideration payable in the Merger pursuant to Article
II hereof, is not intended to and shall not confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 8.4 Captions.
The captions contained in this Agreement are for reference purposes
only and are not part of this Agreement.
SECTION 8.5 Severability.
If any provision of this Agreement or the application thereof to any
party or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such provisions to other
parties or circumstances shall not be affected thereby and shall be enforced to
the greatest extent permitted by law.
SECTION 8.6 Access; Confidentiality.
The parties hereby agree to conduct the investigations and discussions
contemplated by Section 4.4 of this Agreement in a manner so as to not interfere
unreasonably with normal operations and customer and employee relationships. If
the transactions contemplated by this Agreement are not consummated, the parties
hereby agree to destroy or return all documents and records obtained from the
other or their respective representatives during the course of any investigation
and will cause all information with respect to the other party obtained pursuant
to this Agreement or preliminarily thereto to be kept confidential, except to
the extent such information becomes public through no fault of the party which
has obtained such information or any of its respective representatives or agents
and except to the extent disclosure of any such information is legally required.
Each party hereby agrees to give the other party prompt notice of any
contemplated disclosure where such disclosure is so legally required.
SECTION 8.7 Waiver and Amendment.
Prior to the Effective Time, any provision of this Agreement may be:
(i) waived by the party benefitted by the provision; or (ii) amended or modified
at any time (including the structure of the transaction) by an agreement in
writing between the parties hereto approved by their respective boards of
directors, except that no amendment or waiver may be made that would change the
form or the
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amount of the merger consideration or otherwise have the effect of prejudicing
the Sterling or HBI shareholders' interest in the merger consideration following
the Sterling or HBI Shareholders' Meeting.
SECTION 8.8 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed to constitute an original, but all of which together shall constitute one
and the same instrument.
SECTION 8.9 Governing Law.
This Agreement shall be governed by, and interpreted in accordance
with, the laws of the Commonwealth of Pennsylvania, or, to the extent it may
control, federal law, without reference to the choice of law principles thereof.
SECTION 8.10 Expenses.
Except as otherwise provided in this Agreement, and subject to the
provisions of Section 6.3 hereof, each party hereto will bear all Expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby; provided, however, that all filing and other fees (other
than federal and state income taxes) required to be paid to any governmental
agency or authority in connection with the consummation of the transactions
contemplated hereby shall be paid by Sterling.
SECTION 8.11 Change of Control Fee.
(a) In the event that a Change of Control of HBI is effected, or
HBI or Hanover enters into an agreement to effect a Change of
Control, within sixty (60) days of the termination of this
Agreement in accordance with the terms hereof (and provided
that such period shall be extended to November 30, 2000, if
such termination results from a breach by HBI of its
obligations hereunder), and so long as Sterling shall not have
breached its obligations hereunder, then HBI shall promptly,
but in no event later than two (2) business days after the
Change of Control or entering into an agreement to effect a
Change in Control, pay Sterling a fee of $500,000 in addition
to paying Sterling's Expenses hereunder, which total amount
shall be payable by wire transfer of same day funds. If HBI
fails to promptly pay the amount due pursuant to this Section
8.11 and, in order to obtain such payment, Sterling commences
a suit which results in a judgment against HBI for all or a
substantial portion of the fee set forth in this Section 8.11,
HBI shall pay to Sterling all costs and expenses (including
reasonable attorneys' fees) incurred by Sterling in connection
with such suit. This Section 8.11 shall survive any
termination of this Agreement.
(b) As used in this Section 8.11 and subsection (d) of Schedule
2.1 and Section 2.3(e) of this Agreement, "Change of Control"
shall mean the occurrence of any of the following:
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(i) (A) a merger, consolidation or division involving HBI, Hanover
or Sterling, as the case may be, (B) a sale, exchange,
transfer or other disposition of substantially all of the
assets of HBI, Hanover or Sterling, as the case may be, or (C)
a purchase by HBI or Hanover of substantially all of the
assets of another entity, unless (y) the shareholders of HBI
or Sterling, as the case may be, are to hold shares of the
legal entity resulting from or existing after the transaction
to be outstanding immediately after such transaction entitled
to cast at least a majority of the votes entitled to be cast
generally for the election of directors; or
(ii) any other change of control of HBI, Hanover or Sterling, as
the case may be, similar in effect to any of the foregoing.
SECTION 8.12 Notices.
All notices, requests, acknowledgments and other communications
hereunder to a party shall be in writing and shall be deemed to have been duly
given when delivered by hand, telecopy, telegram or telex (confirmed in writing)
to such party at its address set forth below or such other address as such party
may specify by notice to the other party hereto.
If to Sterling, to:
Sterling Financial Corporation
North Pointe Banking Center
101 North Pointe Boulevard
Lancaster, PA 17601
Attention: Mr. John E. Stefan
President and Chief Executive Officer
With copies to:
Shumaker Williams, P.C.
3425 Simpson Ferry Road
Camp Hill, PA 17011
Attention: Nicholas Bybel, Jr., Esquire
If to HBI, to:
Hanover Bancorp, Inc.
25 Carlisle Street
P.O. Box 513
Hanover, PA 17331-2404
Attention: J. Bradley Scovill
Chief Executive Officer
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With copies to:
Barley, Snyder, Senft & Cohen, LLC
126 East King Street
Lancaster, PA 17602
Attention: Paul G. Mattaini, Esquire
SECTION 8.13 Entire Agreement: Etc.
This Agreement, together with such other agreements as are executed by
the parties in connection herewith, on the date hereof, represent the entire
understanding of the parties hereto with reference to the transactions
contemplated hereby and supersede any and all other oral or written agreements
heretofore made. All terms and provisions of this Agreement, together with such
other agreements as are executed by the parties in connection herewith, on the
date hereof, shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Nothing in this Agreement is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement except as expressly provided.
IN WITNESS WHEREOF, the parties hereto have caused this to be executed
by their duly authorized officers as of the day and year first above written.
STERLING FINANCIAL CORPORATION
/s/ Ronald L. Bowman /s/ John E. Stefan
- ---------------------------------- ----------------------------------------
Ronald L. Bowman , Secretary By: John E. Stefan
Title: President and Chief Executive
Officer
HANOVER BANCORP, INC.
/s/ Thomas J. Paholsky /s/ Terrence L. Hormel
- ---------------------------------- ----------------------------------------
Thomas J. Paholsky, Secretary By: Terrence L. Hormel
Title: Chairman of Board
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/s/ J. Bradley Scovill
----------------------------------------
By: J. Bradley Scovill
Title: President and Chief Executive
Officer
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SCHEDULE 2.1
Exchange Provisions
(a) Each of the outstanding shares of HBI Common Stock shall be
exchanged for 0.93 shares of Sterling Common Stock and the Exchange Ratio shall
be 0.93. Subject to the provisions of Section 2.1(b), the aggregate number of
shares of Sterling Common Stock to be issued under this Agreement shall not
exceed 3,735,675 shares (assuming the exercise of all of the HBI Options prior
to the Effective Date).
(b) The Closing Market Price of Sterling Common Stock shall be the
arithmetic average of the per share mean of the closing bid price and the
closing asked price for Sterling Common Stock for each of the twenty (20)
trading days immediately preceding the date which is five (5) business days
before the Effective Date, as reported on the National Market System of the
National Association of Securities Dealers Automated Quotation System
(NASDAQ/NMS), the foregoing twenty (20) trading days being hereinafter sometimes
referred to as the "Price Determination Period". (For example, if June 30, 2000
were to be the Effective Date, then the Price Determination Period would be May
25, 26, 30, 31, June 1, 2, 5, 6, 7, 8, 9, 12, 13, 14, 15, 16, 19, 20, 21 and
22.) In the event that NASDAQ/NMS shall fail to report a closing bid price and
closing asked price, respectively, for Sterling Common Stock for any trading day
during the Price Determination Period, then the per share mean price for that
day shall be equal to the average of the closing bid prices and the closing
asked prices as quoted: (i) by two market makers in Sterling Common Stock listed
in Sterling's 1999 Third Quarter Report to Shareholders; or (ii) in the event
that neither of these firms is then making a market in Sterling Common Stock, by
two brokerage firms then making a market in Sterling Common Stock to be selected
by Sterling and approved by the Board of Directors of HBI which approval shall
not be unreasonably withheld.
(c) HBI shall have the right to terminate the Agreement in accordance
with Section 6.1(e) if: (i) both (A) the Closing Market Price is less than
$21.67 (80% of the Starting Price) and (B) the Sterling Ratio is less than the
Index Ratio by more than 5%; or (ii) the Closing Market Price is less than
$18.96 (70% of the Starting Price).
(d) Sterling shall have the right to terminate the Agreement in
accordance with Section 6.1(f) if: (i) both (A) the Closing Market Price is
greater than $32.50 (120% of the Starting Price and (B) the Sterling Ratio is
greater than the Index Ratio by more than 5%; or (ii) the Closing Market Price
is greater than $35.22 (130% of the Starting Price); provided, however, that
Sterling shall not have the right the terminate this Agreement under Section
6.1(f) if a Change of Control (as such term is defined in Section 8.11 of the
Agreement) of Sterling occurs or is announced prior to the Effective Date.
(e) For purposes of this Schedule 2.1, the following terms shall
have the meanings indicated:
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"Average NASDAQ Bank Index Value For The Price Determination Period"
means the average of the NASDAQ Bank Index Value as quoted by NASDAQ for the
Price Determination Period.
"Starting Price" shall mean the mean between the closing bid and the
closing asked price per share of Sterling Common on January 24, 2000, as
reported by the NASDAQ Stock Market reporting system (as reported on the NASDAQ
Stock Market Internet Web Site (www.nasdaq.com)). For January 24, 2000, the
closing bid price was reported to be $26.625 and the closing asked price was
reported to be $27.5625, for a starting price calculated to be $27.09375,
rounded to $27.09.
"Sterling Ratio" shall mean the quotient (multiplied by 100 to express
such quotient as a percentage) obtained by dividing the Closing Market Price by
the Starting Price ($27.09).
"Index Ratio" shall mean the quotient (multiplied by 100 to express
such quotient as a percentage) obtained by dividing the Average NASDAQ Bank
Index Value For the Price Determination Period by the NASDAQ Bank Index Value on
the Starting Date (1,516.67).
The Starting Price and the Closing Market Price shall be appropriately
adjusted for an event described in Section 2.1(b) herein.
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INVESTMENT AGREEMENT
THIS AGREEMENT dated as of January 25, 2000, between STERLING FINANCIAL
CORPORATION ("STERLING") and HANOVER BANCORP, INC. ("HANOVER BANCORP"),
WITNESSETH:
WHEREAS, Sterling and Hanover Bancorp have, simultaneously with
executing this Agreement, entered into an Agreement and Plan of Merger dated as
of the date hereof (the "Plan"); and
WHEREAS, as a condition to Sterling's entry into the Plan and in
consideration of such entry, Hanover Bancorp has agreed to issue to Sterling, on
the terms and conditions set forth herein, options entitling Sterling to
purchase up to an aggregate of 772,955 shares (the "Shares") of Hanover
Bancorp's common stock, par value $0.83 per share ("Hanover Bancorp Common
Stock");
NOW, THEREFORE, in consideration of the execution of the Plan and the
agreements herein contained, Sterling and Hanover Bancorp, intending to be
legally bound hereby, agree as follows:
1. Concurrently with the execution of the Plan and this Agreement,
Hanover Bancorp shall issue to Sterling an option or options in the form of
Attachment A hereto (the "Option", which term as used herein shall include any
options issued upon transfer or exchange of the original Option or pursuant to
Paragraph 4 of this Agreement) to purchase up to 772,955 shares of Hanover
Bancorp Common Stock. Each Option shall be exercisable at a price per share of
$14.00, subject to adjustment as therein provided (the "Exercise Price"). So
long as the Option is outstanding and unexercised, Hanover Bancorp shall at all
times maintain and reserve, free from preemptive rights, such number of
authorized but unissued or treasury shares of Hanover Bancorp Common Stock as
may be necessary so that the Option may be exercised without additional
authorization of Hanover Bancorp Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to acquire shares of
Hanover Bancorp Common Stock at the time outstanding. Hanover Bancorp represents
and warrants that it has duly authorized the issuance of the Shares upon
exercise of the Option and covenants that the Shares issued upon exercise of the
Option shall be duly authorized, validly issued and fully paid and nonassessable
and subject to no preemptive rights. The Option and the Shares are hereinafter
collectively referred to, from time to time, as the "Securities".
So long as the Option is owned by Sterling, in no event shall Sterling
exercise the Option for a number of shares of Hanover Bancorp Common Stock
which, when added to the number of shares of Hanover Bancorp Common Stock owned
or controlled by Sterling (otherwise than in a fiduciary capacity) would result
in Sterling owning or controlling (otherwise than in a fiduciary
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capacity) more than 19.9 percent of the shares of Hanover Bancorp Common Stock
issued and outstanding immediately after giving effect to such exercise.
2. Subject to the terms and conditions hereof, Sterling may exercise or
sell the Option, in whole or in part, upon: (i) the failure of Hanover Bancorp's
shareholders to approve the Plan at a meeting called for such purpose after the
announcement by a qualified and financially capable person (other than Sterling)
of a bona fide written offer to acquire 20 percent or more of Hanover Bancorp
Common Stock, or to acquire, merge or consolidate with Hanover Bancorp or to
purchase or acquire all or substantially all of Hanover Bancorp's assets; (ii)
the acquisition by any person (other than Sterling) of beneficial ownership of
20 percent or more of Hanover Bancorp Common Stock exclusive of shares of
Hanover Bancorp Common Stock sold directly or indirectly to such person by
Sterling; (iii) any person (other than Sterling) shall have commenced a tender
or exchange offer, or shall have filed an application with an appropriate bank
regulatory authority with respect to a publicly announced offer, to purchase or
acquire securities of Hanover Bancorp such that, upon consummation of such
offer, such person would own, control or have the right to acquire 20 percent or
more of Hanover Bancorp Common Stock (before giving effect to any exercise of
the Option); or (iv) Hanover Bancorp shall have entered into an agreement with a
person (other than Sterling) for such person to acquire, merge or consolidate
with Hanover Bancorp or to purchase or acquire all or substantially all of
Hanover Bancorp's assets. Sterling's right to exercise the Option shall
terminate and be of no further effect, except as to notices of exercise given
prior thereto, upon termination of the Option as provided in Paragraph 10
thereof. As used in this Paragraph 2, "person" and "beneficial ownership" shall
have the same meanings as in the Option. Notwithstanding the foregoing, Hanover
Bancorp shall not be obligated to issue Shares upon exercise of the Option (i)
in the absence of any required governmental or regulatory approval or consent
necessary for Hanover Bancorp to issue the Shares or for Sterling to exercise
the Option or prior to the expiration or termination of any waiting period
required by law or (ii) so long as any injunction or other order, decree or
ruling issued by any federal or state court of competent jurisdiction is in
effect which prohibits the sale or delivery of the Shares. Any sale of the
Option, in whole or in part, or any of the Shares by Sterling, other than a sale
to a majority-owned subsidiary of Sterling, shall be subject to the right of
first refusal of Hanover Bancorp (or any assignee or assignees of Hanover
Bancorp the identity of whom or which prior to the date thereof has been given
to Sterling) at a price equal to the written offer price which Sterling receives
from a third party (other than a majority-owned subsidiary of Sterling) and
intends to accept. The right of first refusal shall terminate 20 days after
notice of Sterling's intention to sell has been delivered to Hanover Bancorp. If
an offer is made for a consideration which in whole or in part consists of other
than cash, the value of the non-cash portion of the consideration shall be
determined by a recognized investment banking firm selected jointly by Sterling
and Hanover Bancorp, and such determination shall in no event be made later than
the fifth day after notice of Sterling's intention to sell has been delivered to
Hanover Bancorp. In the event of the failure or refusal of Hanover Bancorp to
purchase the Option or all the Shares covered by Sterling's notice to sell,
Sterling may, within 30 days from the date of such notice, unless additional
time is needed to give notification to or to obtain approval from any
governmental or regulatory authority and, if so required, within five days after
the date on which the required notification period has expired or been
terminated or such approval has been obtained and any requisite waiting period
with respect
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thereto has passed, sell all, but not less than all, of the portion of the
Option or such Shares covered by such notice to such proposed transferee at no
less than the price specified and on terms no more favorable to the buyer than
those set forth in the notice.
3. Subject to applicable regulatory restrictions, from and after the
date on which any event described in the second paragraph of this Paragraph 3
occurs, the Holder as defined in the Option (which shall include a former
Holder) who has exercised the Option in whole or in part shall have the right to
require Hanover Bancorp to redeem some or all of the Shares at a redemption
price per share (the "Redemption Price") equal to the highest of: (i) one
hundred and fifteen percent (115 %) of the Exercise Price in the case of an
event under subsection (i) of the second paragraph of this Paragraph 3 occurs or
one hundred twenty-five percent (125%) of the Exercise Price in the case of an
event under subsection (ii) of the second paragraph of this Paragraph 3 occurs;
(ii) the highest price paid or agreed to be paid for any share of Hanover
Bancorp Common Stock by an Acquiring Person (as defined in the Option) during
the twelve months immediately preceding the date notice of the election to
require redemption is given by the Holder under the third paragraph of this
Paragraph 3 (as appropriately adjusted to reflect any of the events described in
Paragraph 7(A) of the Option); and (iii) in the event of a sale of all or
substantially all of Hanover Bancorp's assets, (x) the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Hanover Bancorp as determined by a recognized investment banking firm
selected by such Holder, divided by (y) the number of shares of Hanover Bancorp
Common Stock then outstanding. If the price paid consists in whole or in part of
the securities or assets other than cash, the value of such securities or assets
shall be their then current market value as determined by a recognized
investment banking firm selected by the Holder. The Holder's right to require
Hanover Bancorp to redeem some or all of the Shares under this Paragraph 3 shall
expire on the close of business on the 180th day following the occurrence of any
event described in the second paragraph of this Paragraph 3.
