SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ]Confidential, for use of the Commission
Only (as permitted by Rule 14a 6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant toss.240.14a-12
Steelton Bancorp, Inc.
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(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11:.
(1) Title of each class of securities to which transaction applies:
Common stock, $.10 par value per share
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(2) Aggregate number of securities to which transaction applies:
300,290 shares and 42,446 options
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(c): Each of the 300,290 issued and
outstanding shares of Common Stock will, upon consummation of the
merger, be converted into the right to receive $22.04 in cash. In
exchange for the cancellation of the 42,446 options to purchase
Registrant's common stock, holders thereof will receive, in the
aggregate, $581,934.66 in cash.
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(4) Proposed maximum aggregate value of transaction: $7,200,326.26
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(5) Total fee paid: $662.43
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[Steelton Bancorp, Inc.]
_________ __, 2003
Dear Fellow Stockholder:
We cordially invite you to attend a special meeting of the stockholders
of Steelton Bancorp, Inc. The meeting will be held at the offices of Mechanics
Savings Bank at 51 South Front Street, Steelton, Pennsylvania on _________,
_________ __, 2003, at __:____ _.m., Eastern Time.
At the meeting, you will be asked to approve the Agreement and Plan of
Reorganization, dated December 20, 2002, by and among Sun Bancorp, Inc., Sun
Bank, Sun Acquisition Corporation, Steelton Bancorp, Inc., and Mechanics Savings
Bank, which provides for the merger of Steelton and Mechanics Savings Bank into
Sun Bancorp and Sun Bank. Upon completion of the merger, you will be entitled to
receive a cash payment of $22.04 for each share of Steelton common stock that
you own. Additionally, upon consummation of the merger, you will not own any
stock or other interest in Steelton, nor will you receive, as a result of the
merger, any stock of Sun Bancorp, Inc. or Sun Bank. Approval of the merger
agreement requires the affirmative vote of a majority of the votes cast by
Steelton stockholders at the meeting. The completion of the merger is subject to
certain conditions, including stockholder approval of the merger agreement.
Your exchange of shares of Steelton common stock for cash generally
will cause you to recognize a taxable gain or loss for federal, and possibly
state and local, income tax purposes. You should consult your personal tax
advisor for a full understanding of the tax consequences of the merger to you.
We urge you to read the attached proxy statement carefully. It
describes the agreement in detail and includes a copy of the agreement as
Appendix A.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER BECAUSE THE BOARD
BELIEVES IT TO BE IN THE BEST INTERESTS OF STEELTON'S STOCKHOLDERS.
Whether or not you plan to attend the meeting, please complete, date
and sign the enclosed proxy form and return it promptly in the postage-paid
envelope provided.
On behalf of Steelton's Board of Directors, I thank you for your prompt
attention to this important matter.
Sincerely,
/s/Harold E. Stremmel
---------------------
Harold E. Stremmel
President and Chief Executive Officer
Steelton Bancorp, Inc.
51 South Front Street
Steelton, Pennsylvania 17113
___________________________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ______ __, 2003
Notice is hereby given that a special meeting of stockholders (the
"Meeting") of Steelton Bancorp, Inc. will be held at the offices of Mechanics
Savings Bank at 51 South Front Street, Steelton, Pennsylvania on ________,
_______ __, 2003 at __:____ _.m., Eastern Time, for the following purposes:
1. The approval of the Agreement and Plan of Reorganization, dated
December 20, 2002, by and among Sun Bancorp, Inc., Sun Bank, Sun
Acquisition Corporation, Steelton Bancorp, Inc., and Mechanics Savings
Bank. Upon completion of the merger, you will be entitled to receive
$22.04 in cash for each share of Steelton Bancorp, Inc. stock that you
own. A copy of the merger agreement is included as Appendix A to the
accompanying proxy statement; and
such other business as may properly come before the meeting or any adjournment
thereof. The Board of Directors is not aware of any such other business.
Any action may be taken on the foregoing proposal at the meeting on the
date specified above, or on any date or dates to which the meeting may be
adjourned. Only stockholders of record at the close of business on _______ __,
2003 are entitled to vote at the meeting or any adjournments or postponements.
YOUR VOTE IS VERY IMPORTANT
You are requested to complete and sign the enclosed proxy card which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend the meeting and vote
in person.
Remember, if your shares are held in the name of a broker, you will
need additional documentation from your broker in order to vote in person at the
Meeting. Please contact the person responsible for your account and instruct
him/her to execute a proxy card on your behalf. You should also sign, date and
mail your proxy at your earliest convenience.
Please review the proxy statement and appendices thereto accompanying
this notice for more complete information regarding the matters proposed for
your consideration at the Meeting. Should you have any questions or require
assistance, please call James S. Nelson, Executive Vice President of Steelton,
at (717) 939-1966.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Victor J. Segina
-------------------
Victor J. Segina
Secretary
Steelton, Pennsylvania
__________ __, 2003
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
YOUR SUPPORT IS APPRECIATED.
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE VOTING PROCEDURES REGARDING
THE MEETING.................................................................. i
SUMMARY TERM SHEET............................................................. ii
THE MEETING
Place, Time and Date..................................................
Matters to be Considered..............................................
Voting Rights of Stockholders; Votes Required for Approval............
Solicitation and Revocability of Proxies..............................
Beneficial Ownership of Steelton Bancorp, Inc. Common Stock...........
THE MERGER
Overview..............................................................
The Companies.........................................................
Background of the Merger..............................................
Steelton Bancorp, Inc.'s Reasons for the Merger.......................
Opinion of Steelton Bancorp, Inc.'s Financial Advisor.................
Interests of Directors and Officers in the Merger that are
Different From Your Interests......................................
Conditions of the Merger..............................................
Federal Income Tax Consequences of the Merger.........................
Effective Date........................................................
Procedures for Surrendering Your Certificates.........................
Approvals Needed to Complete the Merger...............................
Time Period for Completing the Merger.................................
Other Provisions of the Merger Agreement..............................
Termination and Termination Fees......................................
Dissenters' Rights....................................................
STOCKHOLDER PROPOSALS FOR THE STEELTON BANCORP, INC. 2003 ANNUAL MEETING.......
OTHER MATTERS..................................................................
APPENDICES
A Merger Agreement (exhibits omitted)
B Fairness Opinion
C Pennsylvania Business Corporation Law Provisions For Dissenting Stockholders
QUESTIONS AND ANSWERS ABOUT THE
VOTING PROCEDURES REGARDING THE MERGER PROPOSAL
Q: What do I need to do now: o First, you may send a written notice
to Secretary of Steelton Bancorp,
A: After you have carefully read this proxy Inc. at 51 S. Front Street, Steelton,
statement, indicate on your proxy form how Pennsylvania 17113 stating that you
you want your shares to be voted. Please sign, would like to revoke your proxy.
date and mail your proxy form in the enclosed
prepaid return envelope as soon as possible. o Second, you may complete and
This will enable your shares to be represented submit a new proxy form. Any
and voted at the Meeting. earlier proxies will be revoked
automatically.
Q: If my shares are held in street name by my
broker, will my broker automatically vote my o Third, you may attend the Meeting
shares for me? and vote in person. Any earlier
proxy will be revoked. However,
A: No. Your broker will not be able to vote your simply attending the Meeting
shares without instructions from you. You without voting in person will not
should instruct your broker to vote your shares, revoke your proxy.
following the directions your broker provides.
If you have instructed a broker or other
Q: What if I fail to instruct my broker? nominee to vote your shares, you must
follow directions you received from your
A: If you fail to instruct your broker to vote your broker or other nominee to change your
shares, your shares will not be voted on the vote.
merger agreement.
Q: Should I send in my stock certificates now?
Q: Can I attend the meeting and vote my shares in
person? A: No. You should not send in your stock
certificates at this time.
A: Yes. All stockholders are invited to attend the
Meeting. Stockholders of record can vote in Instructions for surrendering your stock
person at the Meeting. If your shares are held certificates in exchange for $22.04 per share
in street name, then you are not the stockholder in cash will be sent to you after the merger
of record and you will need additional has been completed.
documentation from your broker in order to
vote in person at the Meeting. Q: Whom may I call with questions?
Q: Can I change my vote? A: You may call James S. Nelson, Executive
Vice President of Steelton, at (717) 939-
A: Yes. If you have not voted through your 1966.
broker or other nominee, there are three ways
you can change your vote after you have sent
in your proxy form.
i
SUMMARY TERM SHEET
This summary term sheet highlights selected information regarding the
merger from this proxy statement. It does not contain all the information that
may be important to you. You should carefully read this entire proxy statement
and the other documents which are attached, including the merger agreement,
attached as Appendix A, to fully understand the merger.
You Will Be Entitled to Receive $22.04 in Cash For o The merger cannot occur unless
Each Share of Steelton Common Stock (see page __) (i) Steelton's stockholders approve the merger
agreement by the affirmative vote of the
When the merger is completed, each Steelton majority of votes cast at the Meeting and (ii)
Bancorp, Inc. stockholder will be entitled to receive the necessary approvals from banking
$22.04 in cash for each share of Steelton common stock regulators are received (see page __).
held. For example, if you own 100 shares of Steelton
Bancorp, Inc. common stock, you will be entitled to o If the merger is not completed on or before
receive $2,204.00 upon the surrender of your June 30, 2003, the merger may be
certificate for those shares. terminated by either Steelton Bancorp, Inc.
or Sun Bancorp, Inc. unless the failure to
Steelton's Reasons for the Merger (see pages _ complete the merger by that date is due to a
through _). breach of the party seeking to terminate (see
page __).
Steelton's Board of Directors believes that the
merger is in the best interests of Steelton Bancorp, Inc. o Steelton has agreed not to solicit or
and its stockholders and recommends that stockholders encourage a competing proposal to merge
vote "FOR" the approval of the merger agreement. In with or sell its assets to another entity.
reaching its decision to approve the merger agreement, However, if the fiduciary duties of Steelton's
the Board considered various factors which are directors require it, the Board may furnish
discussed in detail in this proxy statement. information to or negotiate with someone
who makes an unsolicited, bona fide, written
Some Material Terms of the Merger Agreement. acquisition proposal (see page __).
o Under certain circumstances, in the event
o Upon completion of the merger Steelton that the merger is terminated, Steelton will
Bancorp, Inc. and Mechanics Savings Bank pay Sun Bancorp, Inc. $350,000 (see page
will no longer exist and Sun Bancorp, Inc. and __).
Sun Bank will be the surviving entities.
o The completion of the merger depends on a
number of conditions being satisfied or waived
(see page __).
ii
The Merger Will be Taxable to Steelton You Have Dissenters' Rights (see pages __
Stockholders (see page _). through __).
Steelton's stockholders will generally recognize Pennsylvania law provides Steelton Bancorp, Inc.
gain or loss for federal, and possibly state and local, stockholders with dissenters' appraisal rights in the
income tax purposes, on the exchange of their Steelton merger. This means that if you comply with certain
Bancorp, Inc. shares for cash. You will recognize gain procedures under Pennsylvania law, you have the
or loss equal to the difference between the amount of right to receive payment for your shares of Steelton
cash you receive and your tax basis in your Steelton Bancorp, Inc. common stock based upon an
Bancorp, Inc. shares. You should determine the actual independent determination of their value. In addition
tax consequences of the merger to you. It will depend to the summary of the dissenters' rights beginning on
on your specific situation and factors not within page __, a copy of the provisions of Pennsylvania
Steelton's control. You should consult your personal law regarding dissenters' rights is attached to this
tax advisor for a full understanding of the merger's proxy statement as Appendix C. Failure to follow
specific tax consequences to you. these provisions may result in a loss of your
dissenters' rights.