The redemption rights provided in this Paragraph 3 shall become
exercisable upon the occurrence of any of the following events: (i) the
acquisition by any person (other than Sterling or any subsidiary of Sterling) of
beneficial ownership of 20 percent or more of the Hanover Bancorp Common Stock
(before giving effect to any exercise of the Option) exclusive of shares of
Hanover Bancorp Common Stock sold directly or indirectly to such person by
Sterling or (ii) a transaction of the type specified in Paragraph 2(iv)shall
have been consummated. As used in this Paragraph 3 "person" and "beneficial
ownership" shall have the same meanings as in the Option.
The Holder may exercise its right to require Hanover Bancorp to redeem
some or all of the Shares pursuant to this Paragraph 3 by surrendering for such
purpose to Hanover Bancorp, at its principal office within the time period
specified in the preceding paragraph, a certificate or certificates representing
the number of Shares to be redeemed accompanied by a written notice stating that
it elects to require Hanover Bancorp to redeem all or a specified number of such
Shares in accordance with the provisions of this Paragraph 3. As promptly as
practicable, and in any event within ten business days after the surrender of
such certificates and the receipt of such notice relating thereto, Hanover
Bancorp shall deliver or cause to be delivered to the Holder the Redemption
Price multiplied by the number of Shares that the Holder is requiring Hanover
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Bancorp to redeem which it is not then prohibited under applicable law or
regulation from redeeming, and, if the Holder has given Hanover Bancorp notice
that less than the full number of Shares evidenced by the surrendered
certificate or certificates are to be redeemed, a new certificate or
certificates, of like tenor, for the number of Shares evidenced by such
surrendered certificate or certificates, less the number of Shares redeemed. To
the extent that Hanover Bancorp is prohibited under applicable law or
regulation, or by judicial or administrative action, from redeeming all of the
Shares as to which the Holder has given notice to redeem hereunder, Hanover
Bancorp shall immediately notify the Holder and thereafter deliver or cause to
be delivered to the Holder the applicable Redemption Price for such number of
the Shares as it is not prohibited from redeeming within ten business days after
the date on which Hanover Bancorp is no longer so prohibited; provided, however,
that at the option of Sterling, at any time after receipt of such notice from
Hanover Bancorp, Hanover Bancorp shall deliver to the Holder a certificate for
such number of the Shares as it is then prohibited from redeeming, or, at the
Holder's option, all the Shares, and Hanover Bancorp shall have no further
obligation to redeem such Shares.
4. In the event that Hanover Bancorp issues any additional Shares of
Hanover Bancorp Common Stock pursuant to outstanding stock options after the
date of this Agreement, Hanover Bancorp shall issue additional options to
Sterling, such that, after such issuance, the number of Shares of Hanover
Bancorp Common Stock subject to all options hereunder, together with any shares
of Hanover Bancorp Common Stock previously issued pursuant hereto, equals 19.9
percent of the shares of Hanover Bancorp Common Stock then issued and
outstanding. Such additional options shall be identical to the Option.
5. Hanover Bancorp will not enter into any transaction described in
(a), (b) or (c) of Paragraph 6(A) of the Option unless the Acquiror (as defined
in the Option) assumes in writing, in form and substance satisfactory to the
Holder, all the obligations of Hanover Bancorp hereunder.
6. This Agreement shall not be assignable by Sterling except to any
direct or indirect subsidiary, affiliate or successor of Sterling.
7. Without limiting the foregoing or any remedies available to
Sterling, it is specifically acknowledged that Sterling would not have an
adequate remedy at law for any breach of this Agreement and will be entitled to
specific performance of the obligations under, and injunctive relief against
actual or threatened violations of the obligations of any person subject to this
Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed in counterparts by their duly authorized officers and their
corporate seals to be hereunto affixed, all as of the day and year first above
written.
[CORPORATE SEAL]
ATTEST: HANOVER BANCORP, INC.
By:/s/ Thomas J. Paholsky By:/s/ Terrence L. Hormel
------------------------------- -------------------------------------
Thomas J. Paholsky, Secretary Terrence L. Hormel
Title: Chairman of Board
By: /s/ Bradley Scovill
-------------------------------------
J. Bradley Scovill
Title: President and CEO
[CORPORATE SEAL]
ATTEST: STERLING FINANCIAL
CORPORATION
By:/s/ Ronald L. Bowman By:/s/ John E. Stefan
------------------------------- -------------------------------------
John E. Stefan
President and CEO
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ATTACHMENT A
OPTION
TO PURCHASE UP TO 772,955 SHARES OF
COMMON STOCK
OF
HANOVER BANCORP, INC.
This is to certify that, for value received, STERLING FINANCIAL
CORPORATION ("Sterling") or any permitted transferee (Sterling or such
transferee hereinafter the "Holder") is entitled to purchase, subject to the
provisions of this Option and of the Agreement (as hereinafter defined), from
HANOVER BANCORP, INC. ("Hanover Bancorp"), at any time on or after the date
hereof, an aggregate of up to 772,955 fully paid and nonassessable shares of
common stock, par value $0.83 per share ("Hanover Bancorp Common Stock") of
Hanover Bancorp at a price per share equal to $14.00, subject to adjustment as
herein provided (the "Exercise Price").
1. Exercise of Option. Subject to the provisions hereof and the
limitations set forth in Paragraph 2 of an Investment
Agreement dated as of January 25, 2000, by and between
Sterling and Hanover Bancorp (the "Agreement") executed and
delivered in connection with an Agreement and Plan of Merger
dated as of January 25, 2000, between Sterling and Hanover
Bancorp (the "Plan"), this Option may be exercised at any time
or from time to time on or after the date hereof. This Option
shall be exercised by presentation and surrender hereof to
Hanover Bancorp at its principal office, accompanied by (i) a
written notice of exercise, (ii) payment to Hanover Bancorp,
for the account of Hanover Bancorp, of the Exercise Price for
the number of shares of Hanover Bancorp Common Stock specified
in such notice and (iii) a certificate of the Holder
specifying the event or events which have occurred which
entitle the Holder to exercise the Option. The Exercise Price
for the number of shares of Hanover Bancorp Common Stock
specified in the notice shall be payable in immediately
available funds. This Option may not be exercised in part for
less than 10,000 shares, except (i) for an initial exercise
resulting in ownership of approximately 5 percent of the
outstanding shares of Hanover Bancorp Common Stock after
giving effect to the exercise, (ii) as limited by applicable
law, regulation or regulatory order or (iii) when this Option
becomes exercisable for less than 10,000 shares, the remaining
shares for which it is then exercisable.
Upon such presentation and surrender, Hanover Bancorp shall issue
promptly (and within five business days if requested by the Holder) to the
Holder or its assignee, transferee or designee the shares of Hanover Bancorp
Common Stock to which the Holder is entitled hereunder.
If this Option should be exercised in part only, Hanover Bancorp shall,
upon surrender of this Option for cancellation, execute and deliver a new Option
evidencing the rights of the Holder thereof to purchase the balance of the
shares of Hanover Bancorp Common Stock purchasable
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hereunder. Upon receipt by Hanover Bancorp of this Option, in proper form for
exercise, the Holder shall be deemed to be the holder of record of the shares of
Hanover Bancorp Common Stock issuable upon such exercise, notwithstanding that
the stock transfer books of Hanover Bancorp may then be closed or that
certificates representing such shares of Hanover Bancorp Common Stock shall not
then be actually delivered to the Holder. Hanover Bancorp shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges, that may be payable in connection with the preparation, issue and
delivery of stock certificates pursuant to this Paragraph 1 in the name of the
Holder or its assignee, transferee or designee.
2. Reservation of Shares; Preservation of Rights of Holder.
Hanover Bancorp shall at all times while this Option is
outstanding and unexercised maintain and reserve, free from
preemptive rights, such number of authorized but unissued or
treasury shares of Hanover Bancorp Common Stock as may be
necessary so that this Option may be exercised without
additional authorization of Hanover Bancorp Common Stock after
giving effect to all other options, warrants, convertible
securities and other rights to acquire shares of Hanover
Bancorp Common Stock at the time outstanding. Hanover Bancorp
further agrees (i) that it will not, by charter amendment or
through reorganization, consolidation, merger, dissolution or
sale of assets, or by any other voluntary act, avoid or seek
to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or
performed hereunder or under the Agreement by Hanover Bancorp,
(ii) that it will use its best efforts to take all action
(including (A) complying with all premerger notification,
reporting and waiting period requirements specified in 15
U.S.C. Section 18a and the regulations promulgated thereunder
and (B) in the event that under the Bank Holding Company Act
of 1956 or the Change in Bank Control Act or any other law,
prior approval of the Board of Governors of the Federal
Reserve System (the "Board"), the Securities Regulatory
Commissions (SEC), or any other regulatory agency is necessary
before this Option may be exercised, cooperating fully with
the Holder in preparing any and all such applications and
providing such information to the Board as such agency may
require) in order to permit the Holder to exercise this Option
and Hanover Bancorp duly and effectively to issue shares of
Hanover Bancorp Common Stock hereunder, and (iii) that it will
promptly take all action necessary to protect the rights of
the Holder against dilution as provided herein.
3. Fractional Shares. Hanover Bancorp shall not be required to
issue fractional shares of Hanover Bancorp Common Stock upon
exercise of this Option but shall pay for such fraction of a
share in cash or by certified or official bank check at the
Exercise Price.
4. Exchange, Transfer or Loss of Option. This Option is
exchangeable or, subject to Paragraph 2 of the Investment
Agreement, transferable, without expense, at the option of the
Holder, upon presentation and surrender hereof at the
principal office of Hanover Bancorp for other Options of
different denominations entitling the Holder to purchase in
the aggregate the same number of shares of Hanover Bancorp
Common Stock purchasable hereunder. The term "Option" as used
herein includes
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any Options for which this Option may be exchanged. Upon
receipt by Hanover Bancorp of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this
Option, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender
and cancellation of this Option, if mutilated, Hanover Bancorp
will execute and deliver a new Option of like tenor and date.
This Option may not be exercised or sold except in accordance with the
terms of the Agreement.
5. Redemption.
(A) Subject to applicable regulatory restrictions, from and
after the date on which any event described in the second paragraph of
Paragraph 3 of the Agreement occurs, the Holder shall have the right to
require Hanover Bancorp to redeem this Option at a redemption price
(the "Redemption Amount") equal to (x) the highest of: (i) the number
of shares of Hanover Bancorp Common Stock for which this Option is then
exercisable (the "Conversion Number") multiplied by the Exercise Price
multiplied by 115% in the case of an event under subsection (i) of the
second paragraph of Paragraph 3 of the Agreement occurs or 125% in the
case of an event under subsection (ii) of the second paragraph of
Paragraph 3 of the Agreement occurs; (ii) the highest price paid or
agreed to be paid for any share of Hanover Bancorp Common Stock by the
Acquiring Person (as hereinafter defined) during the twelve months
immediately preceding the date notice of the election to require
redemption is given by the Holder under Paragraph 5(B)(such price to be
appropriately adjusted to reflect the effect of any of the events
described in Paragraph 7(A) hereof), multiplied by the Conversion
Number; and (iii) in the event of the sale of all or substantially all
of the assets of Hanover Bancorp, the Conversion Number multiplied by
(I) the sum of (a) the price paid for such assets and (b) the current
market value of the remaining assets of Hanover Bancorp, as determined
by a recognized investment banking firm selected by the Holder, divided
by (II) the sum of the number of shares of Hanover Bancorp Common Stock
then outstanding, less (y) the Exercise Price multiplied by the
Conversion Number. If, for the purpose of this calculation or
calculating the Assigned Value (as hereinafter described), the price
paid consists in whole or in part of securities or assets other than
cash, the value of such securities or assets shall be their then
current market value as determined by a recognized investment banking
firm selected by the Holder. The Holder's right to require Hanover
Bancorp to redeem this Option under this Paragraph 5 shall expire at
the close of business on the 180th day following the occurrence of any
event described in the second paragraph of Paragraph 3 of the
Agreement.
(B) The Holder of this Option may exercise its right to
require Hanover Bancorp to redeem this Option pursuant to this
Paragraph 5 by surrendering for such purpose to Hanover Bancorp, at its
principal office, within the period specified above, this Option
accompanied by a written notice stating that the Holder elects to
require Hanover Bancorp to redeem this Option in accordance with the
provisions of this Paragraph 5. As promptly as practicable, and in any
event within ten business days after the surrender of this Option
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and the receipt of such notice relating thereto, Hanover Bancorp shall
deliver or cause to be delivered to the Holder the Redemption Amount
therefor or the portion thereof which it is not then prohibited under
applicable law and regulation from delivering to the Holder.
To the extent that Hanover Bancorp is prohibited under
applicable law or regulation, or as a result of administrative or
judicial action, from redeeming this Option in full, Hanover Bancorp
shall immediately notify the Holder and thereafter deliver or cause to
be delivered to the Holder the portion of the Redemption Amount which
it is no longer prohibited from delivering to the Holder within ten
business days after the date on which Hanover Bancorp is no longer so
prohibited; provided, however, that, at the option of the Holder, at
any time after receipt of such notice, Hanover Bancorp shall deliver to
the Holder a new Option evidencing the right to the Holder to purchase
that number of shares of Hanover Bancorp Common Stock obtained by
multiplying the Conversion Number in effect at such time by a fraction,
the numerator of which is the Redemption Amount less the portion
thereof (if any) theretofore delivered to the Holder and the
denominator of which is the Redemption Amount, and Hanover Bancorp
shall have no further obligation to redeem such new Option.
(C) As used in this Option, the following terms have the
meanings indicated:
(a) "Acquiring Person" shall mean any "Person"
(hereinafter defined) who or which shall be the "Beneficial
Owner" (as hereinafter defined) of 20% or more of Hanover
Bancorp Common Stock;
(b) A "Person" shall mean any individual, firm,
corporation or other entity and include as well any syndicate
or group deemed to be a "person" by Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended;
(c) A Person shall be a "Beneficial Owner" of all
securities:
(i) which such Person or any of its
"Affiliates" (as hereinafter defined) or "Associates"
(as hereinafter defined) beneficially owns, directly
or indirectly; and
(ii) which such Person or any of its
Affiliates or Associates has (1) the right to acquire
(whether such right is exercisable immediately or
only after the passage of time or otherwise) pursuant
to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (2) the
right to vote pursuant to any agreement, arrangement
or understanding; and
(d) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations
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promulgated under the Securities Exchange Act of 1934, as
amended, as in effect on the date of the Agreement.
6. Certain Transactions.
(A) In case Hanover Bancorp (a) shall consolidate with or
merge into any Person, other than the Holder or one of its Affiliates,
and shall not be the continuing or surviving corporation of such
consolidation or merger, (b) shall permit any Person, other than the
Holder or one of its Affiliates, to merge into Hanover Bancorp and
Hanover Bancorp shall be the continuing or surviving corporation, but,
in connection with such merger, the then outstanding shares of Hanover
Bancorp Common Stock shall be changed into or exchanged for stock or
other securities of any other Person or cash or any other property or
shall represent less than 25% of the shares of Hanover Bancorp Common
Stock immediately after giving effect to the merger, or (c) shall sell
or otherwise transfer all or substantially all of its assets to any
Person, other than the Holder or one of its Affiliates, then, and in
each such case, the agreement governing such transaction shall make
proper provision so that this Option shall (at the option of the
Holder, in whole or in part), upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, a option, at the option of the
Holder, of either (I) the Acquiring Corporation (as hereinafter
defined), (II) any company which controls the Acquiring Corporation, or
(III) in the case of a merger described in clause (A)(b), Hanover
Bancorp, in which case such option shall be a newly issued option (in
any such case, the "Substitute Option").
(B) The following terms have the meanings indicated:
(a) "Acquiring Corporation" shall mean (i) the
continuing or surviving corporation of a consolidation or
merger with Hanover Bancorp (if other than the Hanover
Bancorp), (ii) the corporation merging into Hanover Bancorp in
a merger in which the Hanover Bancorp is the continuing or
surviving person and in connection with which the then
outstanding shares of Hanover Bancorp Common Stock are changed
into or exchanged for stock of other securities of any other
Person or cash or any other property or shall represent less
than 50% of the shares of Hanover Bancorp Common Stock
immediately after giving effect to the merger, and (iii) the
transferee of all or substantially all of Hanover Bancorp's
assets, Hanover Bancorp or all or substantially all of the
Hanover Bancorp's assets;
(b) "Substitute Common Stock" shall mean the common
stock issued by the issuer of the Substitute Option;
(c) "Assigned Value" shall mean the Redemption Price
per share of Hanover Bancorp Common Stock (as defined in
Paragraph 3 of the Agreement) multiplied by the Conversion
Number;
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(d) "Average Price" shall mean the average closing
price (or if unavailable, the average of the daily averages of
the closing bid and asked prices) of a share of Substitute
Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event
higher than the closing price (or average of the closing bid
and asked prices) of a share of Substitute Common Stock on the
day preceding such consolidation, merger or sale; provided
that if Hanover Bancorp is the issuer of the Substitute
Option, the Average Price shall be computed with respect to a
share of the common stock issued by the Person merging into
Hanover Bancorp or by any company which controls such Person,
as the Holder may elect. If the Average Price cannot be
computed as aforesaid because neither closing prices nor
closing bid and asked prices are available for such one-year
period, then the Average Price shall be the average fair
market value of a share of Substitute Common Stock for such
period (but in no event higher than the fair market value on
the day preceding such consolidation, merger or sale) as
determined by a recognized investment banking firm selected by
Sterling.