Steelton's Board of Directors Recommends
Stockholder Approval (see pages _ through _). The Merger is Expected to be Completed in the
First Half of 2003 (see page __).
Steelton's Board of Directors believes that the
merger is in the best interests of Steelton Bancorp, Inc. The merger will only occur after all the
and its stockholders and has unanimously approved the conditions to its completion have been satisfied or
merger agreement. The Board unanimously waived. Currently, Steelton and Sun anticipate that
recommends that you vote "FOR" approval of the the merger will be completed in the second quarter of
merger agreement. 2003.
Steelton's Financial Advisor Believes the Merger Financial Interests of Steelton's Officers and Directors
Consideration is Fair froma Financial Point of View in the Merger (see pages __ through __).
to the Stockholders (see pages __ through __).
Steelton's directors and executive officers have
Steelton's financial advisor, FinPro, Inc. has given interests in the merger as individuals in addition to,
the Board of Directors a written opinion dated or different from, their interests as stockholders,
December 20, 2002, and updated as of ________ __, such as receiving severance payments,
2003 that states the cash consideration to be paid to indemnification and insurance coverage, and other
Steelton's stockholders is fair from a financial point of benefits.
view. A copy of the opinion is attached to this proxy
statement as Appendix B. You should read it The Board of Directors was aware of these
completely to understand the assumptions made, interests and considered them in its decision to
matters considered and limitations on the review approve the merger agreement.
performed by the financial advisor in issuing its
opinion. Steelton has agreed to pay FinPro a fee of
approximately $90,000 as consideration for its services.
Of this amount, $20,000 has been paid.
iii
THE MEETING
Place, Time and Date
The Meeting is scheduled to be held at the offices of Mechanics Savings
Bank at 51 South Front Street, Steelton, Pennsylvania 17113 at __:____ _.m.,
Eastern Time on _______ __, 2003.
Matters to be Considered
At the Meeting stockholders will be asked to approve the Agreement and
Plan of Reorganization, dated December 20, 2002, by and among Sun Bancorp, Inc.,
Sun Bank, Sun Acquisition Corporation, Steelton Bancorp, Inc., and Mechanics
Savings Bank, which provides for the merger of Steelton into Sun Bancorp, Inc.
and the merger of Mechanics Savings Bank into Sun Bank. The provisions of the
merger agreement are more fully discussed on pages __ through __.
Stockholders may also consider and vote upon any other matters that may
properly come before the Meeting, including approval of any adjournment of the
Meeting. As of the date of this proxy statement, the Board of Directors is not
aware of any other business to be presented for consideration at the meeting.
Voting Rights of Stockholders; Votes Required for Approval
The Board of Directors has fixed the close of business on _______ __,
2003 as the record date for determining Steelton Bancorp, Inc. stockholders
entitled to receive notice of and to vote at the Meeting. Each share of Steelton
common stock you own entitles you to one vote. Only holders of record of common
stock as of the record date are entitled to notice of and to vote at the
Meeting. As of the record date, there were issued and outstanding 300,290 shares
of common stock.
The Articles of Incorporation of Steelton Bancorp, Inc. provide that,
in no event shall any record owner of any common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the then outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote with respect to the shares held in excess of the Limit.
Beneficial ownership is determined pursuant to the definition in the Articles of
Incorporation and includes shares beneficially owned by such person or any of
his or her affiliates (as such terms are defined in the Articles of
Incorporation), or which such person or any of his or her affiliates has the
right to acquire upon the exercise of conversion rights or options and shares as
to which such person or any of his or her affiliates or associates have or share
investment or voting power, but neither any employee stock ownership plan or
similar plan of Steelton Bancorp, Inc. or any subsidiary, nor any trustee with
respect thereto or any affiliate of such trustee (solely by reason of such
capacity of such trustee), shall be deemed, for purposes of the Articles of
Incorporation, to beneficially own any common stock held under any such plan.
The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding shares (after subtracting any shares in excess
of the Limit) is necessary to constitute a quorum at the Meeting. Abstentions
and broker non-votes (as described below) will be counted solely for the purpose
of determining whether a quorum is present. Under the applicable rules of the
National Association of Securities Dealers, brokers or members who hold shares
in street name for customers who are the beneficial owners of such shares are
prohibited from giving a proxy to vote those shares with respect to the approval
of the merger agreement in the absence of specific instructions from such
customers
1
("broker non-votes"). Abstentions and broker non-votes will not be deemed to be
cast either "FOR" or "AGAINST" the merger agreement.
Approval of the merger agreement requires the affirmative vote of a
majority of the votes cast at the Meeting. The directors of Steelton Bancorp,
Inc. are entitled to vote approximately ___% of the outstanding shares of
Steelton Bancorp, Inc. common stock. These directors have entered into an
agreement with Sun Bancorp, Inc. to vote their shares in favor of the merger
agreement.
Solicitation and Revocability of Proxies
Proxies in the form accompanying this proxy statement are being
solicited by the Board of Directors. Shares represented by properly executed
proxies, if such proxies are received in time and are not revoked, will be voted
in accordance with the instructions indicated on the proxies. Except for broker
non-votes, if no instructions are indicated, such proxies will be voted "FOR"
approval of the merger agreement, and, as determined by a majority of the Board,
as to any other matter that may come before the Meeting including, among other
things, a motion to adjourn or postpone the Meeting to another time and/or
place, for the purpose of soliciting additional proxies or otherwise. No proxy
with instructions to vote against the proposal to approve the merger agreement,
however, will be voted in favor of any adjournment or postponement of the
Meeting.
A stockholder who has given a proxy may revoke it at any time prior to
its exercise at the Meeting by:
o giving written notice of revocation to the Secretary of Steelton
Bancorp, Inc.;
o properly submitting a duly executed proxy bearing a later date; or
o voting in person at the Meeting.
All written notices of revocation and other communications with respect
to the revocation of proxies should be addressed to Victor J. Segina, Secretary,
Steelton Bancorp, Inc., 51 South Front Street, Steelton, Pennsylvania 17113. A
stockholder whose shares are held in street name should follow the instructions
of his or her broker regarding revocation of proxies. A proxy appointment will
not be revoked by the death or incapacity of the stockholder executing the proxy
unless, before the shares are voted, notice of such death or incapacity is filed
with the Secretary of Steelton Bancorp, Inc. or other person responsible for
tabulating votes on behalf of Steelton.
Proxy Solicitation Costs. In addition to this mailing, Steelton's
directors, officers and employees may also solicit proxies personally, or by
telephone, or by other forms of communication. Steelton will also reimburse
brokers and other nominees for their expenses in sending these materials to you
and obtaining your voting instructions.
Beneficial Ownership of Steelton Bancorp, Inc. Common Stock
Stockholders of record as of the close of business on _______ __, 2003
will be entitled to one vote at the Meeting for each share of Steelton common
stock then held. As of that date, there were 300,290 shares of common stock
issued and outstanding. The following table sets forth information regarding the
share ownership of each holder of more than 5% of the outstanding common stock,
including the employee stock ownership plan, Steelton's directors, and
Steelton's directors and executive officers as a group.
2
Amount and Nature of Common Stock
Name and Address of Beneficial Owner Beneficial Ownership Outstanding
- ------------------------------------ -------------------- -----------
Mechanics Savings Bank Employee Stock ________(1) %
Ownership Plan (the "ESOP")
Harold E. Stremmel ________(2) %
James S. Nelson ________(3) %
Richard E. Farina ________(4) %
Victor J. Segina ________(4) %
James F. Stone ________(4) %
Joseph A. Wiedeman ________(4) %
All directors and executive officers of
Steelton Bancorp, Inc. as a group (7 persons) ________(5) %
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(1) These shares are held in a suspense account and are allocated among
participants annually on the basis of compensation as the ESOP debt is
repaid. As of the Record Date, ______ shares have been allocated to ESOP
participants.
(2) Includes ______ shares that may be acquired pursuant to exercisable
options.
(3) Includes ______ shares that may be acquired pursuant to exercisable
options.
(4) Includes ____ shares subject to exercisable options. Excludes _____
unallocated shares of Common Stock held under the ESOP over which such
individual, an ESOP Trustee, exercises sole voting power. Also excludes
________ shares of Common Stock held by the Mechanics Savings Bank
Restricted Stock Plan (the "RSP") over which such individual, as an RSP
trustee, exercises sole voting power.
(5) Includes _______ shares that may be acquired pursuant to exercisable
options. Excludes _______ unallocated shares held by the ESOP over which
the non-employee directors of the Corporation exercise sole voting power.
The Board of Directors appointed a committee consisting of Directors
Farina, Segina, Stone and Wiedeman to serve as the ESOP Plan Committee (the
"ESOP Committee"). The ESOP Committee directs the vote of unallocated
shares and shares for which timely voting directions are not received. Also
excludes _______ shares held by the RSP over which certain directors, as
RSP trustees, exercise sole voting power.
THE MERGER
The following information describes certain information pertaining to
the proposed merger. This description is not complete and is qualified in its
entirety by reference to the Appendices attached to this proxy statement, which
are incorporated herein by reference. You should read the Appendices in their
entirety.
Overview
As soon as possible after the conditions to consummation of the
reorganization described below have been satisfied or waived, and unless the
merger agreement has been terminated or an alternative structure is used as
discussed below, the merger will be effected as follows:
o each share of Steelton Bancorp, Inc. common stock then
outstanding, except for shares held by Steelton as treasury
shares and shares held by any Steelton stockholder who elects
to exercise dissenters' rights, shall be converted into the
right to receive $22.04 in cash without interest; and
o Sun Acquisition Corporation, a wholly owned subsidiary of Sun
Bancorp, Inc., shall be merged with and into Steelton Bancorp,
Inc., resulting in Steelton becoming a wholly- owned
subsidiary of Sun, and Steelton shall effectuate a complete
liquidation and dissolution. Mechanics Savings Bank will merge
with and into Sun Bank.
3
The agreement provides that Sun Bancorp, Inc. may change the way it
combines with Steelton Bancorp, Inc. provided that it does not change the amount
of consideration to be received by Steelton's stockholders.
The Companies
Steelton Bancorp, Inc.
Mechanics Savings Bank
51 South Front Street
Steelton, Pennsylvania 17113
(717) 939-1966
Steelton Bancorp, Inc. ("Steelton"), a Pennsylvania corporation, is the
savings and loan holding company for Mechanics Savings Bank. Steelton conducts
no significant operations of its own other than holding all of the outstanding
stock of Mechanics Savings Bank. Mechanics Savings Bank is a federally chartered
stock savings bank headquartered in Steelton, Pennsylvania and conducts business
through its main office in Steelton, Pennsylvania and a branch office in
Middletown, Pennsylvania. At December 31, 2002, Steelton had total assets of
approximately $58.0 million, total deposits of approximately $33.0 million, and
stockholders' equity of approximately $5.8 million.
Sun Bancorp, Inc.
Sun Bank
155 North 15th Street
Lewisburg, Pennsylvania 17837
(570) 522-9250
Sun Bancorp, Inc. ("Sun"), a Pennsylvania corporation, is the bank
holding company for Sun Bank. Sun Bank conducts its operations through its
corporate headquarters located in Lewisburg, Pennsylvania. At December 31, 2002,
Sun had total assets of approximately $951.2 million, total deposits of
approximately $587.5 million, and stockholders' equity of approximately $81.2
million.
Background of the Merger
In July 1999, Mechanics Savings Bank converted from a mutual to stock
savings bank. After the conversion and consistent with its business plan,
management continued to focus on improving its core business of obtaining
deposits from the public and originating one-to-four family mortgage loans.