(C) The Substitute Option shall have the same terms as this
Option provided that if the terms of the Substitute Option cannot, for
legal reasons, be the same as this Option, such terms shall be as
similar as possible and in no event less advantageous to the Holder.
The issuer of the Substitute Option shall also enter into an agreement
with the then Holder of the Substitute Option in substantially the same
form as the Agreement, which shall be applicable to the Substitute
Option. For purposes of the Substitute Option and such agreement, any
event referred to in Paragraph 2 or Paragraph 3 of the Agreement shall
be deemed to have occurred when it occurred with respect to Hanover
Bancorp.
(D) The Substitute Option shall be immediately exercisable for
such number of shares of Substitute Common Stock as is equal to the
Assigned Value divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall be equal
to the Exercise Price multiplied by a fraction in which the numerator
is the Conversion Number and the denominator is the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(E) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the
aggregate of the outstanding shares of Substitute Common Stock and the
shares of Substitute Common Stock issuable upon exercise of the
Substitute Option.
7. Adjustment. The number of shares of Hanover Bancorp Common
Stock purchasable upon the exercise of this Option and the
Exercise Price shall be subject to adjustment from time to
time as provided in this Paragraph 7:
(A)(1) In case Hanover Bancorp shall pay or make a
dividend or other distribution on any class of capital stock
of Hanover Bancorp in Hanover Bancorp Common Stock, the number
of shares of Hanover Bancorp Common Stock purchasable upon
exercise of this Option shall be increased by multiplying such
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number of shares by a fraction of which the denominator shall
be the number of shares of Hanover Bancorp Common Stock
outstanding at the close of business on the day immediately
preceding the date of such distribution and the numerator
shall be the sum of such number of shares and the total number
of shares constituting such dividend or other distribution,
such increase to become effective immediately after the
opening of business on the day following such distribution,
provided, however, that in no event shall the Option be
exercised for more than 19.9% of the shares of Hanover Bancorp
Common Stock issued and outstanding.
(2) In case outstanding shares of Hanover Bancorp
Common Stock shall be subdivided into a greater number of
shares of Hanover Bancorp Common Stock, the number of shares
of Hanover Bancorp Common Stock purchasable upon exercise of
this Option at the opening of business on the day following
the day upon which such subdivision becomes effective shall be
proportionately increased, and, conversely, in case
outstanding shares of Hanover Bancorp Common Stock shall each
be combined into a smaller number of shares of Hanover Bancorp
Common Stock, the number of shares of Hanover Bancorp Common
Stock purchasable upon exercise of this Option at the opening
of business on the day following the day upon which such
combination becomes effective shall be proportionately
decreased, such increase or decrease, as the case may be, to
become effective immediately after the opening of business on
the day following the day upon which such subdivision or
combination becomes effective, provided, however, that in no
event shall the Option be exercised for more than 19.9% of the
shares of Hanover Bancorp Common Stock issued and outstanding.
(3) The reclassification (excluding any transaction
in which a Substitute Option would be issued) of Hanover
Bancorp Common Stock into securities (other than Hanover
Bancorp Common Stock) and/or cash and/or other consideration
shall be deemed to involve a subdivision or combination, as
the case may be, of the number of shares of Hanover Bancorp
Common Stock outstanding immediately prior to such
reclassification into the number or amount of securities
and/or cash and/or other consideration outstanding immediately
thereafter and the effective date of such reclassification
shall be deemed to be "the day upon which such subdivision
becomes effective," or "the day upon which such combination
becomes effective," as the case may be, within the meaning of
clause (2) above.
(4) Hanover Bancorp may make such increases in the
number of shares of Hanover Bancorp Common Stock purchasable
upon exercise of this Option, in addition to those required by
this subparagraph (A), as shall be determined by its Board of
Directors to be advisable in order to avoid taxation so far as
practicable of any dividend of stock or stock rights or any
event treated as such for federal income tax purposes to the
recipients.
(B) Whenever the number of shares of Hanover Bancorp Common
Stock purchasable upon exercise of this Option is adjusted as herein
provided, the Exercise Price
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shall be adjusted by a fraction in which the numerator is equal to the
number of shares of Hanover Bancorp Common Stock purchasable prior to
the adjustment and the denominator is equal to the number of shares of
Hanover Bancorp Common Stock purchasable after the adjustment.
(C) For the purpose of this Paragraph 7, the term "Hanover
Bancorp Common Stock" shall include any shares of Hanover Bancorp of
any class or series which has no preference or priority in the payment
of dividends or in the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of Hanover Bancorp
and which is not subject to redemption by Hanover Bancorp.
8. Notice.
(A) Whenever the number of shares for which this Option is
exercisable is adjusted as provided in Paragraph 7, Hanover Bancorp
shall promptly compute such adjustment and mail to the Holder a
certificate, signed by a principal financial officer of Hanover
Bancorp, setting forth the number of shares of Hanover Bancorp Common
Stock for which this Option is exercisable as a result of such
adjustment, a brief statement of the facts requiring such adjustment
and the computation thereof and when such adjustment will become
effective.
(B) Upon the occurrence of any event which results in this
Option becoming redeemable, as provided in Paragraph 5, Hanover Bancorp
shall promptly notify the Holder of such event; and promptly compute
the Redemption Amount and furnish to the Holder a certificate, signed
by a principal financial officer of Hanover Bancorp, setting forth the
Redemption Amount and the basis and computation thereof.
(C) Upon the occurrence of an event which results in this
Option becoming convertible into, or exchangeable for, the Substitute
Option, as provided in Paragraph 6, the Acquiring Corporation and
Hanover Bancorp shall promptly notify the Holder of such event; and,
upon receipt from the Holder of its choice as to the issuer of the
Substitute Option, the Acquiring Corporation and Hanover Bancorp shall
promptly compute the number of shares of Substitute Common Stock for
which the Substitute Option is exercisable and furnish to the Holder a
certificate, signed by a principal financial officer of each of the
Acquiring Corporation and Hanover Bancorp, setting forth the number of
shares of Substitute Common Stock for which the Substitute Option is
exercisable, a computation thereof and when such adjustment will become
effective.
9. Rights of Holder.
(A) Without limiting the foregoing or any remedies available
to the Holder, it is specifically acknowledged that the Holder would
not have an adequate remedy at law for any breach of the provision of
this Option and will be entitled to specific performance of the
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obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Option.
(B) Except as provided in the third paragraph of Paragraph 1
hereof, the Holder shall not, by virtue hereof, be entitled to any
rights of a shareholder in Hanover Bancorp.
10. Termination. This Option and the rights conferred hereby shall
terminate upon: (i) willful breach of the Plan by Sterling; (ii) at the
Effective Time of the Merger pursuant to the Plan; (iii) to the extent this
Option has not previously been exercised, 18 months after the occurrence of an
event described in Paragraph 2 of the Agreement (unless termination of the Plan
in accordance with its terms occurs prior to the occurrence of such event, in
which case clause (iv) below shall apply), provided that such termination
pursuant to this clause (iii) shall not affect any redemption under Paragraph 5
as to which exercise under Paragraph 5(B) has previously occurred; or (iv) upon
termination of the Plan in accordance with its terms, unless an event described
in Paragraph 2 of the Agreement occurs prior to such termination, in which case
this Option and the rights conferred hereby shall not terminate until 18 months
after the occurrence of such event.
11. Governing Law. This Option shall be governed by, and interpreted in
accordance with, the substantive laws of the Commonwealth of Pennsylvania.
Dated: January 25, 2000
[CORPORATE SEAL]
ATTEST: HANOVER BANCORP, INC.
By:/s/ Thomas J. Paholsky By:/s/ Terrence L. Hormel
------------------------------- -------------------------------------
Thomas J. Paholsky, Secretary Terrence L. Hormel
Title: Chairman of Board
By: /s/ J. Bradley Scovill
-------------------------------------
J. Bradley Scovill
Title: President and CEO
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ANNEX B
<PAGE> 230
_______________________, 2000
The Board of Directors
Sterling Financial Corporation
101 North Pointe Boulevard
Lancaster, PA 17601
Members of the Board:
You have requested that we update our opinion as to the fairness, from a
financial point of view, to the shareholders of Sterling Financial Corporation
("Sterling") of the Agreement and Plan of Merger (the "Agreement") pursuant to
which Hanover Bancorp, Inc. ("Hanover") will combine with and into Sterling by
means of a merger (the "Merger"). Under the terms of the Agreement, each
outstanding share of Hanover common stock will be converted into 0.93 shares of
Sterling common stock.
Garland McPherson & Associates, Inc., as part of its investment banking and bank
consulting business, is routinely engaged in the valuation of financial
institution securities for a variety of purposes, including mergers and
acquisitions, and the determination of adequate consideration in such
transactions.
For purposes of this opinion and the original opinion that was rendered on
January 25, 2000, we reviewed and analyzed information pertaining to the
financial and operating condition of Sterling and Hanover. This review included,
but was not limited to: (i) the Agreement and Plan of Merger; (ii) financial and
other information which was publicly available or provided to us by Sterling and
Hanover; (iii) certain financial information relating to the banking industry in
general; (iv) the respective history of dividends paid by the two institutions;
(v) our evaluation of future prospects for the merged institution; (vi) terms
and conditions of comparable merger transactions and (vii) such other financial
reviews, analyses, and investigations as we deemed appropriate.
In rendering our opinion, we conducted discussions with members of senior
management of Sterling and Hanover concerning their respective businesses and
prospects and have relied on the accuracy and completeness of information and
representations delivered to us by Sterling and Hanover and their officers,
directors, counsel, and other agents. We have not independently verified the
information reviewed by us (either publicly available or provided to us by
Sterling and Hanover) and, in rendering our opinion, have relied upon such
information as being complete and accurate in all material respects.
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We have assumed that the allowances for loan losses indicated on the balance
sheets of Sterling and Hanover as of December 31, 1999 are adequate to cover
such losses. We have not reviewed the loan files of Sterling or Hanover, nor did
we make an independent valuation or appraisal of the assets and liabilities of
Sterling and Hanover.
We assumed that in the course of obtaining the necessary regulatory approvals
for the Merger, no restrictions will be imposed on Hanover that would have a
material adverse effect on the contemplated benefits of the Merger to Sterling.
We further assumed that no change would occur in applicable law or regulation
that would cause a material adverse change in the prospects or operations of
Hanover after the Merger. We express no opinion as to the tax consequences of
the merger to Sterling and its shareholders.
Our conclusion is based on the market, economic and other conditions prevailing
as of the date hereof and the current conditions and prospects of Sterling and
Hanover. Events occurring subsequent to this date could materially affect the
assumptions and conclusions contained in our opinion. We express no opinion as
to what the value of Sterling common stock will be at the time the Merger is
consummated. Our opinion pertains only to the financial consideration of the
Merger and does not constitute a recommendation to the Board of Sterling nor a
recommendation as to how Sterling shareholders should vote with regard to the
Merger.
Based upon and subject to the foregoing, it is our opinion as of the date
hereof, that the exchange ratio and the consideration to be paid by Sterling in
the transaction is fair, from a financial point of view, to the shareholders of
Sterling Financial Corporation
Sincerely,
Garland McPherson & Associates, Inc.
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<PAGE> 232
ANNEX C
<PAGE> 233
April __, 2000
The Board of Directors
Hanover Bancorp, Inc.
33 Carlisle Street
Hanover, Pennsylvania 17331
The Board of Directors:
You have requested our opinion as to the fairness, from a financial
point of view, to the stockholders of Hanover Bancorp, Inc ("Hanover") of the
exchange ratio governing the exchange of shares of the common stock of Hanover
for shares of common stock of Sterling Financial Corporation ("Sterling") in
connection with the proposed acquisition of Hanover by Sterling pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated January 25, 2000 by
and between Hanover and Sterling. Pursuant to the Merger Agreement, Hanover will
merge with and into Sterling, with Sterling being the surviving corporation.
As is more specifically set forth in the Merger Agreement, upon
consummation of the merger, each outstanding share of Hanover common stock,
except for shares held by Sterling and its subsidiaries or by Hanover and its
subsidiaries (in both cases, other than shares held in a fiduciary capacity or
as a result of debts previously contracted), will be converted into and
exchangeable for 0.93 shares of Sterling common stock. The exchange ratio
referenced is a fixed exchange ratio and consequently the market value of the
consideration to be received by Hanover stockholders will fluctuate with changes
in Sterling's stock price. The Merger Agreement may be terminated under certain
conditions prior to the effective time of the merger by the Board of Directors
of either party based on defined criteria.
McConnell, Budd & Downes, Inc., as part of its investment banking
business, is regularly engaged in the valuation of bank holding companies and
banks, thrift holding companies and thrifts and their securities in connection
with mergers and acquisitions, negotiated underwritings, private placements,
competitive bidding processes, market making as a NASD market maker, secondary
distributions of listed securities and valuations for corporate, estate and
other purposes. Our experience and familiarity with Hanover includes having
worked as a financial advisor to Hanover throughout the process and negotiations
leading up to the proposed merger with Sterling. In the course of our role as
financial advisor to Hanover in connection with the merger, we have received
fees for our services and will receive additional fees contingent on the
occurrence of certain defined events. While the payment of all or a significant
portion of fees related to financial advisory services provided in connection
with arm's-length mergers and other business combination transactions upon
consummation of such transactions, as is the case with this transaction, might
be viewed as giving such financial advisors a financial interest in the
successful completion of such
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transactions, such compensation arrangements are standard and customary for
transactions of the size and type of this transaction.
In arriving at our opinion, we have reviewed the Merger Agreement and
the joint proxy statement/prospectus in substantially the form in which this
letter appears as an exhibit. We have also reviewed publicly available business,
financial and shareholder information relating to Hanover and its subsidiaries
and certain publicly available financial and shareholder information relating to
Sterling.
In connection with the foregoing, we have (i) reviewed Hanover's Annual
Reports to Stockholders, Annual Reports on Form 10-K and related financial
information for the four calendar years ended December 31, 1999 and Hanover's
Quarterly Report on Form 10-Q and related unaudited financial information for
1999; (ii) reviewed Sterling's Annual Reports to Stockholders, Annual Reports on
Form 10-K and related financial information for the four calendar years ended
December 31, 1999 and Sterling's Quarterly Report on Form 10-Q and related
unaudited financial information for 1999; (iii) reviewed certain internal
financial information and financial forecasts, relating to the business,
earnings, cash flows, assets and prospects of the respective companies furnished
to McConnell, Budd & Downes, Inc. by Hanover and Sterling, respectively; (iv)
held discussions with members of the senior management and board of Hanover
concerning the past and current results of operations of Hanover, its current
financial condition and management's opinion of its future prospects; (v) held
discussions with members of senior management of Sterling concerning the past
and current results of operations of Sterling, its current financial condition
and management's opinion of its future prospects; (vi) reviewed the historical
record of reported prices, trading volume and dividend payments for both Hanover
and Sterling common stock; (vii) considered the current state of and future
prospects for the economy of Pennsylvania generally and the relevant market
areas for Hanover and Sterling in particular; (viii) reviewed specific merger
analysis models employed by McConnell, Budd & Downes, Inc. to evaluate potential
business combinations of financial institutions; (ix) reviewed the reported
financial terms of selected recent business combinations in the banking
industry; and (x) performed such other studies and analyses as McConnell, Budd &
Downes, Inc. considered appropriate under the circumstances associated with this
particular transaction.
In the course of our review and analysis we considered, among other
things, such topics as the historical and projected future contributions of
recurring earnings by the parties, the anticipated future earnings per share
results for the parties on both a combined and stand-alone basis, the potential
to realize significant recurring operating expense reductions and the impact
thereof on projected future earnings per share, the relative capitalization and
capital adequacy of each of the parties, the availability of non-interest income
to each of the parties, the relative asset quality and apparent adequacy of the
reserve for loan losses for each of the parties. We also considered the
composition of deposits and the composition of the loan portfolio of each of
Hanover and Sterling. In addition, we considered the historical trading range,
trading pattern and relative market liquidity of the common shares of each of
the parties. In the conduct of our review and analysis we have relied upon and
assumed, without independent verification, the accuracy and completeness of the
financial information provided to us by Hanover and Sterling and or otherwise
publicly obtainable. In reaching our opinion we have not assumed any
responsibility for the independent verification of such information or any
independent valuation or appraisal of any of the assets or the liabilities of
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either Hanover or Sterling, nor have we obtained from any other source, any
current appraisals of the assets or liabilities of either Hanover or Sterling.
We have also relied on the management of Hanover and Sterling as to the
reasonableness of various financial and operating forecasts and of the
assumptions on which they are based, which were provided to us for use in our
analyses.
In the course of rendering this opinion, which is being rendered prior
to the receipt of certain required regulatory approvals necessary before
consummation of the merger, we assume that no conditions will be imposed by any
regulatory agency in connection with its approval of the merger that will have a
material adverse effect on the results of operations, the financial condition or
the prospects of Sterling following consummation of the merger.
Based upon and subject to the foregoing, it is our opinion, that as of
the date of this letter, the exchange ratio is fair to the stockholders of
Hanover from a financial point of view.
Very truly yours,
McConnell, Budd & Downes, Inc.