Steelton also directed its efforts to improving overall profitability and
stockholder value through stock repurchases and dividends.
Since the conversion, the Board of Directors and management of Steelton
have recognized that increased competition from traditional and nontraditional
providers of financial services has fundamentally changed the environment in
which traditional thrifts operated and threatens the market share held by
thrifts as well as their growth and income potential. Competition from these
entities is aggressive and comprehensive and makes it increasingly more
difficult, especially for smaller institutions such as Steelton, to
systematically increase stockholder value despite revenue enhancement efforts.
During May 2001, Steelton was approached by a non-bank entity regarding
a potential merger. In June 2002, Steelton's Board of Directors met with a
representative from FinPro, Inc. to discuss strategic
4
planning services and to identify alternative courses of action for Steelton,
including various operating strategies as an independent company and the
possibility of merging with another institution. At this meeting, FinPro, Inc.
also reviewed the then current merger market, the various pricing methods for
estimating merger value, and a range of values for Steelton based on these
various pricing methods.
During August and October 2002, representatives of Sun and one other
institution made unsolicited and unexpected inquiries to the management of
Steelton regarding a possible combination with Steelton. President Harold
Stremmel and Vice President James Nelson met with officers of Sun and the other
institution in August and October 2002.
Steelton's Board of Directors retained FinPro on July 15, 2002 to
render general advisory services and to provide assistance to the Board of
Directors in analyzing alternative means of enhancing stockholder value
including exploring a potential merger or sale of Steelton through a
confidential bidding process.
At the September 18, 2002 Board of Directors meeting, the Board of
Directors discussed the strategic planning and alternative courses of actions
for Steelton, which were previously presented to them by FinPro. In view of
Steelton's size, financial capacity and personnel resources and their resulting
impact on the enhancement of stockholder value, the Board of Directors decided
to explore the potential merger or sale of Steelton.
By letter dated August 12, 2002, Steelton requested an indication of
interest, including proposed consideration, from the non-bank entity. On
September 13, 2002, the non-bank entity responded with an offer with
consideration that the Board of Directors, upon consultation with FinPro,
determined was not adequate to warrant preempting a confidential bidding
process.
On September 25, 2002, FinPro met with the Board to establish a list of
potential acquirers and during late September 2002, FinPro assisted Steelton in
preparing confidential due diligence materials regarding Steelton to distribute
to potential acquirers. A total of twenty-five potential acquirers were
contacted, and after executing a confidentiality agreement, each potential
acquirer that indicated interest was sent the confidential due diligence
materials regarding Steelton, with instructions that indications of interest
were due on October 25, 2002.
FinPro received three written indications of interest for acquiring
Steelton for cash, which included an indication of interest from Sun. FinPro
reviewed the bids with the Board of Directors, and the Board authorized FinPro
to go back to two of the institutions with instructions that offers from these
parties needed to be in the range of $22.00 per share or higher to be included
in the bidding process. These two institutions decided not to revise their
offers to remain in the bidding process. The Board of Directors continued
discussions with Sun, as Sun's offer was the most favorable of all the proposals
received. Steelton permitted Sun to perform an offsite due diligence review of
Steelton on November 13 and 14, 2002.
Based on FinPro's pricing discussions with representatives of the
non-bank entity, the Board of Directors also authorized FinPro, Inc. to send the
confidential due diligence materials regarding Steelton to the non-bank entity
with instructions that its offer needed to be in the range of $22.00 per share
or higher to be included in the bidding process. FinPro requested revised
indications of interest from the non- bank entity and from Sun to be submitted
on November 22, 2002. The non-bank entity responded that after reviewing the
confidential due diligence materials regarding Steelton, it could not reach an
offer in the range of $22.00 per share or higher and it dropped out of the
bidding process. Sun's final bid was $22.04 per share.
5
On December 4, 2002, Sun delivered to Steelton a proposed merger
agreement and on December 10, 2002, Steelton, its counsel, and FinPro, Inc.
completed due diligence of Sun. From December 4, 2002 through December 20, 2002,
Steelton and Sun continued to discuss the structure and terms of Sun's proposal.
On December 20, 2002, the Board of Directors met with FinPro, Inc. and
special counsel to review the financial and legal arrangements of the Sun
definitive merger agreement. FinPro, Inc. made an independent analysis of the
Sun proposal, which concluded that the consideration was fair to stockholders
from a financial point of view. See "Opinion of Steelton Bancorp, Inc.'s
Financial Advisor." After careful consideration, the Board of Directors
authorized the execution of the merger agreement. Additionally, on December 20,
2002, Steelton Bancorp, Inc. and Sun jointly announced the execution of the
merger agreement.
Steelton Bancorp, Inc.'s Reasons for the Merger
Steelton's Board of Directors believes that the terms of the merger
agreement, which are the product of arm's length negotiations between
representatives of Steelton and Sun are in the best interests of Steelton's
stockholders. In the course of reaching its determination, the Board of
Directors considered the following factors:
o the merger consideration to be paid to Steelton's stockholders in
relation to the market value, book value and earnings per share of the
Steelton common stock;
o information concerning Steelton's financial condition, results of
operations, capital levels, asset quality and prospects;
o Steelton's strategic alternatives to the merger, or the continued
operation of Mechanics Savings Bank as an independent financial
institution;
o the Board's assessment of Sun's ability to pay the aggregate merger
consideration;
o the opinion of Steelton's financial advisor as to the fairness of the
merger consideration from a financial point of view to the minority
holders of Steelton's common stock;
o industry and economic conditions;
o the general structure of the transaction;
o the results of Steelton's due diligence investigation of Sun and Sun
Bank, including the likelihood of receiving the requisite regulatory
approvals in a timely manner.
In making its determination, Steelton's Board of Directors did not
ascribe any relative or specific weights to the factors which it considered. The
foregoing discussion of the factors considered by the Board is not intended to
be exhaustive, but it does include the material factors considered by the Board.
The Board of Directors believes that the merger is in the best
interests of Steelton's stockholders. Accordingly, Steelton's Board of Directors
unanimously recommends that its stockholders vote for the approval of the merger
agreement.
6
Opinion of Steelton Bancorp, Inc.'s Financial Advisor
Steelton's Board of Directors retained FinPro, Inc. on July 15, 2002 to
provide assistance to the Board of Directors in analyzing alternative means of
enhancing stockholder value and to provide certain financial advisory and
investment banking services to Steelton in conjunction with a potential merger,
including rendering an opinion with respect to the fairness of the merger
consideration from a financial point of view to holders of Steelton common
stock. In requesting FinPro's advice and opinion, Steelton's Board of Directors
did not give any special instructions to, or impose any limitations upon the
scope of the investigation that FinPro might wish to conduct to enable it to
give its opinion. FinPro was selected by Steelton to act as its financial
advisor because of FinPro's expertise in the valuation of businesses and their
securities for a variety of purposes including mergers and acquisitions of
savings and loans, savings banks, and savings and loan and bank holding
companies.
On December 20, 2002, at the meeting in which Steelton's Board of
Directors approved and adopted the merger agreement and the transactions
contemplated thereby, FinPro rendered its opinion to Steelton's Board of
Directors. In reaching its opinion, FinPro took into consideration the financial
benefits of the proposed transaction to Steelton stockholders. The opinion
stated that, as of December 20, 2002, based on all factors deemed relevant and
assuming the accuracy and completeness of the information and data provided by
Steelton and Sun, it was FinPro's opinion that the cash consideration was fair
to holders of Steelton common stock from a financial point of view. That opinion
was updated as of ___________ __, 2003. In connection with its opinion dated
___________ __, 2003, FinPro also confirmed the appropriateness of relying on
the analysis used to render the December 20, 2002 opinion. FinPro performed
procedures to confirm the appropriateness of such analyses, reviewed the
assumptions on which such analyses were based, and reviewed the factors
considered in connection therewith.
The full text of the opinion of FinPro, which sets forth matters
considered and limitations on the review undertaken, is attached as Appendix B
to this proxy statement and is incorporated herein by reference. Holders of
Steelton common stock are urged to read the opinion in its entirety.
The opinion of FinPro is directed to Steelton's Board of Directors in
its consideration of the merger consideration as described in the agreement, and
does not constitute a recommendation to any stockholder of Steelton as to any
action that such stockholder should take in connection with the merger
agreement, or otherwise. It is further understood that the opinion of FinPro is
based on market conditions and other circumstances existing on the date hereof.
The opinion states that FinPro reviewed the following material: (i) the
Agreement and the exhibits thereto; (ii) changes in the market for bank and
thrift stocks; (iii) the performance of Steelton's common stock; (iv) trends and
changes in the financial condition of Steelton and Sun; (v) the most recent
annual report to stockholders of Steelton and Sun; (vi) quarterly reports on
Form 10-QSB of Steelton and on Form 10-Q of Sun; (vii) quarterly regulatory
reports of Steelton and Sun; (viii) the most recent audit letter to Steelton and
Sun; and (ix) recent regulatory exam reports of Steelton and Sun.
FinPro also had discussions with the management of Steelton and Sun
regarding their respective financial results and analyzed the most current
financial data available for Steelton and Sun. In addition, FinPro considered
financial studies, analyses and investigations and economic and market
information that it deemed relevant. FinPro considered certain financial data of
Steelton and compared that data to other thrift institutions and their holding
companies that were recently merged or acquired. Furthermore, FinPro considered
the financial terms of these business combinations involving these thrift
institutions and their
7
holding companies. FinPro did not independently verify the financial data
provided by or on behalf of Steelton and Sun, but instead relied upon and
assumed the accuracy and completeness of the data provided.
In connection with rendering its opinion dated December 20, 2002 and
updated as of the date of this proxy statement, FinPro performed a variety of
analyses, which are summarized below. The preparation of a fairness opinion is a
complex process involving subjective judgments and is not necessarily
susceptible to partial analyses or summary description. FinPro stated that its
analyses must be considered as a whole and that selecting portions of such
analyses and of the factors considered by FinPro without considering all such
analyses and factors could create an incomplete view of the process underlying
FinPro's opinion. In its analyses, FinPro made numerous assumptions with respect
to industry performance, business and economic conditions, applicable laws and
regulations, and other matters, many of which are beyond the control of
Steelton. Any estimates contained in FinPro's analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than such estimates. No company or transaction utilized in FinPro's
analyses was identical to Steelton, Sun or the merger.
The following is a summary of the material financial analyses performed
by FinPro in connection with providing its opinion.
(a) Transaction Summary. Analyzing SNL Securities' market data,
Steelton financial data and FinPro's calculations, FinPro summarized the
following multiples based on the consideration price per share offered by Sun in
the proposed merger: (i) price to Steelton's book value per share, (ii) price to
Steelton's tangible book value per share, (iii) price to Steelton's last twelve
months earnings per share and (iv) core deposit premium. FinPro also summarized
the high level of transaction expenses relative to the deal value.
(b) Market Value - Trading. In this analysis, FinPro considered the
trading price history of Steelton and the trading price of a comparable thrift
trading group and showed that Steelton trades in-line with the comparable group
on a book basis, but at a sizeable premium on an earnings basis. The proposed
merger was shown by FinPro to be priced above the trading multiples of the
comparable group. The following table illustrates the maximum, minimum and
median trading multiples of the comparable group.
Price to Price to
Price to Tangible LTM
Book Book Earnings
- ---------------------------------------------------------------------------
Maximum % % x
Minimum % % x
Median % % x
Steelton Acquisition Multiples 112.79% 112.79% 45.92x
- ---------------------------------------------------------------------------
Source: SNL Securities, FinPro Calculations
The ticker symbols of the members of the comparable trading group are:
AMFC, ASBP, CKFB, CIBI, CRZY, FFDF, FFED, FNFI, FKKY, GCFC, PEDE, HFFB, HCFC,
HWEN, HLFC, HSTD, KYF, LXMO, MSBF, NBSI, PSFC, PBNC, SOBI, SRN, SZB, SFFC AND
UTBI.
FinPro also compared financial condition and the results of operation
of Steelton with the financial condition and results of operation of all
publicly traded thrift institutions and a selected Comparable Trading Group. The
following table provides some of the selected fundamental data analyzed.
8
For the Last Twelve Months
---------------------------------------------------
Comparable All
Trading Publicly
Group Traded Thrift
Steelton Median Median
---------------------------------------------------
Balance Sheet:
Assets ($000's)
Asset Growth % % %
Loans to Assets % % %
Deposits to Assets % % %
Borrowing to Assets % % %
Tangible Equity to Tangible Assets % % %
Asset Quality:
Non performing Loans to Loans % % %
Non performing Assets to Assets % % %
Reserves to Nonperforming Loans % % %
Reserves to Loans % % %
Income Statement and Profitability:
Return on Ave. Assets % % %
Return on Ave. Equity % % %
Yield on Earning Assets % % %
Cost of Funds % % %
Net Interest Margin % % %
Non Interest Income to Ave. Assets % % %
Non Interest Expense to Ave. Assets % % %
Efficiency Ratio % % %
Dividends:
Current Dividend Yield % % %
LTM Dividend Payout Ratio % % %
- -----------------------------------------------------------------------------------------------
Source: The SNL DataSource, data is for the last twelve months updated
through __________ __, 2003 unless otherwise noted.
The ticker symbols of the members of the comparable trading group are:
AMFC, ASBP, CKFB, CIBI, CRZY, FFDF, FFED, FNFI, FKKY, GCFC, PEDE, HFFB, HCFC,
HWEN, HLFC, HSTD, KYF, LXMO, MSBF, NBSI, PSFC, PBNC, SOBI, SRN, SZB, SFFC AND
UTBI.
(c) Market Value - Acquisition. In this analysis, FinPro conducted an
evaluation of the following multiples in business combinations among thrift
institutions for each of the last five years through December 17, 2002: (i)
price to book value per share, (ii) price to tangible book value per share,
(iii) price to last twelve months earnings per share and (iv) core deposit
premium. FinPro evaluated three groups of transactions: (a) nationwide
acquisitions, (b) mid-Atlantic acquisitions and (c) acquisitions with deal
values of less than $10.0 million. FinPro's analysis showed that in general
thrift acquisition multiples rose in 2002. The price to earnings multiple in the
proposed Sun merger was high relative to this analysis, while the price to
tangible book and core deposit premium were low.
FinPro also compared the pricing multiples for the proposed Sun merger
to the multiples for a comparable acquisition group, defined to include thrift
deals announced in 2002 where the target had assets of less than $150.0 million,
a return on average equity ratio of less than 10.00% and a non-performing assets
to assets ratio of less than 3.00%. None of the comparables in this group are an
exact match to Steelton; FinPro reviewed the fundamentals of the comparable
group and found that Steelton's earnings were stronger, but Steelton's asset
quality was weaker. FinPro showed that the proposed Sun merger was priced at a
premium to the comparable median on an earnings basis, but at a discount on a
tangible book
9
and franchise premium basis. The following table illustrates the maximum,
minimum and median acquisition multiples of the comparable group.
Price to Price to Franchise
Price to Tangible LTM Premium to
Book Book Earnings Core Deposits
- ----------------------------------------------------------------------------------------
Maximum 160.09% 160.09% 40.33x 16.58%
Minimum 96.53% 96.53% 13.47x 0.17%
Median 130.16% 130.16% 20.84x 7.30%
Steelton Acquisition Multiples 112.79% 112.79% 45.92x 4.53%
- ------------------------------------------------------------------------------------
Source: SNL Securities, FinPro Calculations
(d) Investment Value - Discounted Dividend and Terminal Value. FinPro
prepared a projection of stockholder value that could be achieved through
continued operations and subsequent sale on December 31, 2006 based on a number
of reasonable assumptions, including annual increases in interest earning assets
of 4.5%, modest improvement of net margin through June 30, 2003, increases in
noninterest income and noninterest expense of 4.5% and 4.0%, respectively, the
continuation of a semi-annual dividend of $0.09 through 2003 and a $0.01
increase per year thereafter, a sale at 130% of book value and 29.40 times last
twelve months earnings per share, and the completion of the sale on December 31,
2006. A discount rate of 9% was used. FinPro concluded that, since the per share
value of $22.04 per share of Steelton common stock offered in the proposed
merger exceeded the projected present value of Steelton's stock that could be
achieved, this analysis supported FinPro's opinion that the consideration was
fair to Steelton stockholders from a financial point of view. Because future
projections are highly dependent on the assumptions utilized, FinPro also
conducted this analysis using a range of assumptions and showed the price in the
proposed Sun merger to be between a minimum and a maximum implied value using a
range of assumptions.
On the basis of these analyses and other considerations, FinPro
concluded that the merger consideration, as described in the agreement, is fair
to the stockholders of Steelton from a financial point of view. As described
above, FinPro's opinion and presentation to Steelton's Board of Directors was
one of many factors taken into consideration by Steelton's Board of Directors in
making its determination to approve the agreement. Although the foregoing
summary describes the material components of the analyses presented by FinPro to
Steelton's Board of Directors, it does not purport to be a complete description
of all the analyses performed by FinPro and is qualified by reference to the
written opinion of FinPro set forth as Appendix B hereto, which the Steelton
stockholders are urged to read in its entirety.
Pursuant to an agreement dated July 15, 2002 (the "FinPro Engagement
Letter"), FinPro will receive from Steelton a fee equal to 1.25% of the
Aggregate Purchase Price, as defined in the FinPro Engagement Letter, or
approximately $90,000, plus reimbursement of reasonable travel and other out-of-
pocket expenses, for rendering the fairness opinion and for its financial
advisory assistance. A portion of FinPro's fee is contingent on the completion
of the proposed merger. In addition, Steelton has agreed to indemnify FinPro
against certain liabilities, including liabilities under the federal securities
laws. Prior to execution of the FinPro Engagement Letter, FinPro provided
Steelton with consulting and financial advisory services, including strategic
planning, financial advisory and appraisal services.
10
Interests of Directors and Officers in the Merger that are Different From Your
Interests
Some members of Steelton's management and Board of Directors may have
interests in the merger that are in addition to or different from the interests
of Steelton's stockholders. The Board of Directors was aware of these interests
and considered them in approving the merger agreement. Included below is a
summary of some of the benefit plans under which officers or directors
participate and under which benefits will be paid in accordance with the merger
agreement.
Existing Employment, Severance and Change in Control Agreements. Sun
shall honor all existing employee agreements, severance or change in control
agreements or plans of Steelton and Mechanics Savings Bank, in effect as of
December 20, 2002, the date of the merger agreement. Steelton has employment
agreements with Harold E. Stremmel, James S. Nelson and Shannon Aylesworth that
provide severance payments in the event of any change of control that results in
a diminishment of the employee's responsibilities or authority or in the
employee's termination. Mechanics Savings Bank shall pay out the severance
payments to Mr. Stremmel, Mr. Nelson and Ms. Aylesworth on the Effective Date.
As of the Effective Date, the approximate severance payments under the
employment agreements for Mr. Stremmel, Mr. Nelson and Ms. Aylesworth will be
approximately $206,213, $173,191 and $109,181, respectively. Additionally,
Mechanics Savings Bank has a severance policy which provides for payments to
Michael S. Leonzo and Barbara G. Coates, officers of Mechanics Savings Bank, and
on the Effective Date Mechanics Savings Bank shall make severance payments to
Mr. Leonzo and Ms. Coates of approximately $95,129 and $104,757, respectively.
Sun anticipates offering employment to Mr. Nelson and Ms. Aylesworth following
the merger, however, the terms, duties and remuneration have not been
determined. In addition, Mr. Stremmel will enter into a consulting and
non-competition agreement with Sun Bank for a term of up to three years in
exchange for lifetime medical insurance for himself and his dependents.
Creation of Advisory Board. Sun has agreed that each member of the
Steelton Board of Directors will be entitled to serve on an advisory board to be
established by Sun for a period of not less than three years following the
Effective Date. Each member of the Steelton Board of Directors serving on this
advisory board will receive a fee equal to $7,800 per year for Directors Farina,
Segina, Stone and Wiedeman and $13,833 and $12,633 for Directors Stremmel and
Nelson, respectively.
Steelton Stock Options. Outstanding and exercisable options to purchase
shares of Steelton common stock under Steelton's stock option plan will be
canceled with a cash payment to be made in an amount equal to the difference, if
any, between the per share cash consideration and the exercise price per share.
As of _______ __, 2003, the record date, options to purchase a total of
approximately 32,683 shares of Steelton common stock to executive officers and
directors were outstanding with an exercise price of $8.33 per share. Upon the
Effective Date the following payments (less any applicable withholding taxes)
will be made:
Harold E. Stremmel.............. $145,477
James S. Nelson................. 116,397
Richard E. Farina............... 29,093
Victor J. Segina................ 29,093
James F. Stone.................. 29,093
Joseph A. Wiedeman.............. 29,093
Shannon Aylesworth.............. 69,825
--------
$448,071
========
11
Restricted Stock. Executive officers and directors of Steelton have
been awarded shares of restricted stock under the RSP. As of the Effective Date,
the plan will terminate and all unvested restricted stock (approximately 5,233
shares) awarded to executive officers and directors of Steelton will vest and be
exchanged for $22.04 per share in accordance with the merger agreement resulting
in payments (less any applicable withholding taxes), as follows:
Harold E. Stremmel.............. $ 37,429
James S. Nelson................. 29,961
Richard E. Farina............... 7,491
Victor J. Segina................ 7,491
James F. Stone.................. 7,491
Joseph A. Wiedeman.............. 7,491
Shannon Aylesworth.............. 17,985
--------
$115,339
========
Indemnification. The merger agreement provides that, for a period of
six years after the completion of the merger, Sun will indemnify and hold
harmless each present and former director, officer and employee of Steelton and
Mechanics Savings Bank against certain liabilities to the fullest extent that
Steelton or Mechanics Savings Bank is permitted to indemnify its directors,
officers and employees (but only to the extent permitted by applicable law and
to the extent permitted by Sun is permitted to indemnify its own directors,
officers and employees). Furthermore, Sun has also agreed to provide, for a
period of three years, subject to certain limitations, directors' and officers'
liability insurance coverage for directors and officers of Steelton and
Mechanics Savings Bank.
ESOP. Upon completion of the merger, the ESOP will be terminated. The
termination of the ESOP requires the ESOP trustees to use the proceeds received
from the merger to repay the related outstanding debt of the ESOP. Pursuant to
the terms of the ESOP, to the extent permitted by law, any amounts remaining
after the repayment of the debt will be allocated to the ESOP participants.
Estimated payments under the ESOP for the following executive officers are as
follows:
Estimated Additional
Estimated Amount as of Amount as a
December 31, 2002 Result of the Merger (1)
----------------- ------------------------
Harold E. Stremmel......... $35,647 $47,574
James S. Nelson............ 29,885 39,044
Shannon Aylesworth......... 19,672 25,657
------- --------
$85,204 $112,275
======= ========
- ----------------------------
(1) Equals the allocation of the profit on the unallocated stock held in
the ESOP which is allocated pro rata to ESOP participant accounts as
of the completion date for the merger.