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<PAGE> 236
ANNEX D
<PAGE> 237
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, AS AMENDED
EXCERPTS FROM SUBCHAPTER 19C
SECTION 1930. DISSENTERS RIGHTS
(a) General rule. If any shareholder of a domestic business
corporation that is to be a party to a merger or consolidation
pursuant to a plan of merger or consolidation objects to the
plan of merger or consolidation and complies with the
provisions of Subchapter D of Chapter 15 (relating to
dissenters rights), the shareholder shall be entitled to the
rights and remedies of dissenting shareholders therein
provided, if any. See also section 1906(c) (relating to
dissenters rights upon special treatment).
SUBCHAPTER 15D
Dissenters Rights
Section:
1571. Application and effect of subchapter.
1572. Definitions.
1573. Record and beneficial holders and owners.
1574. Notice of intention to dissent.
1575. Notice to demand payment.
1576. Failure to comply with notice to demand payment, etc.
1577. Release of restrictions or payment for shares.
1578. Estimate by dissenter of fair value of shares.
1579. Valuation proceedings generally.
1580. Costs and expenses of valuation proceedings.
SECTION 1571. APPLICATION AND EFFECT OF SUBCHAPTER.
(a) General rule. Except as otherwise provided in subsection (b),
any shareholder of a business corporation shall have the right
to dissent from, and to obtain payment of the fair value of
his shares in the event of, any corporate action, or to
otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights
and remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special
treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share
exchanges).
Section 1932(c) (relating to dissenters rights in asset
transfers).
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<PAGE> 238
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a
restriction on transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2907(a) (relating to proceedings to terminate breach
of qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of
shares that, at the record date fixed to determine
the shareholders entitled to notice of and to vote at
the meeting at which a plan specified in any of
section 1930, 1931(d), 1932(c) or 1952(d) is to be
voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000
shareholders;
shall not have the right to obtain payment of the
fair value of any such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters
rights shall be available without regard to the
exception provided in that paragraph in the case of:
(i) Shares converted by a plan if the shares are
not converted solely into shares of the
acquiring, surviving, new or other
corporation or solely into such shares and
money in lieu of fractional shares.
(ii) Shares of any preferred or special class
unless the articles, the plan or the terms
of the transaction entitle all shareholders
of the class to vote thereon and require for
the adoption of the plan or the effectuation
of the transaction the affirmative vote of a
majority of the votes cast by all
shareholders of the class.
(iii) Shares entitled to dissenters rights under
section 1906(c) (relating to dissenters
rights upon special treatment).
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(3) The shareholders of a corporation that acquires by
purchase, lease, exchange or other disposition all or
substantially all of the shares, property or assets
of another corporation by the issuance of shares,
obligations or otherwise, with or without assuming
the liabilities of the other corporation and with or
without the intervention of another corporation or
other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this
subchapter regardless of the fact, if it be the case,
that the acquisition was accomplished by the issuance
of voting shares of the corporation to be outstanding
immediately after the acquisition sufficient to elect
a majority or more of the directors of the
corporation.
(c) Grant of optional dissenters rights. The bylaws or a
resolution of the board of directors may direct that all or a
part of the shareholders shall have dissenters rights in
connection with any corporate action or other transaction that
would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of dissenters rights. Unless otherwise provided by
statute, if a proposed corporate action that would give rise
to dissenters rights under this subpart is submitted to a vote
at a meeting of shareholders, there shall be included in or
enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement
that the shareholders have a right to dissent and
obtain payment of the fair value of their shares by
complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also
be applicable to any transaction described in any statute
other than this part that makes reference to this subchapter
for the purpose of granting dissenters rights.
(f) Certain provisions of articles ineffective. This subchapter
may not be relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction
on equitable relief), 1904 (relating to de facto transaction
doctrine abolished) and 2512 (relating to dissenters rights
procedure).
SECTION 1572. DEFINITIONS.
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
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<PAGE> 240
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division
may designate which of the resulting corporations is the successor
corporation for the purposes of this subchapter. The successor
corporation in a division shall have sole responsibility for payments
to dissenters and other liabilities under this subchapter except as
otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has
performed every act required up to the time involved for the assertion
of those rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects,
taking into account all relevant factors, but excluding any
appreciation or depreciation in anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under
all of the circumstances, taking into account all relevant factors,
including the average rate currently paid by the corporation on its
principal bank loans.
SECTION 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS.
(a) Record holders of shares. A record holder of shares of a
business corporation may assert dissenters rights as to fewer
than all of the shares registered in his name only if he
dissents with respect to all the shares of the same class or
series beneficially owned by any one person and discloses the
name and address of the person or persons on whose behalf he
dissents. In that event, his rights shall be determined as if
the shares as to which he has dissented and his other shares
were registered in the names of different shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert
dissenters rights with respect to shares held on his behalf
and shall be treated as a dissenting shareholder under the
terms of this subchapter if he submits to the corporation not
later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may
not dissent with respect to some but less than all shares of
the same class or series owned by the owner, whether or not
the shares so owned by him are registered in his name.
SECTION 1574. NOTICE OF INTENTION TO DISSENT.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to
dissent and obtain payment of the fair value of his shares must file
with the corporation, prior to the vote, a written notice of intention
to demand that he be paid the fair value for his shares if the proposed
action is effectuated, must
D-5
<PAGE> 241
effect no change in the beneficial ownership of his shares from the
date of such filing continuously through the effective date of the
proposed action and must refrain from voting his shares in approval of
such action. A dissenter who fails in any respect shall not acquire any
right to payment of the fair value of his shares under this subchapter.
Neither a proxy nor a vote against the proposed corporate action shall
constitute the written notice required by this section.
SECTION 1575. NOTICE TO DEMAND PAYMENT.
(a) General rule. If the proposed corporate action is approved by
the required vote at a meeting of shareholders of a business
corporation, the corporation shall mail a further notice to
all dissenters who gave due notice of intention to demand
payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of
shareholders, the corporation shall send to all shareholders
who are entitled to dissent and demand payment of the fair
value of their shares a notice of the adoption of the plan or
other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be
sent and certificates for certificated shares must be
deposited in order to obtain payment.
(2) Inform holders of uncertificated shares to what
extent transfer of shares will be restricted from the
time that demand for payment is received.
(3) Supply a form for demanding payment that includes a
request for certification of the date on which the
shareholder, or the person on whose behalf the
shareholder dissents, acquired beneficial ownership
of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for
receipt of the demand and deposit of certificated shares shall
be not less than 30 days from the mailing of the notice.
SECTION 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) Effect of failure of shareholder to act. A shareholder who
fails to timely demand payment, or fails (in the case of
certificated shares) to timely deposit certificates, as
required by a notice pursuant to section 1575 (relating to
notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
D-6
<PAGE> 242
(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may
restrict their transfer from the time of receipt of demand for
payment until effectuation of the proposed corporate action or
the release of restrictions under the terms of section 1577(a)
(relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all
other rights of a shareholder until those rights are modified
by effectuation of the proposed corporate action.
SECTION 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.
(a) Failure to effectuate corporate action. Within 60 days after
the date set for demanding payment and depositing
certificates, if the business corporation has not effectuated
the proposed corporate action, it shall return any
certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed
by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertificated
shares have been released from transfer restrictions and
deposited certificates have been returned, the corporation may
at any later time send a new notice conforming to the
requirements of section 1575 (relating to notice to demand
payment), with like effect.
(c) Payment of fair value of shares. Promptly after effectuation
of the proposed corporate action, or upon timely receipt of
demand for payment if the corporate action has already been
effectuated, the corporation shall either remit to dissenters
who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the
corporation estimates to be the fair value of the shares, or
give written notice that no remittance under this section will
be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of
the issuer of the shares held or owned by the
dissenter for a fiscal year ending not more than 16
months before the date of remittance or notice
together with the latest available interim financial
statements.
(2) A statement of the corporation's estimate of the fair
value of the shares.
(3) A notice of the right of the dissenter to demand
payment or supplemental payment, as the case may be,
accompanied by a copy of this subchapter.
(d) Failure to make payment. If the corporation does not remit the
amount of its estimate of the fair value of the shares as
provided by subsection (c), it shall return any certificates
that have been deposited and release uncertificated shares
from any transfer
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<PAGE> 243
restrictions imposed by reason of the demand for payment. The
corporation may make a notation on any such certificate or on
the records of the corporation relating to any such
uncertificated shares that such demand has been made. If
shares with respect to which notation has been so made shall
be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares
shall bear a similar notation, together with the name of the
original dissenting holder or owner of such shares. A
transferee of such shares shall not acquire by such transfer
any rights in the corporation other than those that the
original dissenter had after making demand for payment of
their fair value.
SECTION 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.
(a) General rule. If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting
such amount, or remits payment of its estimate of the fair
value of a dissenter's shares as permitted by section 1577(c)
(relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less
than the fair value of his shares, he may send to the
corporation his own estimate of the fair value of the shares,
which shall be deemed a demand for payment of the amount or
the deficiency.
(b) Effect of failure to file estimate. Where the dissenter does
not file his own estimate under subsection (a) within 30 days
after the mailing by the corporation of its remittance or
notice, the dissenter shall be entitled to no more than the
amount stated in the notice or remitted to him by the
corporation.
SECTION 1579. VALUATION PROCEEDINGS GENERALLY.
(a) General rule. Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under
Section 1575 (relating to notice to demand payment);
or
(3) timely receipt of any estimates pursuant to section
1578 (relating to estimate by dissenter of fair value
of shares);
if any demands for payment remain unsettled, the business
corporation may file in court an application for relief
requesting that the fair value of the shares be determined by
the court.
D-8
<PAGE> 244
(b) Mandatory joinder of dissenters. All, dissenters, wherever
residing, whose demands have not been settled shall be made
parties to the proceeding as in an action against their
shares. A copy of the application shall be served on each such
dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or
pursuant to 42 Pa.C.S. Ch. 53 (relating to bases of
jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall
be plenary and exclusive. The court may appoint an appraiser
to receive evidence and recommend a decision on the issue of
fair value. The appraiser shall have such power and authority
as may be specified in the order of appointment or in any
amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall
be entitled to recover the amount by which the fair value of
his shares is found to exceed the amount, if any, previously
remitted, plus interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in
subsection (a), any dissenter who made a demand and who has
not already settled his claim against the corporation may do
so in the name of the corporation at any time within 30 days
after the expiration of the 60-day period. If a dissenter does
not file an application within the 30-day period, each
dissenter entitled to file an application shall be paid the
corporation's estimate of the fair value of the shares and no
more, and may bring an action to recover any amount not
previously remitted.
SECTION 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS.
(a) General rule. The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally),
including the reasonable compensation and expenses of the
appraiser appointed by the court, shall be determined by the
court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and
assessed as the court deems appropriate against all or some of
the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate
by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good
faith appears. Fees and expenses of counsel and of experts for
the respective parties may be assessed as the court deems
appropriate against the corporation and in favor of any or all
dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom
the fees and expenses are assessed
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<PAGE> 245
acted in bad faith or in a dilatory, obdurate, arbitrary or
vexatious manner in respect to the rights provided by this
subchapter.
(c) Award of fees for benefits to other dissenters. If the court
finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and
should not be assessed against the corporation, it may award
to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefitted.
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<PAGE> 246
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law
of 1988, as amended (15 Pa. C.S. SectionSection1101-4162) provides that a
business corporation has the power under certain circumstances to indemnify its
directors, officers, employees and agents against certain expenses incurred by
them in connection with any threatened, pending or completed action, suit or
proceeding.
Article V of Sterling's Amended Bylaws provide for the indemnification
of its directors, officers, employees and agents in accordance with, and to the
maximum extent permitted by, the provisions of Subchapter D of Chapter 17 of the
Pennsylvania Business Corporation Law of 1988, as amended. We attach the
pertinent provisions of Subchapter D as Exhibit 99.8 to this Registration
Statement.
<TABLE>
<CAPTION>
Item 21. Exhibits and Financial Statement Schedules
<S> <C>
(a) Exhibits:
2.1 Agreement and Plan of Merger dated as of January 25,
2000, by and between Sterling Financial Corporation and
Hanover Bancorp, Inc., including exhibits. (Included in
Annex A to the proxy statement prospectus).
3(i) Sterling Financial Corporation Amended Articles of
Incorporation. (Incorporated by reference to Exhibit
3(i) to Sterling Financial Corporation's Current Report
on Form 8-K, filed with the Commission on June 14,
1996.)
3(ii) Sterling Financial Corporation Amended Bylaws.
(Incorporated by reference to Exhibit 3(ii) to Sterling
Financial Corporation's Current Report on Form 8-K,
filed with the Commission on March 7, 1996.)
4.1 Sterling Financial Corporation Amended Articles of
Incorporation. (Incorporated by reference to Exhibit
3(i) to Sterling Financial Corporation's Current Report
on Form 8-K, filed with the Commission on June 14,
1996.)
4.2 Sterling Financial Corporation Amended Bylaws.
(Incorporated by reference to Exhibit 3(ii) to Sterling
Financial Corporation's Current Report on Form 8-K,
filed with the Commission on March 7, 1996.)
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
5 Form of Opinion of Shumaker Williams, P.C. re: Legality
of Sterling Financial Corporation Common Stock.
8 Form of Opinion of Shumaker Williams, P.C. re: Tax
Matters.
10.1 Sterling Financial Corporation 1996 Stock Incentive
Plan. (Incorporated by reference to Exhibit 4.3 of
Registration Statement No. 333-28065 on Form S-8, filed
with the Securities and Exchange Commission, on May 30,
1997.)
10.2 The Sterling Financial Corporation Dividend Reinvestment
and Stock Purchase Plan. (Incorporated by reference to
Registration Statement No. 33-55131 on Form S-3, filed
with the Securities and Exchange Commission on August
18, 1994, and amended by the Registrant's Rule 424 (b)
prospectus filed with the Commission on December 23,
1998.)
10.3 Letter Agreement between Sterling Financial Corporation
and Howard E. Groff, Sr., dated June 30, 1994.
(Incorporated by reference to Exhibit 99 on Registrant's
Current Report on Form 8-K, filed with the Securities
and Exchange Commission, on March 28, 2000.)
10.4 The Corporation's 1997 Directors Stock Compensation Plan
and Policy. (Incorporated by reference to Exhibit 4.3 to
the Corporation's Registration Statement No. 333-28101
on Form S-8, filed with the Securities and Exchange
Commission on May 30, 1997.)
10.5 Change in Control Agreement, dated July 27, 1999 between
Sterling Financial Corporation and Bank of Lancaster
County and John E. Stefan. (Incorporated by reference to
the Exhibit 10.1 to the Quarterly Report on 10-Q for the
quarter ended September 30, 1999, filed with the
Commission on November 15, 1999.)
10.6 Change in Control Agreement, dated August 4, 1999
between Sterling Financial Corporation and Bank of
Lancaster County and J. Roger Moyer, Jr. (Incorporated
by reference to the Exhibit 10.2 to the Quarterly Report
on 10-Q for the quarter ended September 30, 1999, filed
with the Commission on November 15, 1999.)
10.7 Change in Control Agreement, dated July 30, 1999
between Sterling Financial Corporation and Bank of
Lancaster County and Jere L. Obetz. (Incorporated by
reference to the Exhibit 10.3 to the Quarterly Report on
10-Q for the quarter ended September 30, 1999, filed
with the Commission on November 15, 1999.)
</TABLE>
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<PAGE> 248
<TABLE>
<CAPTION>
<S> <C>
10.8 Change in Control Agreement, dated July 7, 1999 between
Sterling Financial Corporation and Bank of Lancaster
County and Thomas P. Dautrich. (Incorporated by
reference to the Exhibit 10.4 to the Quarterly Report on
10-Q for the quarter ended September 30, 1999, filed
with the Commission on November 15, 1999.)
10.9 Employment Agreement, dated July 27, 1999 between
Sterling Financial Corporation and Bank of Lancaster
County and John E. Stefan. (Incorporated by reference to
the Exhibit 10.5 to the Quarterly Report on 10-Q for the
quarter ended September 30, 1999, filed with the
Commission on November 15, 1999.)
10.10 Employment Agreement, dated as of January 25, 2000,
among Sterling Financial Corporation, Bank of Hanover
and Trust Company and J. Bradley Scovill.
11 Statement re: Computations of Earnings Per Share
(Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1999.)
12 Computation of Ratios. (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999.)
21 Subsidiaries of Registrant.
23.1 Consent of Shumaker Williams, P.C.
23.2 Consent of Garland McPherson & Associates, Inc.
23.3 Consent of McConnell, Budd & Downes, Inc.
23.4 Consent of Trout Ebersole & Groff LLP.
23.5 Consent of Ernst & Young LLP.
23.6 Consent of Whisman, Grygiel & Giordano, P.A.
24 Power of Attorney.
99.1 Letter to Shareholders of Sterling Financial
Corporation.
99.2 Notice of Meeting (Sterling Financial Corporation).
99.3 Letter of Shareholders of Hanover Bancorp, Inc.
99.4 Notice of Meeting (Hanover Bancorp, Inc.)
99.5 Form of Proxy (Sterling Financial Corporation).
99.6 Form of Proxy (Hanover Bancorp, Inc.).
99.7 Statute Relating to Dissenters' Rights (Included as
Annex D to the Proxy Statement contained herein.)
99.8 Statute Relating to Indemnification.
</TABLE>
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<PAGE> 249
<TABLE>
<CAPTION>
<S> <C>
(b) Financial Statement Schedules:
None required.