Directors Supplemental Retirement Plan
- --------------------------------------
Sun will assume the obligations of Steelton's Director Supplemental
Retirement Plans which have an aggregate accrued liability at December 31, 2002
of $63,649.
12
Conditions of the Merger
The obligations of Steelton and Sun to complete the merger are subject
to the satisfaction of the following conditions at or prior to the completion of
the merger:
o the requisite regulatory approvals, consents and waivers, including
those from the Office of Thrift Supervision, the Federal Reserve
Board, the Federal Deposit Insurance Corporation (the "FDIC"), and the
Pennsylvania Department of Banking, must be obtained and all statutory
waiting periods must have expired;
o no approval or consent will have imposed any condition or requirement
that would materially and adversely impact the economic or business
benefits to Sun, or, Steelton stockholders, giving effect to the
merger;
o Steelton's stockholders must have approved the merger agreement at the
stockholder meeting called for such purpose;
o holders of no more than 10% of outstanding shares of Steelton shall
have exercised dissenters' rights;
o no party to the merger shall be subject to any order, decree or
injunction that prohibits the completion of the merger; and
o there shall be no suit, action or other proceeding in which it is
sought to prohibit completion of the merger shall be pending or
threatened by any regulatory authority having jurisdiction over any
party to the merger or by any other person.
o no statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any governmental
authority that prohibits or makes illegal the completion of the
merger.
o all parties shall have performed or complied in all material respects
with all covenants required by the merger agreement to be performed
prior to or at completion of the merger;
o other than as disclosed by a party and approved by the other party,
the representations and warranties made by all parties in the merger
agreement shall be true and correct in all material respects as of the
time of the completion of the merger;
o the delivery to Sun and Steelton of various certificates and other
documents, including the legal opinions of counsel to Sun and Steelton
as to various matters, the opinion of Sun's independent public
accountant that the completion of the merger and all of the related
transactions will not be a taxable transaction to Sun; and
o all transactions contemplated by the merger agreement and necessary to
complete the merger shall be imminent and there shall be no impediment
existing that would materially impair the parties ability to complete
the merger.
There is not guarantee when, or whether, the regulatory consents and
approvals necessary to complete the merger will be obtained or whether all of
the other conditions to the merger will be satisfied
13
or waived by the party permitted to do so. If the merger is not completed on or
before June 30, 2003, the merger agreement may be terminated by Steelton's or
Sun's Board of Directors. However, the failure to complete the merger by that
date cannot be due to the breach of the merger agreement by the party seeking to
terminate. You can find the details of the conditions to the merger in Articles
VIII, IX and X of the merger agreement, attached as Appendix A.
Federal Income Tax Consequences of the Merger
The exchange of Steelton common stock for cash pursuant to the terms of
the merger agreement will be a taxable transaction for federal income tax
purposes under the Internal Revenue Code, and may also be a taxable transaction
under state, local and other tax laws. A stockholder of Steelton will recognize
gain or loss equal to the difference between the amount of cash received by the
stockholder pursuant to the merger and the tax basis in the Steelton common
stock exchanged by such stockholder pursuant to the merger. Gain or loss must be
determined separately for each block of Steelton common stock surrendered
pursuant to the merger. For purposes of federal tax law, a block consists of
shares of Steelton common stock acquired by the stockholder at the same time and
price.
Gain or loss recognized by the stockholder exchanging his or her
Steelton common stock pursuant to the merger will be capital gain or loss if
such Steelton common stock is a capital asset in the hands of the stockholder.
If the Steelton common stock has been held for more than one year, the gain or
loss will be long-term. Capital gains recognized by an exchanging individual
stockholder generally will be subject to federal income tax at capital gain
rates applicable to the stockholder (up to a maximum of 38.6% for short-term
capital gains and 20% for long-term capital gains), and capital gains recognized
by an exchanging corporate stockholder generally will be subject to federal
income tax at a maximum rate of 35%.
Neither Steelton nor Sun has requested or will request a ruling from
the Internal Revenue Service as to any of the tax effects to Steelton's
stockholders of the transactions discussed in this proxy statement, and no
opinion of counsel has been or will be rendered to Steelton's stockholders with
respect to any of the tax effects of the merger to stockholders.
The federal income tax discussion set forth above is based upon current
law and is intended for general information only. You are urged to consult your
tax advisor concerning the specific tax consequences of the merger to you,
including the applicability and effect of state, local or other tax laws and of
any proposed changes in those tax laws and the Internal Revenue Code. Please
note also that any stock held in an individual retirement account or other
tax-deferred account may not be subject to immediate taxation upon receipt of
the cash consideration in the merger.
Effective Date
The merger will be consummated if (i) the merger agreement is approved
by Steelton stockholders' Steelton, (ii) Sun obtain all required consents and
(iii) all other conditions to the merger are either satisfied or waived. The
merger will become effective at the date and time that articles of merger are
filed with the Secretary of State of the Commonwealth of Pennsylvania or such
later date or time as may be indicated in such articles (the "Effective Date").
Steelton and Sun have generally agreed to cause the Effective Date to occur no
later than the thirtieth day after the last of the conditions to the
consummation of the merger have been satisfied or waived (including the
expiration of any applicable waiting periods). It is currently anticipated that
the merger will occur in the second quarter of 2003. Steelton and Sun each has
the right to terminate the merger agreement if the merger is not completed by
June 30, 2003.
14
Procedures for Surrendering Your Certificates
On or immediately prior to the Effective Date, Sun will deposit in
trust with the Registrar and Transfer Company, which is acting as the exchange
agent for the merger, an amount of cash equal to the aggregate merger
consideration. The exchange agent will act as paying agent for the benefit of
the holders of certificates of Steelton common stock in exchange for the merger
consideration. Each holder of Steelton common stock who surrenders certificates
for his or her Steelton shares to the exchange agent will be entitled to receive
a cash payment of $22.04 per share of Steelton common stock upon acceptance of
the shares by the exchange agent.
No later than five business days after the Effective Date, a letter of
transmittal will be mailed by the exchange agent to Steelton stockholders. The
letter of transmittal will contain instructions for surrendering your
certificates of Steelton common stock and receiving a cash payment therefor.
You should not return your Steelton common stock certificates with the
enclosed proxy, and you should not send your stock certificates to the exchange
agent until you receive the letter of transmittal.
If your Steelton stock certificates have been lost, stolen or
destroyed, you will have to provide evidence of your ownership of those
certificates and that an affidavit they were lost, stolen or destroyed before
you receive any consideration for your shares. The exchange agent will send you
instructions on how to provide this information.
Two years after following the Effective Date, the exchange agent will
deliver to Sun any funds, certificates, and other documents, not claimed by
former Steelton stockholders. Thereafter, the payment obligation for any
certificate representing Steelton common stock which has not been satisfied will
become the responsibility of Sun.
If certificates for Steelton common stock are not surrendered prior to
the date on which such payments would otherwise escheat to or become the
property of any governmental agency, the unclaimed amounts will become the
property of Sun to the extent permitted by applicable law, free and clear of all
claims or interest of any person previously entitled to such property. None of
Sun, Steelton, the exchange agent or any other party to the merger will be
liable to any former holder of Steelton common stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
Approvals Needed to Complete the Merger
In addition to the approval of the merger agreement by Steelton's
stockholders, completion of the merger and the transactions contemplated by the
merger agreement is subject to the prior approval of or notice to the Office of
Thrift Supervision, the Federal Reserve Board, the FDIC, and the Pennsylvania
Department of Banking. The required applications or notices for these approvals
have been filed. In reviewing applications under the Bank Merger Act, the FDIC
must consider, among other factors, the financial and managerial resources and
future prospects of the existing and resulting institutions, and the convenience
and needs of the communities to be served. In addition, the Federal Reserve
Board and the FDIC may not approve a transaction if it will result in a monopoly
or otherwise be anti-competitive.
Under the Community Reinvestment Act of 1977, the FDIC must take into
account the record of performance of Mechanics Savings Bank and Sun Bank in
meeting the credit needs of the entire
15
community, including low- and moderate-income neighborhoods, served by each
institution. Mechanics Savings Bank and Sun Bank each received a "satisfactory"
rating during their respective last Community Reinvestment Act examinations.
In addition, a period of up to 30 days must expire following approval
by the FDIC, within which period the United States Department of Justice may
file objections to the merger under the federal anti-trust laws. Although the
likelihood of such action by the Department of Justice is remote in this merger,
there can be no assurance that the Department of Justice will not initiate such
proceeding. If such proceeding is instituted or challenge is made, there is no
guarantee of a favorable result.
Steelton is not aware of any other regulatory approvals required for
completion of the merger, except as described above. Should any other approvals
be required, it is presently contemplated that such approvals would be sought.
There can be no assurance that any other approvals, if required, will be
obtained.
The approval of any application merely implies the satisfaction of
regulatory criteria for approval, which does not include review of the merger
from the standpoint of the adequacy of the consideration to be received by
Steelton stockholders. Furthermore, regulatory approvals do not constitute an
endorsement or recommendation of the merger.
Time Period For Completing The Merger
If the merger is not consummated on or before June 30, 2003, the merger
agreement may be terminated by either Steelton or Sun.
Other Provisions of the Merger Agreement
Although the completion of the merger requires stockholder approval,
many provisions of the merger agreement became effective immediately upon its
signing. Your vote was not required to make these provisions binding obligations
of Steelton and Sun.
Representations and Warranties. Each party has made representations and
warranties to the other party with respect to various matters, including its
financial statements, capital structure, business, loans, investments,
regulatory filings and benefit plans. These representations and warranties must
be true and correct upon both signing of the merger agreement and the completion
of the merger. A party can terminate the merger agreement if the other party's
representations and warranties are not true and correct, resulting in a material
adverse effect on that other party. If the merger is completed, or if the merger
agreement is terminated for some unrelated reason, the representations and
warranties become void. You can find details of these representations and
warranties in Articles II and III of the merger agreement, attached as Appendix
A.
Cooperation and Conduct of Business. Each party has agreed to cooperate
in completing the merger, and Steelton and Mechanics Savings Bank have agreed to
avoid extraordinary transactions between the signing of the merger agreement and
the completion of the merger. In addition, Steelton has agreed not to 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 material portion of Steelton's assets or any
business combination or merger. However, Steelton may respond to an unsolicited,
bona fide, written proposal if Steelton's advisors determine that the fiduciary
duties of Steelton's directors requires Steelton's Board of Directors to do so.
Steelton is required to notify
16
Sun if it receives any inquiries or proposals or any requests for information
relating to an alternative merger proposal or if any other entity seeks to
initiate negotiations or discussions with Steelton.
The provisions in the merger agreement relating to covenants of Sun and
Steelton as to their conduct prior to completion of the merger become void if
the merger is completed. These provisions also become void if the merger
agreement is terminated, except for those related to confidentiality and
expenses. You can find details of these obligations in Articles IV, V, VI and
VII of the merger agreement, attached as Appendix A.
Steelton and Mechanics Savings Bank have agreed to cooperate with Sun
to approve any revisions to the merger agreement, including a structural change
to the merger provided that such cooperation and approval does not reduce the
amount of consideration to be received by Steelton's stockholders under the
terms of the merger. See Section 6(n) of Article VI of the merger agreement,
attached as Appendix A.
Fees and Expenses. Each party shall pay its own expenses in connection
with the merger, including fees and expenses of its own financial consultants,
accountants and counsel.
Termination and Termination Fees
In the event of termination of the merger agreement by either of the
parties, the merger agreement shall become void and have no effect, except that
the provisions of the merger agreement relating to confidentiality of
information and expenses shall survive any such termination. If termination of
the merger agreement results from a willful breach of a representation,
warranty, covenant or undertaking, the party committing such breach shall be
liable for reasonable expenses of the other party, including legal, accounting
and investment banking fees and expenses.
If one or more of the following events shall occur, the merger
agreement may be terminated (even after stockholder approval) as follows:
o by the mutual consent of Sun and Steelton to terminate the merger
agreement;
o by either Sun or Steelton if the merger is not completed by June
30, 2003, unless the failure to complete the merger by such date
is due to the breach of the merger agreement by the party seeking
to terminate;
o by either Sun or Steelton if there has been a material breach by
other party of any warranty, representation or covenant set forth
in the merger agreement and the breaching party shall have failed
to cure the breach within thirty days of receiving notice of the
breach;
o by either Sun or Steelton if written notice from any of
regulatory authority that a required approval or consent
necessary to complete the merger will not be granted and the time
period for all appeals and reconsideration has expired; or
o by either Sun or Steelton if Steelton's stockholders fail to
approve the merger agreement at a meeting called for such
purpose, but only if such failure is not due to Steelton not
having called the meeting or not having taken in good faith all
actions necessary or appropriate to secure the approval of the
merger agreement by the stockholders at such meeting.
17
In addition, the merger agreement may also be terminated upon
occurrence of the following special termination circumstances, and if
termination occurs under these special circumstances described below, Steelton
shall be required to pay to Sun a fee of $350,000. In no event shall fees
payable by either party under any circumstance be greater than $350,000. The
special termination circumstances are as follows:
o Steelton enters into or gives notice that it intends to enter
into an Acquisition Transaction, as defined in the merger
agreement, with any corporation or entity other than Sun,
including any merger, consolidation, business combination or
similar transaction or any purchase of all or any material
portion of the assets of an entity;
o Steelton's stockholders fail to approve the Merger at a meeting
called for such purpose after the disclosure by any corporation
or entity (other than Sun) or the receipt by Steelton of an offer
or proposal (i) to acquire twenty percent or more of Steelton's
or Mechanics Savings Bank's outstanding common stock, (ii) to
acquire, merge or consolidate with Steelton or Mechanics Savings
Bank or (iii) to purchase or acquire all or substantially all of
Steelton's or Mechanics Savings Bank's assets;
o any corporation or entity (other than Sun) acquires beneficial
ownership of twenty percent or more of Steelton's or Mechanics
Savings Bank's outstanding common stock exclusive of shares of
Steelton or Mechanics Savings Bank common stock sold directly or
indirectly to such person by Sun; or
o any corporation or entity (other than Sun) commences a tender or
exchange offer or files an application with an appropriate bank
regulatory authority with respect to a publicly announced offer,
to purchase or acquire securities of Steelton or Mechanics
Savings Bank such that, upon consummation of such offer, such
corporation or entity would own, control or have the right to
acquire twenty percent or more of Steelton's or Mechanics Savings
Bank's outstanding common stock.
You can find details of the termination and termination fee provisions
in Article XI of the merger agreement set forth in Appendix A.
Dissenters' Rights
The following discussion is not a complete statement of the law
pertaining to dissenters' rights under Pennsylvania Business Corporation Law
(the "PBCL"), referred to as the PBCL, and is qualified in its entirety by the
full text of Section 1930 and Subchapter D of Chapter 15 of the PBCL, which is
referred to as Subchapter D. Subchapter D is reprinted in its entirety in
Appendix C to this proxy statement. Any Steelton stockholder who desires to
exercise his or her dissenters' rights should review carefully Subchapter D and
is urged to consult a legal advisor before electing or attempting to exercise
their rights. All references in Subchapter D to a "stockholder" and in this
summary to a "Steelton stockholder" or a "holder of Steelton stock" are to the
record holder of shares as to which dissenters' rights are asserted.
Subject to the exceptions stated below, holders of Steelton stock who
comply with the applicable procedures summarized below will be entitled to
dissenters' rights under Subchapter D. Voting against, abstaining from voting or
failing to vote on approval and adoption of the proposed merger will not
constitute a demand for appraisal within the meaning of Subchapter D.
18
Steelton stockholders electing to exercise dissenters' rights under
Subchapter D must not vote for approval of the proposed merger. A vote by a
stockholder against the proposed merger is not required to exercise dissenters'
rights. However, if a stockholder returns a signed proxy but does not specify a
vote against the proposed merger or a direction to abstain, the proxy, if not
revoked prior to the Meeting, will be voted for approval of the proposed merger,
which will have the effect of waiving that stockholder's dissenters' rights.
What Are Dissenters' Rights? Steelton stockholders who follow the
procedures of Subchapter D will be entitled to receive from Steelton the fair
value of their shares, immediately before the completion of the merger. Fair
value takes into account all relevant factors but excludes any appreciation or
depreciation in anticipation of the merger. Steelton stockholders who elect to
exercise their dissenters' rights must comply with all of the procedures to
preserve those rights.
Shares Eligible for Dissenters' Rights. Generally, if you chose to
assert your dissenters' rights, you must dissent as to all of the shares you
own. The PBCL distinguishes between record holders and beneficial owners. You
may assert dissenters' rights as to fewer than all the shares registered in your
name only if you are not the beneficial owner of the shares with respect to
which you do not exercise dissenters' rights.
Record Holder Who is Not the Beneficial Owner. A record holder may
assert dissenters' rights on behalf of the beneficial owner. If you are a
registered owner and you wish to exercise dissenters' rights on behalf of the
beneficial owner, you must disclose the name and address of the person or
persons on whose behalf you dissent. In that event, your rights shall be
determined as if the dissenting shares and the other shares were registered in
the names of the beneficial holders.
Beneficial Owner Who is Not the Record Holder. A beneficial owner of
Steelton common stock who is not also the record holder, may assert dissenters'
rights. If you are a beneficial owner who is not the record holder and you wish
to assert your dissenters' rights you must submit a written consent of the
record holder to the Secretary of Steelton prior to the vote, but in no event
later than the Steelton special meeting. You may not dissent with respect to
some but less than all shares you own.
Dissenters' Rights Procedures
Notice of Intention to Dissent. If you wish to exercise your
dissenters' rights, you must follow the procedures set forth in Appendix D. You
must file a written notice of intention to demand the fair value of your shares
with the Secretary of Steelton prior to the vote, but in no event later than the
Meeting. You must not make any change in your beneficial ownership of Steelton
shares from the date you file the notice until the effective date of the merger.
You must refrain from voting your shares for the adoption of the merger
agreement.
Notice of Approval. If the Steelton stockholders approve the merger,
Steelton will mail a notice to all dissenters' who filed a notice of intention
to dissent prior to the vote on the merger proposal and who refrained from
voting for the adoption of the merger. Steelton expects to mail the notice of
approval promptly after the merger. The notice of approval will state where and
when a demand for payment must be sent and where the certificates for eligible
shares must be deposited in order to obtain payment. The notice of approval will
also supply a form for demanding payment which includes a request for
certification of the date on which the holder, or the person on whose behalf the
holder dissents, acquired beneficial ownership of the shares. The demand form
will be accompanied by a copy of Subchapter D.
19
If you assert your dissenters' rights, you must ensure that Steelton
receives your demand form and your certificates on or before the demand
deadline. All mailings to Steelton are at your risk. Accordingly, Steelton
recommends that your notice of intention to dissent, demand form and stock
certificates be sent by certified mail only, by overnight courier or by hand
delivery.
If you fail to file a notice of intention to dissent, fail to complete
and return the demand form, or fail to deposit stock certificates with Steelton,
each within the specified time periods, you will lose your dissenters' rights
under Subchapter D. You will retain all rights of a stockholder, or beneficial
owner, until those rights are modified by completion of the merger.
Payment of Fair Value by Steelton. Upon timely receipt of the completed
demand form, the PBCL requires Steelton to either: remit to dissenters' who
complied with the procedures, the amount Steelton estimates to be the fair value
for such dissenting shares; or give written notice that no such remittance will
be made.
Steelton will determine whether to make such a remittance or to defer
payment for such shares until completion of the necessary appraisal proceedings.
Steelton may consider the number of shares, if any, with respect to which
stockholders dissented and any objections that may be raised with respect to the
standing of the dissenting stockholder.
The remittance or notice will be accompanied by: (i) the closing
balance sheet and statement of income of Steelton for the fiscal year ended
December 31, 2002 and the latest available interim financial statements; (ii) a
statement of Steelton's estimate of the fair value of the shares; and (iii)
notice of the right of the dissenter to demand payment or supplemental payment,
as the case may be, accompanied by a copy of Subchapter D.
Return of Deposited Certificates. If Steelton does not remit the amount
of its estimate of the fair value of the shares, it will return any deposited
certificates with a notation that a demand for payment in accordance with
Subchapter D has been made. If shares carrying this notation are transferred
after that, each new certificate issued may bear a similar notation, together
with the name of the original dissenting holder or owner of such shares. A
transferee of such shares will not acquire by this transfer any rights in
Steelton other than those which the original dissenter had after making demand
for payment of their fair value.
Dissenting Stockholders Estimate of Fair Value. If Steelton gives
notice of its estimate of the fair value of your shares, without remitting this
amount, or remits payment of its estimate of the fair value of your shares and
you believe that the amount remitted or stated is less than the fair value of
such shares, you may send to Steelton your own estimate of the fair value of the
shares. Such estimate shall be deemed a demand for payment of the amount of the
deficiency. If you do not file a holder's estimate within 30 days after the
mailing by Steelton of its remittance or notice, you will only be entitled to
the amount stated in the notice or remitted to you by Steelton .
Resort to Court for Relief. If, after the later of, 60 days after the
completion of the merger or after the timely receipt of any holder's estimate,
demands remain unpaid, Steelton may file an application for relief, requesting
the court determine the fair value of the shares. There is no assurance to you
that Steelton will file this application.
In the court proceeding, all dissenters, wherever residing, whose
demands have not been settled will be made parties to any such appraisal
proceeding. The court may appoint an appraiser to receive
20
evidence and recommend a decision on the issue of fair value. Each dissenter
made a party will be entitled to recover an amount equal to the fair value of
the dissenter's shares, plus interest, or if Steelton previously remitted any
amount to the dissenter, any amount by which the fair value of the dissenter's
shares is found to exceed the amount previously remitted, plus interest.
If Steelton fails to file an application for relief, any dissenter who
made a demand and who has not already settled his or her claim against Steelton
may file an application for relief in the name of Steelton any time within 30
days after the later of the expiration of the 60-day period after the merger or
the timely receipt of any holder's estimate. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid Steelton's estimate of the fair value of the shares
and no more, and may bring an action to recover any amount not previously
remitted.
Costs and Expenses of Court Proceedings. The costs and expenses of the
court proceedings, including the reasonable compensation and expenses of the
appraiser appointed by the court, will be determined by the court and assessed
against Steelton. The court may, however, apportion and assess any part of the
costs and expenses of court proceedings as it deems appropriate against all or
some of the dissenters' who are parties and whose action in demanding
supplemental payment the court finds to be in bad faith. If Steelton fails to
comply substantially with the requirements of Subchapter D, the court may assess
fees and expenses of counsel and of experts for the parties as it deems
appropriate against Steelton and in favor of any or all dissenters. The court
may assess fees and expenses of counsel and experts against either Steelton or a
dissenter, if the court finds that a party acted in bad faith. If the court
finds that the services of counsel for any dissenter substantially benefitted
other dissenters' similarly situated and should not be assessed against Steelton
, it may award counsel reasonable fees to be paid out of the amounts awarded to
the dissenters' who benefitted.