(c) Opinion of Financial Advisor:
The Opinions of Financial Advisors are included in the
proxy statement/prospectus as Annex B and C.
</TABLE>
Item 22. Undertakings.
(a)
1. The undersigned Registrant hereby undertakes as follows:
(A) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act; (ii)
to reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (1)(a)(i) and
(1)(a)(ii) above do not apply if the registration statement is on Form S-3 or
Form S-8 and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
Registration pursuant to Section 13 or Section 15(d) of the Exchange Act that
are incorporated by reference in the registration statement.
(B) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(C) To remove from registration by means of a post-effective
amendment any of the securities being registered, which remain unsold at the
termination of the offering.
2. The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration
II-4
<PAGE> 250
statement relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
3. The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to the reofferings
by persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus (i) that is
filed pursuant to the preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-operative amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
4. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the bylaws of the registrant, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one (1) business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
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<PAGE> 251
(c) The undersigned registrant hereby undertakes to supplement by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 252
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of Lancaster,
Commonwealth of Pennsylvania on March 28, 2000.
STERLING FINANCIAL CORPORATION
By: /s/ John E. Stefan
-----------------------------------------
John E. Stefan
President, Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John E. Stefan and Ronald L. Bowman and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Capacity Date
<S> <C> <C>
/s/ John E. Stefan President, CEO and Chairman March 28, 2000
- ---------------------------------- of the Board and Director
John E. Stefan (Principal Executive Officer)
/s/ J. Roger Moyer, Jr. Executive Vice President March 28, 2000
- ------------------------------- and Director
J. Roger Moyer, Jr.
/s/ Jere L. Obetz Executive Vice President and March 28, 2000
- ---------------------------------- Treasurer and Chief Financial Officer
Jere L. Obetz (Principal Financial Officer)
</TABLE>
<PAGE> 253
<TABLE>
<CAPTION>
Capacity Date
<S> <C> <C>
/s/ Ronald L. Bowman Secretary March 28, 2000
- ---------------------------- (Principal Accounting Officer)
Ronald L. Bowman
/s/ Richard H. Albright, Jr. Director March 28, 2000
- ------------------------------
Richard H. Albright, Jr.
/s/ S. Amy Argudo Director March 28, 2000
- -------------------------------
S. Amy Argudo
/s/ Robert H. Caldwell Director March 28, 2000
- ------------------------------
Robert H. Caldwell
/s/ Howard E. Groff, Jr. Director March 28, 2000
- ------------------------------
Howard E. Groff, Jr.
/s/ Joan R. Henderson Director March 28, 2000
- -----------------------------
Joan R. Henderson
/s/ J. Robert Hess Director March 28, 2000
- ---------------------------------
J. Robert Hess
/s/ Calvin G. High Director March 28, 2000
- -------------------------------
Calvin G. High
/s/ David E. Hosler Director March 28, 2000
- -------------------------------
David E. Hosler
/s/ E. Glenn Nauman Director March 28, 2000
- ----------------------------
E. Glenn Nauman
/s/ W. Garth Sprecher Director March 28, 2000
- -----------------------------
W. Garth Sprecher
/s/ Glenn R. Walz Director March 28, 2000
- --------------------------------
Glenn R. Walz
</TABLE>
<PAGE> 254
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number
In Sequential
Number Title Number System
- ------ ----- -------------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of January 25,
2000, by and between Sterling Financial Corporation and
Hanover Bancorp, Inc., including exhibits. (Included in
Annex A to the proxy statement prospectus).
3(i) Sterling Financial Corporation Amended Articles of
Incorporation. (Incorporated by reference to Exhibit
3(i) to Sterling Financial Corporation's Current Report
on Form 8-K, filed with the Commission on June 14,
1996.)
3(ii) Sterling Financial Corporation Amended Bylaws.
(Incorporated by reference to Exhibit 3(ii) to Sterling
Financial Corporation's Current Report on Form 8-K,
filed with the Commission on March 7, 1996.)
4.1 Sterling Financial Corporation Amended Articles of
Incorporation. (Incorporated by reference to Exhibit
3(i) to Sterling Financial Corporation's Current Report
on Form 8-K, filed with the Commission on June 14,
1996.)
4.2 Sterling Financial Corporation Amended Bylaws.
(Incorporated by reference to Exhibit 3(ii) to Sterling
Financial Corporation's Current Report on Form 8-K,
filed with the Commission on March 7, 1996.)
5 Form of Opinion of Shumaker Williams, P.C. re: Legality
of Sterling Financial Corporation Common Stock.
8 Form of Opinion of Shumaker Williams, P.C. re: Tax
Matters.
10.1 Sterling Financial Corporation 1996 Stock Incentive
Plan. (Incorporated by reference to Exhibit 4.3 of
Registration Statement No. 333-28065 on Form S-8, filed
with the Securities and Exchange Commission, on May 30,
1997.)
</TABLE>
<PAGE> 255
<TABLE>
<CAPTION>
<S> <C>
10.2 The Sterling Financial Corporation Dividend Reinvestment
and Stock Purchase Plan. (Incorporated by reference to
Registration Statement No. 33-55131 on Form S-3, filed
with the Securities and Exchange Commission on August
18, 1994, and amended by the registrant's Rule 424 (b)
prospectus filed with the Commission on December 23,
1998.)
10.3 Letter Agreement between Sterling Financial Corporation
and Howard E. Groff, Sr., dated June 30, 1994.
(Incorporated by reference to Exhibit 99 on Registrant's
Current Report on Form 8-K, filed with the Securities
and Exchange Commission, on March 28, 2000.)
10.4 The Corporation's 1997 Directors Stock Compensation Plan
and Policy. (Incorporated by reference to Exhibit 4.3 to
the Corporation's Registration Statement No. 333-28101
on Form S-8, filed with the Securities and Exchange
Commission on May 30, 1997.)
10.5 Change in Control Agreement, dated July 27, 1999 between
Sterling Financial Corporation and Bank of Lancaster
County and John E. Stefan. (Incorporated by reference to
the Exhibit 10.1 to the Quarterly Report on 10-Q for the
quarter ended September 30, 1999, filed with the
Commission on November 15, 1999.)
10.6 Change in Control Agreement, dated August 4, 1999
between Sterling Financial Corporation and Bank of
Lancaster County and J. Roger Moyer, Jr. (Incorporated
by reference to the Exhibit 10.2 to the Quarterly Report
on 10-Q for the quarter ended September 30, 1999, filed
with the Commission on November 15, 1999.)
10.7 Change in Control Agreement, dated July 30, 1999 between
Sterling Financial Corporation and Bank of Lancaster
County and Jere L. Obetz. (Incorporated by reference to
the Exhibit 10.3 to the Quarterly Report on 10-Q for the
quarter ended September 30, 1999, filed with the
Commission on November 15, 1999.)
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<PAGE> 256
<TABLE>
<CAPTION>
<S> <C>
10.8 Change in Control Agreement, dated July 7, 1999 between
Sterling Financial Corporation and Bank of Lancaster
County and Thomas P. Dautrich. (Incorporated by
reference to the Exhibit 10.4 to the Quarterly Report on
10-Q for the quarter ended September 30, 1999, filed
with the Commission on November 15, 1999.)
10.9 Employment Agreement, dated July 27, 1999 between
Sterling Financial Corporation and Bank of Lancaster
County and John E. Stefan. (Incorporated by reference to
the Exhibit 10.4 to the Quarterly Report on 10-Q for the
quarter ended September 30, 1999, filed with the
Commission on November 15, 1999.)
10.10 Employment Agreement, dated as of January 25, 2000,
among Sterling Financial Corporation, Bank of Hanover
and Trust Company and J. Bradley Scovill.
11 Statement re: Computation of Earnings Per Share.
(Incorporated by Reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1999.)
12 Computation of Ratios. (Incorporated by Reference to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999.)
21 Subsidiaries of Registrant. (Incorporated by Reference
to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1999.)
23.1 Consent of Shumaker Williams, P.C. (Incorporated by
Reference to Exhibit 5.)
23.2 Consent of Garland McPherson & Associates, Inc.
23.3 Consent of McConnell, Budd & Downes, Inc.
23.4 Consent of Trout Ebersole & Groff LLP.
23.5 Consent of Ernst & Young LLP.
23.6 Consent of Whisman, Grygiel & Giordano, P.A.
24 Power of Attorney (included on Signature Page.)
99.1 Letter to Shareholders of Sterling Financial
Corporation.
99.2 Notice of Meeting (Sterling Financial Corporation).
99.3 Letter to Shareholders of Hanover Bancorp, Inc.
99.4 Notice of Meeting (Hanover Bancorp, Inc.).
99.5 Form of Proxy (Sterling Financial Corporation).
</TABLE>
<PAGE> 257
<TABLE>
<S> <C>
99.6 Form of Proxy (Hanover Bancorp, Inc.).
99.7 Statute Relating to Dissenters' Rights. (Included as
Annex D to the Proxy Statement contained herein.)
99.8 Statute Relating to Indemnification.
</TABLE>
<PAGE> 1
EXHIBIT 5
April __, 2000
Mr. John E. Stefan Mr. J. Bradley Scovill
Chairman Chief Executive Officer
Sterling Financial Corporation Hanover Bancorp, Inc.
101 North Pointe Boulevard 25 Carlisle Street
Lancaster, PA 17601 Hanover, PA 17331
RE: Sterling Financial Corporation/Hanover Bancorp, Inc.
Our File No: 00-537
Dear Messrs Stefan and Scovill:
We are special counsel to Sterling Financial Corporation (the "Company")
in the Company's acquisition of Hanover Bancorp, Inc. ("Hanover"). In connection
with the transaction, the Company proposes to offer up to 3,733,342 shares of
common stock, par value $5.00 per share (the "Common Stock"), to shareholders of
Hanover. The Common Stock is covered by a Registration Statement on Form S-4
(the "Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended. In connection with the
registration of the Common Stock, we have reviewed:
1. The Articles of Incorporation of the Company;
2. The Bylaws of the Company;
3. Resolutions adopted by the Board of Directors of the Company
relating to the Registration Statement;
4. The Agreement and Plan of Reorganization, dated as of January
25, 2000, by and between the Company and Hanover;
5. The Registration Statement; and
6. Copies of the certificates representing shares of the Common
Stock.
<PAGE> 2
Based on our review of the foregoing, it is our opinion that:
a. The Company is a corporation, duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Pennsylvania; and
b. The Common Stock covered by the Registration Statement has been
duly authorized and, when issued pursuant to the terms described
in the Registration Statement and the Agreement, will be legally
issued by the Company and fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to us in the related Proxy
Statement/Prospectus. In giving this consent, we do not admit that we are
experts within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
SHUMAKER WILLIAMS, P.C.
<PAGE> 1
[Will be placed on Letterhead in final draft]
Exhibit 8
[DATE]
Board of Directors Board of Directors
STERLING FINANCIAL CORPORATION HANOVER BANCORP, INC.
101 North Pointe Boulevard P.O. Box 513
Lancaster, PA 17601 25 Carlisle Street
Hanover, PA 17331-2404
Dear Members of the Boards:
You have requested our opinion regarding material federal income tax
questions in connection with the transaction contemplated by the Agreement and
Plan of Merger, dated as of January 25, 2000, between Hanover Bancorp, Inc., a
Pennsylvania business corporation and a Bank Holding Company, ("Hanover") and
Sterling Financial Corporation, a Pennsylvania business corporation and a Bank
Holding Company, ("Sterling"), pursuant to which Hanover will merge with and
into Sterling, which will be the surviving corporation.
At the effective date of the merger (the "Merger"), each share of
Hanover's common stock issued and outstanding immediately prior to the effective
date will, by virtue of the Merger, be converted into the right to receive the
number of shares of Sterling common stock as is provided in Section 2.1 (a) of
the Agreement and Plan of Merger. As a result of the Merger, Bank of Hanover and
Trust Company, a subsidiary of Hanover, shall become a wholly-owned operating
subsidiary of Sterling, subject to the provisions of Section 7.6 of the
Agreement and Plan of Merger.
Hanover shareholders shall exchange their Hanover common stock
certificates for Sterling common stock certificates, as provided in Section 2.2
of the Agreement and Plan of Merger. No fractional shares of Sterling common
stock will issue. In lieu of fractional shares, shareholders of Hanover will
receive cash in an amount determined pursuant to Section 2.1 (d) of the
Agreement and Plan of Merger. Shareholders of Hanover and Sterling will be
entitled to exercise dissenter's rights in connection with the Merger.
<PAGE> 2
Boards of Directors
STERLING FINANCIAL CORPORATION AND HANOVER BANCORP, INC.
[DATE]
Page 2
On the effective date, all Treasury shares of Hanover common stock,
other than trust account shares or shares acquired in connection with debts
previously contracted owned by Hanover or any direct or indirect subsidiary of
Hanover, if any, shall be cancelled.
On the effective date, each share of Hanover common stock, other than
trust account shares or shares acquired in connection with debts previously
contracted owned by Sterling or any direct or indirect subsidiary of Sterling,
if any, shall be cancelled.
Each share of Sterling common stock issued and outstanding immediately
prior to the effective date, shall, on and after the effective date, continue to
be issued and outstanding as an identical share of Sterling common stock.
Each share of Sterling common stock issued and held in the treasury of
Sterling as of the effective date, if any, shall on and after the effective
date, continue to be issued and held in the treasury of Sterling.
In connection with the opinion set forth below with respect to the
Merger, we have reviewed and relied upon the following documents:
o The articles of incorporation, bylaws, and resolutions of
Sterling's Board of Directors;
o The articles of incorporation, bylaws, and resolutions of
Hanover's Board of Directors;
o The Agreement and Plan of Merger and all exhibits and
attachments to the Agreement;
o The Articles of Merger which will be filed in Pennsylvania;
o Certificates of Officers of both Sterling and Hanover; and
o Other documents as we have deemed relevant or appropriate to
our opinion.
<PAGE> 3
Boards of Directors
STERLING FINANCIAL CORPORATION AND HANOVER BANCORP, INC.
[DATE]
Page 3
In rendering this Opinion, we have relied upon the accuracy and
authenticity of the information contained in these documents. This Opinion is
further based upon the following assumptions that we have made with your consent
and upon which we are relying:
o Hanover shareholders will receive shares of Sterling voting
common stock in exchange for their shares of Hanover voting
common stock surrendered in the exchange based upon a formula
provided in the Agreement and Plan of Merger;
o Immediately following the transaction, Sterling will possess
all the assets and liabilities possessed by Hanover
immediately prior to the transaction;
o Sterling will continue the historic business of Hanover or
will use a significant portion of Hanover's assets in the
continuing business of Sterling, and Sterling will continue to
operate The Bank of Hanover and Trust Company as a wholly
owned operating subsidiary of Sterling;
o The Merger will be consummated in accordance with the
Agreement and Plan of Merger, including the satisfaction of
all covenants and conditions to the obligations of the parties
without amendment or waiver thereof;
o The Merger will qualify as a merger under the applicable laws
of the Commonwealth of Pennsylvania; and
o The Agreement and Plan of Merger and all other documents and
instruments referred to therein are valid and binding in
accordance with their terms.
Based upon the foregoing facts, documents and assumptions, it is our
opinion that for United States Federal Income Tax purposes:
o The Merger of Hanover into Sterling will constitute a
"reorganization" within the meaning of Section 368(a)(1)(A) of
the Internal Revenue Code of 1986, as amended and Hanover and
Sterling will each be a party to the "reorganization" within
the meaning of Section 368(b) of the Code;
o No gain or loss will be recognized by Hanover or Sterling as a
result of the Merger;
o No gain or loss will be recognized by the shareholders upon
the exchange of their shares of Hanover voting common stock
solely for shares of Sterling voting common stock pursuant to
the Merger;
<PAGE> 4
Boards of Directors
STERLING FINANCIAL CORPORATION AND HANOVER BANCORP, INC.
[DATE]
Page 4
o The aggregate tax basis of the shares of Sterling voting
common stock received solely in exchange for shares of Hanover
voting common stock pursuant to the Merger will be the same as
the aggregate tax basis of Hanover voting common stock
exchanged therefor;
o The holding period for the shares of Sterling voting common
stock received in exchange for shares of Hanover voting common
stock pursuant to the Merger will include the holding period
of the shares of Hanover voting common stock exchanged
therefor, provided the shares of Hanover voting common stock
were held as capital assets by the shareholder at the
effective date of the Merger;
o The payment of cash in lieu of fractional share interests of
Sterling voting common stock will be treated as if the
fractional share interests were distributed as part of the
Merger and then redeemed by Sterling. These cash payments will
be treated as having been received as a distribution in full
payment in exchange for the fractional share interest
redeemed, as provided in Section 302(a) of the Code;
o As provided in Section 381(c)(2) of the Code and related
Treasury Regulations, Sterling will succeed to and take into
account the earnings and profits, or deficit earnings and
profits, of Hanover as of the Merger. Any deficit in the
earnings and profits of Sterling or Hanover will be used only
to offset the earnings and profits accumulated after the
Merger; and
o Pursuant to Section 381(a) of the Code and related Treasury
Regulations, Sterling will succeed to and take into account
the items of Hanover described in Section 381(c) of the Code.
These items will be taken into account by Sterling subject to
the conditions and limitations of Sections 381, 382, 383 and
384 of the Code and Treasury Regulations thereunder.
These opinions are based solely upon the documents, facts and
assumptions stated above. Any inaccuracy in or breach of any of the
aforementioned agreements, documents or assumptions, or any change after the
date hereof in the applicable law could adversely affect our opinion.