No Right to an Injunction. Under Pennsylvania corporate law, a Steelton
stockholder has no right to obtain, in the absence of fraud or fundamental
unfairness, an injunction against the merger proposal, nor any right to
valuation and payment of the fair value of the holder's shares because of the
merger proposal, except to the extent provided by the dissenters' rights
provisions of Subchapter D. Pennsylvania corporate law also provides that,
absent fraud or fundamental unfairness, the rights and remedies provided by
Subchapter D are exclusive.
STOCKHOLDER PROPOSALS FOR THE STEELTON BANCORP, INC.
2003 ANNUAL MEETING
Proposals of stockholders intended to be presented at Steelton annual
meeting expected to be held in April 2003, which will be held only if the merger
is not consummated before the time of such meeting, must have been received by
Steelton no later than November 20, 2002 to be considered for inclusion in the
proxy materials and form of proxy relating to such meeting. No such proposals
were received. Under the articles of incorporation of Steelton, in order to be
considered for possible action by stockholders at the 2003 annual meeting of
stockholders to be held if the merger is not consummated, stockholder
nominations for director and stockholder proposals not included in Steelton's
proxy statement must be submitted to the secretary of Steelton, no later than
February 16, 2003.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to
be brought before the meeting, other than those matters described in this proxy
statement. If any other matters, not now known,
21
properly come before the meeting or any adjournments, the persons named in the
enclosed proxy card, or their substitutes, will vote the proxy in accordance
with their judgment on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
/s/Victor J. Segina
-------------------
Victor J. Segina
Secretary
Steelton, Pennsylvania
________ __, 2003
22
APPENDIX A
MERGER AGREEMENT
----------------
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SUN BANCORP, INC.,
SUN BANK,
SUN ACQUISITION CORPORATION,
STEELTON BANCORP, INC.,
AND
MECHANICS SAVINGS BANK
TABLE OF CONTENTS
Page
----
I. REORGANIZATION AND MERGER 2
(a) Merger of Sun Acquisition and Steelton 2
(b) Effective Date 2
(c) Conversion of Steelton Common Stock 3
(d) Sun Common Stock 4
(e) Sun Acquisition Common Stock 4
(f) Exchange of Stock Certificates 4
(g) Stock Options, Stock Option Plans, and Related Matters 6
(h) Shareholders' Meetings 6
(i) Proxy Statement 6
(j) Cooperation, Regulatory Approvals 7
(k) Steelton Liquidation 8
(l) Mechanics Merger 8
(m) Dissenting Shares 8
2. REPRESENTATIONS AND WARRANTIES BY SUN AND SUN
ACQUISITION 8
(a) Organization, Good Standing, Authority, Insurance, Etc. 8
(b) Agreement, Authority, Absence of Conflicts 8
(c) Sufficient Resources 9
(d) Sun Acquisition Representations and Warranties 9
(e) Ownership of Steelton Common Stock 9
(f) Full Disclosure 10
(g) CRA Rating 10
(h) Tax Treatment 10
3. REPRESENTATIONS AND WARRANTIES BY STEELTON
AND MECHANICS 10
(a) Organization, Good Standing, Authority, Deposit
Insurance, Etc. 10
(b) Capitalization, Investments 11
(c) Financial Statements and Exchange Act Reports 11
(d) Absence of Certain Developments 12
(e) Taxes 13
(f) Litigation 14
(g) Brokerage 14
(h) Properties 14
(i) Compliance with Applicable Laws 15
(j) Contracts and Commitments, Etc. 16
(k) Insurance 16
ii
(l) No Guarantees 16
(m) Examination Reports 16
(n) Agreement, Authority, Absence of Conflicts 17
(o) Reporting 17
(p) Full Disclosure 17
(q) Employee Benefit Plans 17
(r) Labor Matters 19
(s) Environmental Matters 19
(t) Proceedings 21
(u) Undisclosed Liabilities 21
(v) Financial Institutions Bond 21
(w) Repurchase Agreements 21
(x) Assumability of Leases and Contracts 22
(y) Loans 22
(z) Loan Portfolio 22
(aa) Trademarks, Trade Names 22
(bb) Accuracy of Representations 23
(cc) Absence of Questionable Payments 23
(dd) Powers of Attorney, Guarantees 23
(ee) CRA Compliance 23
(ff) Derivatives 23
(gg) Loan Loss Reserves 23
4. ACCESS TO AND INFORMATION CONCERNING PROPERTIES,
RECORDS, ETC. 23
5. AFFIRMATIVE COVENANTS OF SUN 24
6. AFFIRMATIVE COVENANTS OF STEELTON AND MECHANICS 25
(a) Conduct of Business 25
(b) Preservation of Business 25
(c) Properties 26
(d) Insurance 26
(e) Contracts, Etc. 26
(f) Financial Statements 26
(g) Laws, Rules, Etc. 27
(h) Corporate Existence 27
(i) Notices 27
(j) Best Efforts 27
(k) Amend Corporate Documents 28
(l) Terminate Stock Plans 28
(m) Steelton Benefit Plans 29
(n) Good Faith Cooperative Effort to Revise Structure 29
iii
(o) Change in Control 29
7. NEGATIVE COVENANTS OF STEELTON AND MECHANICS 29
8. CONDITIONS TO THE OBLIGATIONS OF SUN, SUN ACQUISITION,
STEELTON, AND MECHANICS 32
(a) Approval of Shareholders 32
(b) Approval of Regulatory Agencies 33
(c) Dissenters' Rights 33
(d) Antitrust Laws 33
(e) Suits, Actions 33
(f) Statutes, Orders 33
(g) Other Requirements 33
(h) Payment of Retention Bonuses 33
(i) Vacation 33
9. CONDITIONS TO THE OBLIGATIONS OF SUN AND
SUN ACQUISITION 33
(a) Representations, Warranties and Covenants 34
(b) Opinion of Special Counsel 34
(c) Suit, Action, Etc. 34
(d) Financial Statements. 34
(e) Tax Ruling or Opinion 35
(f) Closing Documents 35
(g) Outstanding Stock Options 35
(h) Effectiveness of Transactions 35
10. CONDITIONS TO THE OBLIGATIONS OF STEELTON AND FIRST
FEDERAL 35
(a) Representations and Warranties 35
(b) Opinion of Counsel 36
(c) Suit, Action, Etc. 36
(d) Deposit into Payment Fund 36
(e) Steelton Fairness Opinion 36
11. TERMINATION OF AGREEMENT 36
12. EXPENSES 38
13. CONFIDENTIALITY 39
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. 39
iv
15. CERTAIN POST-MERGER AGREEMENTS 39
(a) Employees 39
(b) Existing Employment Agreements 40
(c) Board of Directors of Sun 41
(d) Sun Bank Advisory Board 41
(e) Deferred Compensation Agreements 41
(f) Indemnification and Insurance 41
(g) Adjustments 41
16. ENTIRE AGREEMENT 42
17. PUBLICITY 42
18. AMENDMENT AND WAIVER 42
19. CERTAIN DEFINITIONS AND INTERPRETATIONS 42
20. GOVERNING LAW 43
21. COMMUNICATIONS 43
22. SUCCESSORS AND ASSIGNS 44
23. HEADINGS, ETC. 44
24. SEVERABILITY 45
25. NO THIRD PARTY BENEFICIARY 45
26. COUNTERPARTS 45
27. FURTHER ASSURANCES 45
EXHIBITS
AGREEMENT AND PLAN OF MERGER OF SUN ACQUISITION CORPORATION WITH AND INTO
STEELTON BANCORP, INC.
STEELTON BANCORP, INC. PLAN OF LIQUIDATION AND DISSOLUTION
AGREEMENT AND PLAN OF MERGER OF MECHANICS SAVINGS BANK WITH AND INTO SUN BANK
v
LEGAL OPINION FROM SPECIAL COUNSEL FOR SUN BANCORP, INC. AND SUN ACQUISITION
CORP.
LEGAL OPINION FROM SPECIAL COUNSEL FOR STEELTON BANCORP, INC. AND MECHANICS
SAVINGS BANK
vi
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (hereinafter "Agreement") is
dated as of December 20, 2002, by and among Sun Bancorp, Inc., a Pennsylvania
corporation ("Sun"), Sun Acquisition Corporation, a Pennsylvania corporation and
wholly-owned subsidiary of Sun ("Sun Acquisition"), Sun Bank, a
Pennsylvania-chartered bank and trust company and wholly-owned subsidiary of Sun
("Sun Bank"), Steelton Bancorp, Inc., a Pennsylvania corporation ("Steelton"),
and Mechanics Savings Bank, a federal stock savings bank and a wholly-owned
subsidiary of Steelton ("Mechanics") (collectively sometimes referred to as the
"Parties").
WHEREAS, the respective Boards of Directors of Sun, Sun Acquisition, Sun
Bank, Steelton, and Mechanics have approved and deem it advisable and in the
best interests of their respective companies to consummate the transactions
provided for in this Agreement and the exhibits hereto in the sequential order
and manner hereinafter provided;
WHEREAS, the respective Boards of Directors of Sun, Sun Acquisition and
Steelton have approved, and deem it advisable and in the best interests of the
Sun, Sun Acquisition and Steelton shareholders to consummate a merger of Sun
Acquisition with and into Steelton (the "Merger") pursuant to the terms and
subject to the conditions set forth in this Agreement and the Agreement and Plan
of Merger of Sun Acquisition with and into Steelton in the form attached hereto
as Exhibit 1 (the "Merger Agreement");
WHEREAS, subsequent to and immediately after the consummation of the
Merger, Steelton shall liquidate and dissolve in a transaction that is not
taxable and has no adverse tax consequences to the Parties hereto, such
liquidation to be undertaken and effectuated pursuant to the Steelton Bancorp,
Inc. Plan of Liquidation and Dissolution in the form attached hereto as Exhibit
2 (the "Steelton Plan of Liquidation");
WHEREAS, subsequent to and after the effectiveness of the Steelton Plan of
Liquidation, Mechanics shall merge with and into Sun Bank in a transaction that
is not taxable and has no adverse tax consequences to the Parties hereto, such
merger (the "Mechanics Merger") to be undertaken and effectuated pursuant to the
Agreement and Plan of Merger of Mechanics Savings Bank with and into Sun Bank in
the form attached hereto as Exhibit 3 (the "Mechanics Merger Agreement");
WHEREAS, the Parties desire and intend that the Merger, the Steelton Plan
of Liquidation and the Mechanics Merger (collectively the "Reorganization")
shall be effectuated in sequential order, each contingent upon effectiveness of
all; and
WHEREAS, the Parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby and governing the transactions contemplated
herein.
1
NOW, THEREFORE, in consideration of the premises, mutual promises,
covenants, agreements, representations and warranties hereinafter set forth, and
of other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the Parties
agree as follows:
1. REORGANIZATION AND MERGER. Upon the terms and subject to the
conditions of this Agreement, the Merger Agreement, the Steelton Plan
of Liquidation, and the Mechanics Merger, the Reorganization is to be
accomplished in the manner described herein.