Furthermore, the tax consequences described above may not be applicable to
shareholders subject to special treatment under certain federal income tax laws,
such as foreign holders.
<PAGE> 5
Boards of Directors
STERLING FINANCIAL CORPORATION AND HANOVER BANCORP, INC.
[DATE]
Page 5
We express no opinion as to any matter not specifically addressed
above. Also, we express no opinion as to the tax consequences of any of the
transactions under any foreign, state or local tax law. Furthermore, our opinion
is based on current federal income tax law and administrative practice, and we
do not undertake to advise you as to any changes in federal income tax law or
administrative practice that may affect our opinion after the date hereof.
We hereby consent to the use of this opinion in the Registration
Statement on Form S-4 of Sterling, and we further consent to the reference to
our name in the Joint Proxy Statement/Prospectus included as part of the
Registration Statement, under the captions "Material Federal Income Tax
Consequences" and "Legal Opinions."
Sincerely,
Shumaker Williams, P.C.
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 25th day of January, 2000, among
STERLING FINANCIAL CORPORATION ("Corporation"), a Pennsylvania business
corporation having a place of business at 101 North Pointe Boulevard, Lancaster,
Pennsylvania 17601, BANK OF HANOVER AND TRUST COMPANY ("Bank") a state chartered
bank having a place of business at 25 Carlisle Street, Hanover, Pennsylvania
17331, and J. BRADLEY SCOVILL ("Executive"), an individual residing at 990
McCosh Street, Hanover, Pennsylvania 17331.
WITNESSETH:
WHEREAS, the Corporation is a registered bank holding company;
WHEREAS, the Bank is a subsidiary of the Corporation;
WHEREAS, Corporation and Bank desire to employ Executive to serve in
the capacity of Executive Vice President of Corporation and President and Chief
Executive Officer of Bank under the terms and conditions set forth herein;
WHEREAS, Executive desires to accept employment with Corporation and
Bank on the terms and conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
1. EMPLOYMENT. Corporation and Bank hereby employ Executive and Executive
hereby accepts employment with Corporation and Bank, under the terms
and conditions set forth in this Agreement. As consideration for this
Agreement, Executive hereby agrees to release Corporation, Hanover
Bancorp Inc. and Bank of any obligations, duties or responsibilities,
and Executive agrees to relinquish any and all rights, including but
not limited to any payments, compensation or sums of money he may
otherwise be entitled, or he may have, under the Severance Agreement
dated March 22, 1995 between Executive, Hanover Bancorp Inc. and Bank.
2. DUTIES OF EMPLOYEE. Executive shall perform and discharge well and
faithfully such duties as an executive officer of Corporation and Bank
as may be assigned to Executive from time to time by the Board of
Directors of Corporation and Bank and the Chairman and President of the
Corporation so long as the assignment is consistent with the
Executive's office and duties. Executive shall be employed as Executive
Vice President of Corporation and President and Chief Executive Officer
of Bank, and shall hold such other titles as may be given to him from
time to time by the Board of Directors of Corporation and Bank.
Executive shall devote his full time, attention and energies to the
business of Corporation and Bank during the Employment Period (as
defined in Section 3 of this Agreement); provided, however, that this
Section 2 shall not be construed as preventing Executive from
<PAGE> 2
(a) engaging in activities incident or necessary to personal
investments so long as such investment does not exceed 5% of the
outstanding shares of any publicly held company, (b) acting as a member
of the Board of Directors of any other corporation or as a member of
the Board of Trustees of any other organization, with the prior
approval of the Board of Directors of Corporation and Bank, or (c)
being involved in any other activity with the prior approval of the
Board of Directors of Corporation and Bank. The Executive shall not
engage in any business or commercial activities, duties or pursuits
which compete with the business or commercial activities of Corporation
or Bank, nor may the Executive serve as a director or officer or in any
other capacity in a company which competes with Corporation or Bank.
3. TERM OF AGREEMENT.
(a) This Agreement shall be for a three (3) year period (the
"Employment Period") beginning on the Effective Date as set
forth in Section 1.1(c) of the Agreement and Plan of Merger
between Corporation and Hanover Bancorp, Inc. (the "Effective
Date") (the "Agreement and Plan of Merger"), and if not
previously terminated pursuant to the terms of this Agreement,
the Employment Period shall end three (3) years later;
provided however, that this Agreement will be automatically
renewed on the first anniversary date of the Effective Date
(the "Renewal Date") for the three-year period commencing on
such date and ending three years later, unless either party
gives written notice of nonrenewal to the other party at least
sixty (60) days prior to the Renewal Date (in which case this
Agreement will continue in effect for a term ending two years
from the Renewal Date). If this Agreement is renewed on the
Renewal Date, it will be automatically renewed on the first
anniversary date of the Renewal Date and 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 non renewal to the other party at least
sixty (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). If the Agreement and Plan of Merger is terminated
pursuant to its terms, the parties hereto shall have no
further obligations under this Agreement and this Agreement
shall be null and void.
(b) Notwithstanding the provisions of Section 3(a) of this
Agreement, this Agreement shall terminate automatically for
Cause (as defined herein) upon written notice from the Board
of Directors of each of Corporation and Bank to Executive. As
used in this Agreement, "Cause" shall mean any of the
following:
(i) Executive's conviction of or plea of guilty or nolo
contendere to a felony, a crime of falsehood or a
crime involving moral turpitude, or the actual
incarceration of Executive for a period of forty five
(45) consecutive days or more;
(ii) Executive's failure to follow the good faith lawful
instructions of the Board of Directors of Corporation
or Bank with respect to its operations, after
2
<PAGE> 3
written notice from Corporation or Bank and a failure
to cure such violation within thirty (30) days of
said written notice;
(iii) Executive's willful failure to substantially perform
Executive's duties to Corporation or Bank, other than
a failure resulting from Executive's incapacity
because of physical or mental illness, as provided in
subsection (d) of this Section 3, after written
notice from Corporation or Bank and a failure to cure
such violation within thirty (30) days of said
written notice;
(iv) Executive's intentional violation of the provisions
of this Agreement, after written notice from
Corporation or Bank and a failure to cure such
violation within thirty (30) days of said written
notice;
(v) dishonesty of the Executive in the performance of his
duties;
(vi) Executive's removal or prohibition from being an
institutional-affiliated party by a final order of an
appropriate federal banking agency pursuant to
Section 8(e) of the Federal Deposit Insurance Act or
by the Office of the Comptroller of the Currency
pursuant to national law;
(vii) conduct on the part of the Executive as determined by
an affirmative vote of seventy percent (70%) of the
disinterested members of the Board of Directors of
Corporation and Bank which brings public discredit to
Corporation or Bank; or
(viii) Executive's breach of fiduciary duty involving
personal profit.
If this Agreement is terminated for Cause, all of Executive's
rights under this Agreement shall cease as of the effective
date of such termination.
(c) Notwithstanding the provisions of Section 3(a) of this
Agreement, this Agreement shall terminate automatically upon
Executive's voluntary termination of employment (other than in
accordance with Section 5 of this Agreement) for Good Reason.
The term "Good Reason" shall mean (i) the assignment of duties
and responsibilities inconsistent with Executive's status as
Executive Vice President of Corporation and President and
Chief Executive Officer of Bank, (ii) a reassignment which
requires Executive to move his principal residence more than
fifty (50) miles from the Corporation's and Bank's principal
executive office immediately prior to this Agreement, (iii)
any removal of the Executive from office or any adverse change
in the terms and conditions of the Executive's employment,
except for any termination of the Executive's employment under
the provisions of Section 3(b) hereof, (iv) any reduction in
the Executive's Annual Base Salary as in effect on the date
hereof or as the same may be increased from time to time,
except such reductions that are the result of a national
financial depression, or national or bank emergency, or (v)
any failure of Corporation and Bank to provide the Executive
with benefits at least as
3
<PAGE> 4
favorable as those enjoyed by the Executive during the
Employment Period under any of the pension, life insurance,
medical, health and accident, disability or other employee
plans of Corporation and Bank, or the taking of any action
that would materially reduce any of such benefits unless such
reduction is part of a reduction applicable to all employees.
If such termination occurs for Good Reason, then Corporation
or Bank shall pay Executive an amount equal to the remaining
balance of the Agreed Compensation otherwise due to the
Executive for the remainder of the then existing Employment
Period, which amount shall be payable in equal monthly
installments and shall be subject to federal, state and local
tax withholdings. In addition, for the remainder of the then
existing Employment Period, or until Executive secures
substantially similar benefits through other employment,
whichever shall first occur, Executive shall receive a
continuation of all life, disability, medical insurance and
other normal health and welfare benefits in effect with
respect to Executive during the two (2) years prior to his
termination of employment, or, if Corporation and Bank cannot
provide such benefits because Executive is no longer an
employee, a dollar amount equal to the cost to Executive of
obtaining such benefits (or substantially similar benefits).
If permitted under the terms of the plan, Executive shall
receive the additional retirement benefits to which he would
have been entitled had his employment continued through the
remaining term of the Agreement. In lieu of continued pension,
welfare and other benefits, Executive may elect to receive a
lump sum cash payment equal to 25% of the payments to be
received for termination of the Agreement under this
provision. However, in the event the payment described herein,
when added to all other amounts or benefits provided to or on
behalf of the Executive in connection with his termination of
employment, would result in the imposition of an excise tax
under Code Section 4999, such payments shall be retroactively
(if necessary) reduced to the extent necessary to avoid such
excise tax imposition. Upon written notice to Executive,
together with calculations of Corporation's independent
auditors, Executive shall remit to Corporation the amount of
the reduction plus such interest as may be necessary to avoid
the imposition of such excise tax. Notwithstanding the
foregoing or any other provision of this contract to the
contrary, if any portion of the amount herein payable to the
Executive is determined to be non-deductible pursuant to the
regulations promulgated under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), the Corporation
shall be required only to pay to Executive the amount
determined to be deductible under Section 280G.
At the option of the Executive, exercisable by the Executive
within ninety (90) days after the occurrence of the event
constituting "Good Reason," the Executive may resign from
employment under this Agreement by a notice in writing (the
"Notice of Termination") delivered to Corporation and Bank and
the provisions of this Section 3(c) hereof shall thereupon
apply.
(d) Notwithstanding the provisions of Section 3(a) of this
Agreement, this Agreement shall terminate automatically upon
Executive's Disability and Executive's rights under this
Agreement shall cease as of the date of such termination;
provided,
4
<PAGE> 5
however, that Executive shall nevertheless be entitled to
receive any benefits that may be available under any
disability plan of Corporation and Bank, until the earliest of
(i) Executive's return to employment, (ii) his attainment of
age 65, or (iii) his death. In addition, Executive shall
receive for such period a continuation of all life,
disability, medical insurance and other normal health and
welfare benefits in effect with respect to Executive during
the two (2) years prior to his disability, or, if Corporation
and Bank cannot provide such benefits because Executive is no
longer an employee, a dollar amount equal to the cost to
Executive of obtaining such benefits (or substantially similar
benefits). For purposes of this Agreement, the Executive shall
have a Disability if, as a result of physical or mental injury
or impairment, Executive is unable to perform all of the
essential job functions of his position on a full time basis
with or without a reasonable accommodation and without posting
a direct threat to himself and others, for a period of one
hundred eighty (180) days. The Executive shall have no duty to
mitigate any payment provided for in this Section 3(d) by
seeking other employment.
(e) Executive agrees that in the event his employment under this
Agreement is terminated, Executive shall resign as a director
of Corporation and Bank, or any affiliate or subsidiary
thereof, if he is then serving as a director of any of such
entities.
(f) The term "Agreed Compensation" shall equal the sum of (A) the
Executive's highest Annual Base Salary under the Agreement,
and (B) the average of the Executive's annual bonuses with
respect to the three (3) calendar years immediately preceding
the Executive's termination.
(g) In the event that this Agreement expires by its terms in
accordance with the provisions of Section 3(a) and other than
for Cause, the Bank will pay Executive within thirty (30) days
following termination of the Agreement and upon the receipt of
a mutually agreed release an amount equal to 2.0 times the
Executive's Agreed Compensation.
4. EMPLOYMENT PERIOD COMPENSATION.
(a) Annual Base Salary. For services performed by Executive under
this Agreement, Corporation or Bank shall pay Executive an
Annual Base Salary during the Employment Period at the rate of
$217,500 per year (subject to applicable withholdings and
deductions) payable at the same times as salaries are payable
to other executive employees of Corporation or Bank.
Corporation or Bank may, from time to time, increase
Executive's Annual Base Salary, and any and all such increases
shall be deemed to constitute amendments to this Section 4(a)
to reflect the increased amounts, effective as of the date
established for such increases by the Board of Directors of
Corporation or Bank or any committee of such Board in the
resolutions authorizing such increases.
5
<PAGE> 6
(b) Bonus. For services performed by Executive under this
Agreement, Corporation or Bank may, from time to time, pay a
bonus or bonuses to Executive as Corporation or Bank, in its
sole discretion, deems appropriate. The payment of any such
bonuses shall not reduce or otherwise affect any other
obligation of Corporation or Bank to Executive provided for in
this Agreement. Executive is entitled to participate in the
bonus programs available to senior executives.
(c) Paid Time Off and/or Vacations. During the term of this
Agreement, Executive shall be entitled to paid time off and/or
vacation in accordance with the policies as established from
time to time by the Boards of Directors of Corporation and
Bank for the Corporation's and Bank's senior management.
However, Executive shall not be entitled to receive any
additional compensation from Corporation and Bank for failure
to take paid time off and/or vacation, nor shall Executive be
able to accumulate unused paid time off and/or vacation time
from one year to the next, except to the extent authorized by
the Boards of Directors of Corporation and Bank.
(d) Automobile. During the term of this Agreement, Corporation and
Bank shall provide Executive with exclusive use of an
automobile mutually agreed upon by Corporation and Bank and
reasonably consistent with Executive's position. Corporation
and Bank shall be responsible and shall pay for all costs of
insurance coverage, repairs, maintenance and other operating
and incidental expenses, including license, fuel and oil.
Corporation and Bank shall provide Executive with a
replacement automobile at approximately the time Executive's
automobile reaches three (3) years of age or 50,000 miles,
whichever is first, and approximately every three (3) years or
50,000 miles thereafter, upon the same terms and conditions.
(e) Employee Benefit Plans. During the term of this Agreement,
Executive shall be entitled to participate in or receive the
benefits of any employee benefit plan currently in effect at
Corporation and Bank, subject to the terms of said plan, until
such time that the Boards of Directors of Corporation and Bank
authorize a change in such benefits. Corporation and Bank
shall not make any changes in such plans or benefits which
would adversely affect Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program
applicable to all executive officers of Corporation and Bank
and does not result in a proportionately greater adverse
change in the rights of or benefits to Executive as compared
with any other executive officer of Corporation and Bank.
Nothing paid to Executive under any plan or arrangement
presently in effect or made available in the future shall be
deemed to be in lieu of the salary payable to Executive
pursuant to Section 4(a) hereof.
(f) Business Expenses. During the term of this Agreement,
Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him, which are
properly accounted for, in accordance with the policies and
procedures established by the Boards of Directors of
Corporation and Bank for their executive officers. Corporation
and Bank shall reimburse Executive for any and all dues and
reasonable related business expenses associated with the
Executive's membership in
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a country club, social club or service organization, including
but not limited to, The Hanover Country Club.
(g) Stock Options. Executive shall be entitled to participate in
the Corporation's stock option plans consistent with his
position as a member of Corporation's and Bank's senior
management. Upon a Change in Control (as defined in Section
5(b) of this Agreement), 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 Corporation achieving
certain performance objectives in accordance with the relevant
provisions of any plan and any agreement.
5. TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN CONTROL.
(a) If a Change in Control (as defined in Section 5(b) of this
Agreement) shall occur, then, at the option of Executive,
exercisable by Executive within three hundred sixty five (365)
days of the Change in Control, Executive may resign from
employment with Corporation and Bank (or, if involuntarily
terminated, give notice of intention to collect benefits under
this Agreement) by delivering a notice in writing (the "Notice
of Termination") to Corporation and Bank and the provisions of
Section 6 of this Agreement shall apply.
(b) As used in this Agreement, "Change in Control" shall mean the
occurrence of any of the following:
(i) (A) a merger, consolidation or division involving
Corporation or Bank, (B) a sale, exchange, transfer
or other disposition of substantially all of the
assets of Corporation or Bank, or (C) a purchase by
Corporation or Bank of substantially all of the
assets of another entity, unless (y) such merger,
consolidation, division, sale, exchange, transfer,
purchase or disposition is approved in advance by
seventy percent (70%) or more of the members of the
Board of Directors of Corporation or Bank (of the
entity affected by the transaction) who are not
interested in the transaction and (z) a majority of
the members of the Board of Directors of the legal
entity resulting from or existing after any such
transaction and of the Board of Directors of such
entity's parent corporation, if any, are former
members of the Board of Directors of Corporation or
Bank (of the entity affected by the transaction);
provided, however, that the provisions of (y) and (z)
above shall not apply to the merger of Bank within
three (3) years of the Effective Date in which the
Bank is the not surviving entity; or
(ii) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")), other than Corporation or Bank or
any "person" who on the date hereof is a director or
officer of Corporation or Bank is or becomes the
"beneficial owner" (as
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defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Corporation
or Bank representing twenty-five (25%) percent or
more of the combined voting power of Corporation or
Bank's then outstanding securities, or
(iii) during any period of two (2) consecutive years during
the term of Executive's employment under this
Agreement, individuals who at the beginning of such
period constitute the Board of Directors of
Corporation or Bank cease for any reason to
constitute at least a majority thereof, unless the
election of each director who was not a director at
the beginning of such period has been approved in
advance by directors representing at least two-thirds
of the directors then in office who were directors at
the beginning of the period; or
(iv) any other change in control of Corporation and Bank
similar in effect to any of the foregoing.
6. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT FOLLOWING CHANGE IN
CONTROL.
(a) In the event that Executive delivers a Notice of Termination
(as defined in Section 5(a) of this Agreement) to Corporation
and Bank, Executive shall be entitled to receive the
compensation and benefits set forth below:
If, at the time of termination of Executive's employment, a
"Change in Control" (as defined in Section 5(b) of this
Agreement) has also occurred, Corporation and Bank shall pay
Executive a lump sum amount equal to and no greater than 2.99
times the Executive's Agreed Compensation as defined in
subsection (f) of Section 3, (the payment of which shall be
subject to applicable taxes and withholdings). In addition,
for a period of three (3) years from the date of termination
of employment, or until Executive secures substantially
similar benefits through other employment, whichever shall
first occur, Executive shall receive a continuation of all
life, disability, medical insurance and other normal health
and welfare benefits in effect with respect to Executive
during the two (2) years prior to his termination of
employment, or, if Corporation and Bank cannot provide such
benefits because Executive is no longer an employee, a dollar
amount equal to the cost to Executive of obtaining such
benefits (or substantially similar benefits). If permitted
under the terms of the plan, Executive shall receive
additional retirement benefits to which he would have been
entitled had his employment continued through the then
remaining term of the Agreement. In lieu of continued pension,
welfare and other benefits, Executive may elect to receive a
lump sum cash payment equal to 25% of the payments to be
received for termination of the Agreement under this
provision. However, in the event the payment described herein,
when added to all other amounts or benefits provided to or on
behalf of the Executive in connection with his termination of
employment, would result in the imposition of an excise tax
under Code Section 4999, such payments shall be retroactively
(if necessary) reduced to the extent necessary to avoid such
excise tax imposition. Upon written notice to
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Executive, together with calculations of Corporation's
independent auditors, Executive shall remit to Corporation the
amount of the reduction plus such interest as may be necessary
to avoid the imposition of such excise tax. Notwithstanding
the foregoing or any other provision of this contract to the
contrary, if any portion of the amount herein payable to the
Executive is determined to be non-deductible pursuant to the
regulations promulgated under Section 280G of the Code, the
Corporation shall be required only to pay to Executive the
amount determined to be deductible under Section 280G.
(b) Executive shall not be required to mitigate the amount of any
payment provided for in this Section 6 by seeking other
employment or otherwise. Unless otherwise agreed to in
writing, the amount of payment or the benefit provided for in
this Section 6 shall not be reduced by any compensation earned
by Executive as the result of employment by another employer
or by reason of Executive's receipt of or right to receive any
retirement or other benefits after the date of termination of
employment or otherwise.
7. RIGHTS IN EVENT OF TERMINATION OF EMPLOYMENT ABSENT CHANGE IN CONTROL.
(a) In the event that Executive's employment is involuntarily
terminated by Corporation and/or Bank without Cause and no
Change in Control shall have occurred at the date of such
termination, Corporation and Bank shall pay Executive an
amount equal to 2.0 times the Executive's Agreed Compensation
or the remaining balance of the Agreed Compensation otherwise
due to the Executive for the remainder of the then existing
Employment Period, whichever is greater, and shall be payable
in equal monthly installments and shall be subject to federal,
state and local tax withholdings. In addition, for the
remainder of the then existing Employment Period or until
Executive secures substantially similar benefits through other
employment, whichever shall first occur, Executive shall
receive a continuation of all life, disability, medical
insurance and other normal health and welfare benefits in
effect with respect to Executive during the two (2) years
prior to his termination of employment, or, if Corporation and
Bank cannot provide such benefits because Executive is no
longer an employee, a dollar amount equal to the cost to
Executive of obtaining such benefits (or substantially similar
benefits). In addition, if permitted pursuant to the terms of
the plan, Executive shall receive additional retirement
benefits to which he would have been entitled had his
employment continued through the then remaining term of the
Agreement. In lieu of continued pension, welfare and other
benefits, Executive may elect to receive a lump sum cash
payment equal to 25% of the payments to be received for
termination of the Agreement under this provision. However, in
the event the payment described herein, when added to all
other amounts or benefits provided to or on behalf of the
Executive in connection with his termination of employment,
would result in the imposition of an excise tax under Code
Section 4999, such payments shall be retroactively (if
necessary) reduced to the extent necessary to avoid such
excise tax imposition. Upon written notice to Executive,
together with calculations of Corporation's independent
auditors,
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<PAGE> 10
Executive shall remit to Corporation the amount of the
reduction plus such interest as may be necessary to avoid the
imposition of such excise tax. Notwithstanding the foregoing
or any other provision of this contract to the contrary, if
any portion of the amount herein payable to the Executive is
determined to be non-deductible pursuant to the regulations
promulgated under Section 280G of the Code, the Corporation
shall be required only to pay to Executive the amount
determined to be deductible under Section 280G.
(b) Executive shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other
employment or otherwise. Unless otherwise agreed to in
writing, the amount of payment or the benefit provided for in
this Section 7 shall not be reduced by any compensation earned
by Executive as the result of employment by another employer
or by reason of Executive's receipt of or right to receive any
retirement or other benefits after the date of termination of
employment or otherwise.
8. COVENANT NOT TO COMPETE.
(a) Executive hereby acknowledges and recognizes the highly
competitive nature of the business of Corporation and Bank and
accordingly agrees that, during and for the applicable period
set forth in Section 8(c) hereof, Executive shall not, except
as otherwise permitted in writing by the Corporation and the
Bank:
(i) be engaged, directly or indirectly, either for his
own account or as agent, consultant, employee,
partner, officer, director, proprietor, investor
(except as an investor owning less than 5% of the
stock of a publicly owned company) or otherwise of
any person, firm, corporation or enterprise engaged
in (1) the banking (including bank holding company)
or financial services industry, or (2) any other
activity in which Corporation or Bank or any of their
subsidiaries are engaged during the Employment
Period, and remain so engaged at the end of the
Employment Period, in any area in which, at any time
during the Employment Period or at the date of
termination of the Executive's employment, is within
thirty (30) miles of any branch location, office or
other facility of Corporation or Bank or any of their
subsidiaries, unless Executive exclusively performs
all such activity outside of said thirty (30) mile
area (the "Non-Competition Area"); or
(ii) provide financial or other assistance to any person,
firm, corporation, or enterprise engaged in (1) the
banking (including bank holding company) or financial
services industry, or (2) any other activity in which
Corporation or Bank or any of their subsidiaries are
engaged during the Employment Period, in the
Non-Competition Area; or
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(iii) if employed in a capacity provided in (i) and (ii),
solicit current customers, during the term of this
Agreement, of Corporation, Bank or any Corporation
subsidiary in the Non-Competition Area; or
(iv) solicit employees of Corporation, Bank or any
Corporation subsidiary who are employed during the
term of this Agreement.
(b) It is expressly understood and agreed that, although Executive
and Corporation and Bank consider the restrictions contained
in Section 8(a) hereof reasonable for the purpose of
preserving for Corporation and Bank and their subsidiaries
their good will and other proprietary rights, if a final
judicial determination is made by a court having jurisdiction
that the time or territory or any other restriction contained
in Section 8(a) hereof is an unreasonable or otherwise
unenforceable restriction against Executive, the provisions of
Section 8(a) hereof shall not be rendered void but shall be
deemed amended to apply as to such maximum time and territory
and to such other extent as such court may judicially
determine or indicate to be reasonable.
(c) The provisions of this Section 8 shall be applicable
commencing on the date of this Agreement and ending on one of
the following dates, as applicable:
(i) if Executive's employment terminates in accordance
with the provisions of Section 3(c), the end of the
then existing Employment Period; or
(ii) if Executive's employment terminates in accordance
with the provisions of Section 3(b) of this Agreement
(relating to termination for Cause), the second
anniversary date of the effective date of termination
of employment; or
(iii) if the Executive voluntarily terminates his
employment in accordance with the provisions of
Section 5 hereof, the third anniversary date of the
effective date of termination of employment; or
(iv) if the Executive's employment is involuntarily
terminated in accordance with the provisions of
Section 7 hereof, the second anniversary date of the
effective date of termination of employment;
(v) if the Agreement expires by its terms in accordance
with the provisions of Section 3(a) and other than
for Cause, the second anniversary date of the
effective date of termination of employment.
9. UNAUTHORIZED DISCLOSURE. During the term of his employment hereunder,
or at any later time, the Executive shall not, without the written
consent of the Boards of Directors of Corporation and Bank or a person
authorized thereby, knowingly disclose to any person, other than an
employee of Corporation or Bank or a person to whom disclosure is
reasonably necessary or appropriate in connection with the performance
by the Executive of his duties as an executive of Corporation and Bank,
any material confidential information
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<PAGE> 12
obtained by him while in the employ of Corporation and Bank with
respect to any of Corporation and Bank's services, products,
improvements, formulas, designs or styles, processes, customers,
methods of business or any business practices the disclosure of which
could be or will be damaging to Corporation or Bank; provided, however,
that confidential information shall not include any information known
generally to the public (other than as a result of unauthorized
disclosure by the Executive or any person with the assistance, consent
or direction of the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same
business of a business similar to that conducted by Corporation and
Bank or any information that must be disclosed as required by law.
10. LIABILITY INSURANCE. Corporation and Bank shall use their best efforts
to obtain insurance coverage for the Executive under an insurance
policy covering officers and directors of Corporation and Bank against
lawsuits, arbitrations or other legal or regulatory proceedings;
however, nothing herein shall be construed to require Corporation
and/or Bank to obtain such insurance, if the Board of Directors of the
Corporation and/or Bank determine that such coverage cannot be obtained
at a reasonable price.
11. NOTICES. Except as otherwise provided in this Agreement, any notice
required or permitted to be given under this Agreement shall be deemed
properly given if in writing and if mailed by registered or certified
mail, postage prepaid with return receipt requested, to Executive's
residence, in the case of notices to Executive, and to the principal
executive offices of Corporation and Bank, in the case of notices to
Corporation and Bank.
12. WAIVER. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to
in writing and signed by Executive and an executive officer
specifically designated by the Boards of Directors of Corporation and
Bank. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or
at any prior or subsequent time.
13. ASSIGNMENT. This Agreement shall not be assignable by any party, except
by Corporation and Bank to any successor in interest to their
respective businesses.
14. 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.
15. INDEMNIFICATION. The Corporation 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
Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another person or entity. To
the fullest extent permitted by Pennsylvania and federal law, the
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<PAGE> 13
Corporation 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.
16. ENTIRE AGREEMENT. This Agreement supersedes any and all agreements,
either oral or in writing, between the parties with respect to the
employment of the Executive by the Bank and/or Corporation and this
Agreement contains all the covenants and agreements between the parties
with respect to employment.
17. SUCCESSORS; BINDING AGREEMENT.
(a) Corporation and Bank will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or
otherwise) to all or substantially all of the businesses
and/or assets of Corporation and Bank to expressly assume and
agree to perform this Agreement in the same manner and to the
same extent that Corporation and Bank would be required to
perform it if no such succession had taken place. Failure by
Corporation and Bank to obtain such assumption and agreement
prior to the effectiveness of any such succession shall
constitute a breach of this Agreement and the provisions of
Section 3 of this Agreement shall apply. As used in this
Agreement, "Corporation" and "Bank" shall mean Sterling
Financial Corporation and Bank of Hanover and Trust Company,
as defined previously and any successor to their respective
businesses and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives,
executors, administrators, heirs, distributees, devisees and
legatees. If Executive should die after a Notice of
Termination is delivered by Executive, or following
termination of Executive's employment without Cause, and any
amounts would be payable to Executive under this Agreement if
Executive had continued to live, all such amounts shall be
paid in accordance with the terms of this Agreement to
Executive's devisee, legatee, or other designee, or, if there
is no such designee, to Executive's estate.
18. ARBITRATION. Corporation, Bank and Executive recognize that in the
event a dispute should arise between them concerning the interpretation
or implementation of this Agreement, lengthy and expensive litigation
will not afford a practical resolution of the issues within a
reasonable period of time. Consequently, each party agrees that all
disputes, disagreements and questions of interpretation concerning this
Agreement are to be submitted for resolution, in Philadelphia,
Pennsylvania, to the American Arbitration Association (the
"Association") in accordance with the Association's National Rules for
the Resolution of Employment Disputes or other applicable rules then in
effect ("Rules"). Corporation, Bank or Executive may initiate an
arbitration proceeding at any time by giving notice to the other in
accordance with the Rules. Corporation and Bank and Executive may, as a
matter of right, mutually agree on the appointment of a particular
arbitrator from the Association's pool. The
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arbitrator shall not be bound by the rules of evidence and procedure of
the courts of the Commonwealth of Pennsylvania but shall be bound by
the substantive law applicable to this Agreement. The decision of the
arbitrator, absent fraud, duress, incompetence or gross and obvious
error of fact, shall be final and binding upon the parties and shall be
enforceable in courts of proper jurisdiction. Following written notice
of a request for arbitration, Corporation, Bank and Executive shall be
entitled to an injunction restraining all further proceedings in any
pending or subsequently filed litigation concerning this Agreement,
except as otherwise provided herein.
19. 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 not secure
employment, except as otherwise provided herein.
20. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and
effect.
21. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the domestic, internal laws of the Commonwealth of
Pennsylvania, without regard to its conflicts of laws principles.
22. HEADINGS. The section headings of this Agreement are for convenience
only and shall not control or affect the meaning or construction or
limit the scope or intent of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: STERLING FINANCIAL CORPORATION
/s/ Ronald L. Bowman By /s/ John E. Stefan
--------------------- ---------------------------
BANK OF HANOVER AND TRUST COMPANY
/s/ Thomas J. Paholsky By /s/ Terrence L. Hormel
--------------------- ---------------------------
WITNESS:
/s/ Paul G. Mattaini /s/ J. Bradley Scovill
--------------------- ---------------------------
"Executive"
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Exhibit 23.2
CONSENT OF GARLAND MCPHERSON & ASSOCIATES, INC.
We hereby consent to the inclusion of our draft opinion letter, dated
_____________, 2000 to the Board of Directors of Sterling Financial Corporation
as Annex B to the Joint Proxy Statement/Prospectus relating to the proposed
merger of Hanover Bancorp, Inc., with and into Sterling Financial Corporation,
contained in the Registration Statement on Form S-4, and to the references to
our firm and the opinion in the Joint Proxy Statement/Prospectus. In giving our
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Act"), or the rules and regulations of the Securities and Exchange
Commission thereunder (the "Regulations"), nor do we admit that we are experts
with respect to any part of the Registration Statement within the meaning of the
term "experts" as used in the Act or the Regulations.
April 3, 2000 /s/ Garland McPherson & Associates, Inc.
Baltimore, Maryland
<PAGE> 1
EXHIBIT 23.3
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the inclusion of the Opinion of McConnell, Budd &
Downes, Inc. Annex C in to this Registration Statement on Form S-4 of Hanover
Bancorp, Inc. ("Hanover") and joint proxy statement/prospectus to be filed with
the Securities and Exchange Commission in connection with the proposed
Consolidation of Sterling Financial Corporation and Hanover and to the
references to the work completed by our firm as financial advisor to Hanover,
therein. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"expert" as used in the Securities Act of 1933 as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ McConnell, Budd & Downes, Inc.
March 30, 2000
II-15
<PAGE> 1
Exhibit 23.4
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the incorporation by reference in this
Registration Statement on Form S-4 of Sterling Financial Corporation (the
"Registrant"), filed with the Commission in connection with the registration of
3,733,342 shares of common stock of our report, dated January 20, 2000, except
for Note 26 as to which the date is January 25, 2000, relating to the financial
statements of the Registrant and Subsidiaries included in its Annual Report on
Form 10-K for the year ended December 31, 1999. We also consent to the reference
to our firm under the caption "Experts" in the Proxy Statement Prospectus.
/s/ Trout Ebersole & Groff LLP
Lancaster, Pennsylvania
March 31, 2000
<PAGE> 1
EXHIBIT 23.5
We consent to the reference to our firm under the caption "Experts" in
the Joint Proxy Statement of Hanover Bancorp, Inc. and Sterling Financial
Corporation that is made a part of the Registration Statement and related
prospectus of Sterling Financial Corporation for the registration of 3,733,342
shares of Sterling Financial Corporation's common stock and to the incorporation
by reference therein of our report dated February 1, 2000, with respect to the
consolidated financial statements of Hanover Bancorp, Inc. incorporated by
reference in its Annual Report on Form 10-K for the year ended December 31,
1999, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Harrisburg, Pennsylvania
April 3, 2000
<PAGE> 1
EXHIBIT 23.6
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Sterling Financial Corporation (the "Registrant"),
filed with the Commission in connection with the registration of 3,733,342
shares of common stock, of our report, dated January 15, 1999, with respect to
the consolidated statement of condition of Northeast Bancorp, Inc. and
subsidiary as of December 31, 1998, and the related consolidated statements of
income, comprehensive income, stockholders' equity and cash flows for each of
the years in the two-year period ended December 31, 1998.
/s/ Whisman, Grygiel & Giordano, P.A.
March 31, 2000
<PAGE> 1
EXHIBIT 99.1
[STERLING FINANCIAL CORPORATION LETTERHEAD]
April __, 2000
Dear Shareholder:
The 2000 Annual Meeting of Shareholders of Sterling Financial Corporation will
be held at 9:00 a.m. on Monday, May 22, 2000, at the Willow Valley Family Resort
and Conference Center, 2416 Willow Street Pike, Lancaster, Pennsylvania. You are
cordially invited to attend the Annual Meeting as well as a continental
breakfast which will be held in the Palm Court at the Resort and Conference
Center at 8:00 a.m.
We ask you to approve the merger of Sterling with Hanover Bancorp, Inc. The
merger is described in the materials we are sending to you and provides for
Hanover's subsidiary, Hanover Bank and Trust Company to become a wholly owned
subsidiary of Sterling after the merger. We are also asking shareholders to
elect five Class of 2003 Directors and to ratify the selection of Ernst & Young,
LLP as the corporation's certified public accountants. We enclose Sterling's
Notice of Annual Meeting, Proxy Statement and proxy card with this letter. We
also enclose the 1999 Annual Report of Sterling Financial Corporation,
Sterling's Annual Report on Form 10-K for the year ended December 31, 1999,
Hanover's 1999 Annual Report to Shareholders and Hanover's Annual Report on Form
10-K for the year ended December 31, 1999.
I hope you will take the opportunity to review the material in the Annual
Report, which reflects a successful year in 1999. We will report on Sterling's
1999 business results and other matters of interest to shareholders at this
meeting.
It is important that your shares be represented at the Annual Meeting whether or
not you are personally able to attend or regardless of the number of shares you
own. We urge you to sign and date the enclosed proxy and return it in the
enclosed envelope as soon as possible. If you do attend the meeting and wish to
vote in person, you must give written notice to the Secretary of the corporation
so that your proxy will be superseded by any ballot that you submit at the
meeting.
<PAGE> 2
Please indicate on the enclosed business reply card whether or not you plan to
attend the breakfast and return it to Sterling Financial Corporation.
We look forward to seeing you at the breakfast and Annual Meeting.
Sincerely,
John E. Stefan
Chairman of the Board,
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 99.2
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 22, 2000
TO THE SHAREHOLDERS OF STERLING FINANCIAL CORPORATION:
NOTICE IS HEREBY GIVEN that the regular Annual Meeting of the Shareholders of
Sterling Financial Corporation will be held at the Willow Valley Family Resort
and Conference Center, 2416 Willow Street Pike, Lancaster, Pennsylvania, on
Monday, May 22, 2000, at 9:00 a.m., prevailing time, for the purpose of
considering and voting upon the following matters:
1. To approve and adopt the Agreement and Plan of Merger, dated as of
January 25, 2000, by and between Sterling Financial Corporation and
Hanover Bancorp, Inc. (Attached as Annex A to accompanying proxy
statement), providing for the acquisition of Hanover Bancorp, Inc.
through the merger of Hanover Bancorp, Inc. into Sterling.
2. To vote on the adjournment of the Sterling Annual Meeting, if
necessary, to permit further solicitation of proxies if there are not
sufficient votes at the time of the meeting to approve the Agreement
and Plan of Merger.
3. To elect five Class of 2003 directors to serve for a three-year term
until their successors are elected and qualified.
4. To ratify the selection of Ernst & Young, LLP as the corporation's
independent certified public accountants for the year ending December
31, 2000.
5. To transact such other business as may properly come before the meeting
and any adjournment or postponement thereof.
Only those shareholders of record at the close of business on March 31, 2000,
are entitled to notice of and to vote at the meeting.
Please promptly sign the enclosed proxy and return it in the enclosed postpaid
envelope. We cordially invite you to attend the meeting. Your proxy is revocable
and you may withdraw it at any time. You may deliver notice of revocation or
deliver a later dated proxy to the Secretary of the corporation before the vote
at the meeting.
We enclose a copy of the 1999 Annual Report of Sterling Financial Corporation.
BY ORDER OF THE BOARD OF DIRECTORS
John E. Stefan
Chairman of the Board,
President and Chief Executive Officer
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EXHIBIT 99.3
HANOVER BANCORP, INC.
33 CARLISLE STREET
HANOVER, PENNSYLVANIA 17331
April __, 2000
To Our Shareholders:
On behalf of the Board of Directors and management, I cordially invite you to
attend the 2000 Annual Meeting of Shareholders of Hanover Bancorp, Inc., the
holding company for Bank of Hanover and Trust Company and HOVB Investment Co. We
will hold the annual meeting at the Hanover Country Club, Lincolnway East, R.D.
1, Abbottstown, Pennsylvania, on Tuesday, May 23, 2000, at 9:30 a.m., E.S.T.
Notice of the annual meeting, a proxy statement, a proxy, an annual meeting
reservation form and the 1999 Annual Report to Shareholders and Annual Report on
Form 10-K for the year ended December 31, 1999, of Hanover Bancorp, Inc. are
enclosed with this letter. In addition, we enclose the 1999 Annual Report
including the Annual Report on Form 10-K of Sterling Financial Corporation. We
hope you will take the opportunity to carefully review these materials.
At the annual meeting of shareholders, you will be asked to approve the
agreement and plan of merger providing for the merger of the Corporation into
Sterling, the possible adjournment of the meeting to solicit more proxies, the
election of three directors to hold office for a three-year term and to transact
such other business that may properly come before the meeting. There will also
be a report to shareholders as to the affairs of the Corporation and its
subsidiaries.
We strongly encourage you to vote your shares whether or not you plan to attend
the meeting. It is very important that you mark, sign, date and return the
enclosed proxy promptly. If you plan to attend the meeting, please return the
reservation form along with your proxy. A postage paid business reply envelope
is provided for your convenience. If you attend the meeting and wish to vote in
person, but have already returned a proxy, you must give written notice to the
Secretary of the Corporation so that your proxy will be replaced by any ballot
that you submit at the meeting.
Very truly yours,
Terrence L. Hormel
Chairman of the Board
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EXHIBIT 99.4
HANOVER BANCORP, INC.
33 CARLISLE STREET
HANOVER, PA 17331
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TIME 9:30 a.m. E.S.T., on Tuesday, May 23, 2000
PLACE Hanover Country Club
Lincolnway East R.D. 1
Abbottstown, PA 17301
ITEMS OF BUSINESS 1. The approval of the agreement and plan
merger that provides for the merger of the
Corporation into Sterling Financial
Corporation.
2. The postponement or adjournment of the
meeting, if necessary, to solicit proxies.
3. The election of three (3) persons to the
Board of Directors of the Corporation to
hold office for a three-year term and until
their successors are duly elected and
qualified.
4. The transaction of such other business
as may properly come before the annual
meeting and any adjournment or postponement
thereof.
RECORD DATE Shareholders of record at the close of
business on March 31, 2000, are entitled to
vote at the meeting.
ANNUAL REPORT We enclose a copy of the Corporation's
Annual Report to Shareholders for 1999,
with this Notice. We also enclose the
Corporation's Annual Report on Form 10-K.
PROXY VOTING It is important that your shares are
represented at this meeting regardless of
the number of shares that you own. PLEASE
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MARK, SIGN, DATE AND RETURN THE ENCLOSED
PROXY. A postage paid envelope is provided
for your convenience. The giving of your
proxy does not affect your right to vote in
person if you attend the meeting and give
written notice to the Secretary of the
Corporation.
April __, 2000 By Order of the Board of Directors,
Thomas J. Paholsky
Secretary
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EXHIBIT 99.5
PROXY
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 22, 2000
STERLING FINANCIAL CORPORATION
101 North Pointe Boulevard
Lancaster, Pennsylvania 17601-4133
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mary W. Wentz and Thomas Wright, and
each or any of them, as proxies, with full power of substitution, to represent
and vote, all of the shares of STERLING FINANCIAL CORPORATION common stock held
of record by the undersigned on March 31, 2000, at the Annual Meeting of the
shareholders to be held at the Willow Valley Family Resort and Conference
Center, 2416 Willow Street Pike, Lancaster, Pennsylvania, on Monday, May 22,
2000, at 9:00 a.m. prevailing time, and at any adjournment or postponement
thereof, with all of the powers the undersigned would possess if personally
present thereat, as indicated on the reverse side of this card.
This Proxy, when properly signed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this Proxy will
be voted FOR the merger proposal in Proposal 1, FOR Proposal 2, FOR Nominees
listed in Proposal 3, and FOR Proposal 4.
This proxy also confers authority as to other business as may properly
come before the meeting and any adjournment or postponement thereof. The Board
of Directors at present knows of no other business to be brought before this
meeting, but if any other business is brought before the meeting, the shares
represented by this proxy will be voted in accordance with the recommendations
of the management of Sterling Financial Corporation.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders and proxy Statement dated April __, 2000, and hereby revoke(s) all
other proxies heretofore given by the undersigned in connection with this
meeting.
It is important that your shares be represented at the meeting. Please
sign, date and return this proxy as promptly as possible, whether or not you
plan to attend this meeting. This proxy is revocable at any time before it is
exercised and may be withdrawn if you elect to attend the meeting, give written
notification to the secretary of the corporation and vote in person.
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1. Approve and adopt the agreement and plan of merger, dated as
of January 25, 2000, by and between Sterling Financial
Corporation and Hanover Bancorp, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approve postponement or adjournment of the meeting to another
time and/or place for the purpose of soliciting additional
proxies, in the event that there are not sufficient votes at
the time of the meeting to approve and adopt the merger
proposal.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Election of Class of 2003 Directors to serve for a three-year
term:
Nominees: S. Amy Argudo
Robert H. Caldwell
J. Robert Hess
J. Roger Moyer, Jr.
W. Garth Sprecher
[ ] FOR all nominees listed above
(except as marked to contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees
listed above.
INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the line provided below:
______________________________________________________________
4. Proposal to ratify the selection of Ernst & Young, LLP as the
Corporation's independent certified public accountants for the
year ending December 31, 2000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated: ____________________, 2000
_________________________________
Signature of Shareholder
_________________________________
Signature of Shareholder
Number of shares Held of Record
on March 31, 2000
This proxy must be dated, signed by the shareholder and returned
promptly in the enclosed envelope. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If more than one trustee, all should
sign. If a corporation, please sign in full corporate name by president or
authorized officer. If a partnership, please sign in partnership name by
authorized person.
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EXHIBIT 99.6
HANOVER BANCORP, INC.
PROXY
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 23, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Dorothy Crabbs and John
Stawski and each or any of them, proxies of the undersigned, with full power of
substitution, to vote all of the shares of Hanover Bancorp, Inc. that the
undersigned may be entitled to vote at the Annual Meeting of Shareholders of the
company to be held at Hanover County Club, Lincolnway East, R.D. #1,
Abbottstown, Pennsylvania 17301 on Tuesday, May 23, 2000, commencing at 9:30
a.m., prevailing time, and at any adjournment or postponement thereof, as
follows:
1. Proposal to approve and adopt the agreement and plan of merger, dated
as of January 25, 2000, by and between Sterling Financial Corporation
and Hanover Bancorp, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
2. Proposal to postpone or adjourn the meeting to another time and/or
place for the purpose of soliciting additional proxies, in the event
that there are not sufficient votes at the time of the meeting to
approve and adopt the agreement and plan of merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
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3. Election of Terrence L. Hormel, Charles W. Test and S. Forry Eisenhart,
Jr., to serve for a three (3) year term.
[ ] FOR all nominees listed above (except as marked to contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
(Instructions: To withhold authority to vote for any
individual nominee, write that nominee's name in the space
provided below)
_______________________________________________________________
This proxy, when properly signed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is made, this proxy will
be voted FOR Proposal 1, FOR Proposal 2, and FOR the nominees listed in
Proposal 3.
Dated: __________________, 2000
_______________________________
Signature of Shareholder
_______________________________
Signature of Shareholder
Number of Shares Held of Record
on March 31, 2000:
_____________________________
This proxy must be dated, signed by the shareholder and returned
promptly to the company in the enclosed envelope. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If more than one trustee,
all should sign. If a corporation, please sign in full corporate name by
president or authorized officer. If a partnership, please sign in partnership
name by authorized person.
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EXHIBIT 99.8
STATUTES RELATING TO INDEMNIFICATION
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law of 1988,
(15 Pa.C.S. Sections 17410-1750), as amended
Subchapter D. - Indemnification
SECTION 1741. Third party actions.
Unless otherwise restricted in its bylaws, a business corporation shall
have power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he is or was
a representative of the corporation, or is or was serving at the request of the
corporation as a representative of another domestic or foreign corporation for
profit or not-for-profit, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action or proceeding if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action or proceeding by judgment,
order, settlement or conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the person did not act
in good faith and in a manner that he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal proceeding, had reasonable cause to believe that his conduct was
unlawful.
SECTION 1742. Derivative actions.
Unless otherwise restricted in its bylaws, a business corporation shall
have power to indemnify any person who was or is a party, or is threatened to be
made a party, to any threatened, pending or completed action by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
he is or was a representative of the corporation or is or was serving at the
request of the corporation as a representative of another domestic or foreign
corporation for profit or not-for-profit, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of the
action if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation. Indemnification
shall not be made under this section in respect of any claim, issue or matter as
to which the person has been adjudged to be liable to the corporation unless and
only to the extent that the court of common pleas of the judicial district
embracing the county in which the registered office of the corporation is
located or the court in which the action was brought determines upon application
that, despite the adjudication of liability but in view of all the
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circumstances of the case, the person is fairly and reasonably entitled to
indemnity for the expenses that the court of common pleas or other court deems
proper.
SECTION 1743. Mandatory indemnification.
To the extent that a representative of a business corporation has been
successful on the merits or otherwise in defense of any action or proceeding
referred to in section 1741 (relating to third-party actions) or 1742 (relating
to derivative and corporate actions) or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorney fees)
actually and reasonably incurred by him in connection therewith.
SECTION 1744. Procedure for effecting indemnification.
Unless ordered by a court, any indemnification under section 1741
(relating to third-party actions) or 1742 (relating to derivative and corporate
actions) shall be made by the business corporation only as authorized in the
specific case upon a determination that indemnification of the representative is
proper in the circumstances because he has met the applicable standard of
conduct set forth in those sections. The determination shall be made:
(1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the action or
proceedings;
(2) if such a quorum is not obtainable or if obtainable and a
majority vote of a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion; or
(3) by the shareholders.
SECTION 1745. Advancing expenses.
Expenses (including attorneys' fees) incurred in defending any action
or proceeding referred to in this subchapter may be paid by a business
corporation in advance of the final disposition of the action or proceeding upon
receipt of an undertaking by or on behalf of the representative to repay the
amount if it is ultimately determined that he is not entitled to be indemnified
by the corporation as authorized in this subchapter or otherwise.
SECTION 1746. Supplementary coverage.
(a) General rule - The indemnification and advancement of expenses
provided by, or granted pursuant to, the other section of this subchapter shall
not be deemed exclusive of any other rights which a person seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding that office. Section 1728 (relating to interested directors or officers;
quorum) and, in the case of a registered corporation, section 2538 relating to
approval of transactions with interested shareholders) shall
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be applicable to any bylaw, contract or transaction authorized by the directors
under this section. A corporation may create a fund of any nature, which may,
but need not be, under the control of a trustee, or to otherwise secure or
insure in any manner its indemnification obligations, whether arising under or
pursuant to this section or otherwise.
(b) When indemnification is not to be made - Indemnification pursuant
to subsection (a) shall not be made in any case where the act or failure to act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. The articles may not provide for
indemnification in the case of willful misconduct or recklessness.
(c) Grounds - Indemnification pursuant to subsection (a) under any
bylaw, agreement, vote of shareholders or directors or otherwise may be granted
for any action taken and may be made whether or not the corporation would have
the power to indemnify the person under any other provision of law except as
provided in this section and whether or not the indemnified liability arises or
arose from any threatened, pending or completed action by or in the right of the
corporation. Such indemnification is declared to be consistent with the public
policy of this Commonwealth.
SECTION 1747. Power to purchase insurance.
Unless otherwise restricted in its bylaws, a business corporation shall
have power to purchase and maintain insurance on behalf of any person who is or
was a representative of the corporation or is or was serving at the request of
the corporation as a representative of another domestic or foreign corporation
for profit or not-for-profit, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against that liability under
the provisions of this subchapter. Such insurance is declared to be consistent
with the public policy of this Commonwealth.
SECTION 1748. Application to surviving or new corporations.
For the purposes of this subchapter, references to the "corporation"
include all constituent corporations absorbed in a consolidation, merger or
division, as well as the surviving or new corporations surviving or resulting
therefrom, so that any person who is or was a representative f the constituent,
surviving or new corporation ,or is or was serving at the request of the
constituent, surviving or new corporation as a representative of another
domestic or foreign corporation for profit or not-for-profit, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this subchapter with respect to the surviving or new corporation
as he would if he had served the surviving or new corporation in the same
capacity.
SECTION 1749. Application to employee benefit plans.
For the purposes of this subchapter:
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(1) References to "other enterprises" shall include employee
benefit plans and references to "serving at the request of the
corporation" shall include any service as a representative of
the business corporation that imposes duties on, or involves
services by, the representative with respect to an employee
benefit plan, its participants or beneficiaries.
(2) Excise taxes assessed on a person with respect to an employee
benefit plan pursuant to applicable law shall be deemed
"fines".
(3) Action with respect to an employee benefit plan taken or
omitted in good faith by a representative of the corporation
in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of the plan shall be deemed
to be action in a manner that is not opposed to the best
interests of the corporation.
SECTION 1750. Duration and extent of coverage.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this subchapter shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a representative of the
corporation and shall inure to the benefit of the heirs and personal
representative of that person.