(a) Merger of Sun Acquisition and Steelton. In accordance with the
provisions of this Agreement, the Merger Agreement and the laws
of the Commonwealth of Pennsylvania, at the Effective Date (as
hereinafter defined), Sun Acquisition shall be merged with and
into Steelton, the separate corporate existence of Sun
Acquisition shall cease, and Steelton shall continue its
corporate existence as the surviving corporation of the Merger as
a Pennsylvania business corporation under the name "Steelton
Bancorp, Inc." with all the rights and powers provided to such
corporation under the Pennsylvania Business Corporation Law of
1988, as amended (the "Business Corporation Law"). Also at the
Effective Date, all of the outstanding shares of Steelton's
common stock, par value $.10 per share (the "Steelton Common
Stock"), except for shares held by Steelton as treasury shares,
shares owned by any direct or indirect subsidiary of Steelton,
and shares of Steelton Common Stock owned by any Steelton
shareholder who elects to exercise dissenters' rights in
accordance with the Business Corporation Law ("Dissenting
Shares"), will be converted into the right to receive Twenty-Two
Dollars and Four Cents ($22.04) in cash per share without
interest in the manner specified in Section 1(c) hereof, and each
outstanding share of Sun Acquisition common stock shall be
converted into one fully paid and non-assessable share of
Steelton Common Stock, resulting in all outstanding shares of
Steelton being owned by Sun at and after the Effective Date. At
the Effective Date, Sun shall be the sole shareholder of Steelton
and Steelton shall be a wholly-owned subsidiary of Sun.
(b) Effective Date. At the Effective Date (as hereinafter defined),
the Merger shall be effected pursuant to the provisions of and
with the effects provided by the Business Corporation Law, and
the Steelton Plan of Liquidation and the Mechanics Merger shall
be thereafter effectuated. The Effective Date shall be the date
and time of the later to occur of the acceptance for filing by
the Secretary of State of the Commonwealth of Pennsylvania of
articles of merger of Sun Acquisition and Steelton, or such later
date and time as shall be specified in such articles as agreed to
by the Parties, as the case may be; provided, however, that on
2
such Effective Date, the Steelton Plan of Liquidation shall be
effectuated and the Mechanics Merger shall be effectuated as soon
or practicable thereafter. Unless otherwise mutually agreed upon
in writing by Sun Acquisition and Steelton, upon the terms and
subject to the conditions of this Agreement and the exhibits
hereto, the Effective Date shall occur on or before the thirtieth
(30th) calendar day following the later of (i) the receipt of all
requisite regulatory approvals and the expiration of all
applicable waiting periods, and (ii) the receipt of all requisite
shareholder approvals, unless the Parties mutually agree to a
later date. The closing of the transactions contemplated hereby
(the "Closing") shall take place at 5:00 p.m. local time at the
offices of Sun on the Effective Date, or at such other time or
place as the Parties shall mutually agree. At the Effective Date,
Sun Acquisition shall cease to exist as a separate corporation,
and Steelton shall become the surviving corporation of the Merger
(the "Surviving Corporation"). The Articles of Incorporation and
Bylaws of Steelton, as in effect immediately prior to the
Effective Date, shall be the Articles of Incorporation and Bylaws
of the Surviving Corporation.
(c) Conversion of Steelton Common Stock. Each share of Steelton
Common Stock issued and outstanding immediately prior to the
Effective Date, including the shares of Steelton Common Stock
issued pursuant to the Mechanics Savings Bank Restricted Stock
Plan to the extent that such shares were not previously issued
and outstanding (the "Restricted Stock Plan" and the "Restricted
Shares"), which Restricted Shares shall become fully vested
pursuant to the terms of the Restricted Stock Plan upon the
occurrence of the Merger (other than shares of Steelton Common
Stock held by Steelton as treasury stock, shares owned by any
direct or indirect subsidiary of Steelton and Dissenting Shares)
("Eligible Shares"), shall, by virtue of this Agreement and the
Merger Agreement and without any action on the part of the holder
thereof, be cancelled and converted into the right to receive
Twenty-Two Dollars and Four Cents ($22.04) in cash without
interest, subject to the provisions of Section 1(f) below (the
"Merger Consideration"). In no event shall the number of Eligible
Shares exceed 300,290 shares. The aggregate amount paid for all
Eligible Shares shall be the "Aggregate Merger Consideration." In
no event shall the Aggregate Merger Consideration exceed
$7,200,327. Each share of Steelton Common Stock held in the
treasury of Steelton, held by any direct or indirect subsidiary
of Steelton immediately prior to the Effective Date shall
automatically, by virtue of this Agreement and the Merger
Agreement, be cancelled and retired, and shall cease to exist,
without any conversion thereof into the right to receive the
Merger Consideration.
3
(d) Sun Common Stock. Each share of Sun's common stock, with no par
value, (the "Sun 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 Sun Common Stock. Each share of Sun Common
Stock issued and held in treasury of Sun as of the Effective
Date, if any, shall, on and after the Effective Date, continue to
be issued and held in the treasury of Sun.
(e) Sun Acquisition Common Stock. At the Effective Date, each issued
and outstanding share of Sun Acquisition Common Stock shall be
converted into one fully paid and non-assessable share of
Steelton Common Stock, resulting in all outstanding shares of
Steelton being owned by Sun at and after the Effective Date.
After the Effective Date, Sun shall be the sole shareholder of
Steelton, and Steelton shall be a wholly-owned subsidiary of Sun.
(f) Exchange of Stock Certificates. Certificates underlying shares of
Steelton Common Stock shall be exchanged for the Merger
Consideration in accordance with the following procedures:
(i) Registrar and Transfer Company, the transfer agent of Sun
shall act as agent (the "Exchange Agent") in effecting and
receiving, after the Effective Date, the exchange of stock
certificates (the "Certificates"), which Certificates,
immediately prior to the Effective Date, represented
outstanding shares of Steelton Common Stock (other than
those shares excluded by Section 1(c) hereof), in exchange
for the Merger Consideration. Upon surrender of a
Certificate for exchange and cancellation together with a
letter of transmittal (as described below) duly executed,
the holder of such Certificate shall be entitled to receive
in exchange therefor, and within three (3) business days of
receipt of a Certificate for exchange and cancellation
together with a duly executed letter of transmittal, the
Exchange Agent shall pay to such holder the Merger
Consideration multiplied by the number of shares of Steelton
Common Stock formerly represented by such Certificate, and
the Certificate so surrendered shall be cancelled.
(ii) At the Effective Date and until so surrendered and
exchanged, each such Certificate shall represent solely the
right to receive the Merger Consideration. If the Merger
Consideration (or any portion thereof) is to be delivered to
any person other than the person in whose name the
Certificate representing shares of Steelton Common Stock
surrendered and exchanged therefor is
4
registered, it shall be a condition to such exchange that
the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer, and that the
person requesting such exchange shall pay to the Exchange
Agent any transfer or other taxes required by reason of the
payment of such cash to a person other than the registered
holder of the Certificate surrendered, or shall establish to
the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any Party hereto
shall be liable to a holder of Steelton Common Stock for any
Merger Consideration delivered to a public official pursuant
to applicable abandoned property, escheat and similar laws.
(iii)At or prior to the Effective Date, Sun Acquisition shall
deposit in trust with the Exchange Agent cash in an
aggregate amount equal to the product of (i) the number of
shares of Eligible Shares and (ii) the Merger Consideration
(the "Payment Fund"); provided, however, that in no such
event shall the number of Eligible Shares entitled to the
Merger Consideration exceed 300,290 shares or the Aggregate
Merger Consideration exceed $7,200,327.
(iv) The Exchange Agent shall, pursuant to irrevocable
instructions by Sun, make the payments referred to in
Section 1(f) hereof out of the Payment Fund. The Payment
Fund shall not be used for any purpose except as provided
herein. If any Steelton shareholders who initially exercised
dissenters' rights lose the right to dissent because of a
failure to comply with the Business Corporation Law
subsequent to the Effective Date, Sun shall promptly deposit
additional cash in the Payment Fund in an amount equal to
the product of the number of Dissenting Shares held by such
Steelton shareholders multiplied by the Merger
Consideration. Promptly following the date which is two
years after the Effective Date, the Exchange Agent shall
return to Sun all cash, Certificates and other instruments
then in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties
shall terminate. Thereafter, each holder of a Certificate
entitled to receive therefor Merger Consideration at the
Effective Date may surrender such Certificate to Sun and
(subject to applicable abandoned property, escheat and
similar laws), receive in exchange therefor the Merger
Consideration, without interest, and shall have no greater
rights against Sun or Sun Acquisition than may be accorded
to general creditors of Sun under applicable law. Sun shall
have no liability to Steelton
5
shareholders for compliance with applicable abandoned
property, escheat and similar laws.
(v) Within five business days after the Effective Date, the
Exchange Agent shall mail to each record holder of
Certificates in a form reasonably satisfactory to Sun
Acquisition and Steelton a letter of transmittal and
instructions for use in surrendering such Certificates and
receiving the Merger Consideration therefor. The letter of
transmittal shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange
Agent.
(vi) After the Effective Date, there shall be no transfers on the
stock transfer books of Steelton.
(g) Stock Options, Stock Option Plans and Related Matters.
Immediately prior to or at the Effective Date, each holder of a
then-outstanding option to purchase shares of Steelton Common
Stock heretofore granted under a stock option plan, program or
arrangement of Steelton shall have received in settlement thereof
a cash payment from Steelton in an amount equal to the excess of
the Merger Consideration over the per share exercise price under
such stock option, multiplied by the number of shares of Steelton
Common Stock covered by such option. All such options
automatically shall be deemed cancelled and of no further effect
as of the Effective Date. In no event shall the amount paid by
Steelton in settlement of such options exceed $581,935 in the
aggregate.
(h) Shareholders' Meetings. Steelton shall, as soon as practicable,
hold a meeting of its shareholders (the "Steelton Shareholders'
Meeting") to submit for shareholder approval this Agreement and
the transactions contemplated hereby. Provided that the Merger is
approved by at least two-thirds of the Board of Directors of
Steelton, an affirmative vote of at least a majority of the votes
cast by all holders of Steelton Common Stock entitled to vote
thereon shall be required for such approval and adoption of this
Agreement and the transactions contemplated hereby. Subject to
its fiduciary duty, Steelton's Board of Directors shall recommend
to its shareholders approval of this Agreement, the Merger
Agreement, the Merger, and the transactions contemplated hereby
and thereby, and use their best efforts to obtain shareholder
approval.
(i) Proxy Statement.
(i) Steelton shall, with the cooperation of Sun, prepare and
file with the Securities and Exchange Commission ("SEC"),
the proxy
6
statement to be distributed in connection with the Steelton
Shareholders' Meeting (as may be amended from time to time,
the "Proxy Statement") in order to consummate the
transactions contemplated hereby as soon as reasonably
practicable and to satisfy all applicable requirements under
the Securities Exchange Act of 1934, as amended ("Exchange
Act"), the rules and regulations thereunder, and the rules
and regulations of the OTS and the FDIC.
(ii) Sun and Sun Acquisition will furnish such information
concerning Sun and Sun Acquisition as is necessary in order
to cause the Proxy Statement, insofar as it relates to Sun
and Sun Acquisition, to comply with Section 1(i) above. Sun
and Sun Acquisition agree promptly to advise Steelton if at
any time prior to the Steelton Shareholders' Meeting any
information provided by it in the Proxy Statement becomes
incorrect or incomplete in any material respect and to
provide Steelton with the information needed to correct such
inaccuracy or omission. Sun and Sun Acquisition will furnish
Steelton with such supplemental information as may be
necessary in order to cause such Proxy Statement, insofar as
it relates to Sun and Sun Acquisition, to comply with
Section 1(i) above after the mailing thereof to Steelton
shareholders.
(j) Cooperation, Regulatory Approvals. The Parties shall cooperate
fully, and shall cause each of their affiliates to cooperate
fully, in the preparation and submission by them, as promptly as
reasonably practicable, of such notices, applications, petitions,
and other documents and materials as may be required or any of
them may reasonably deem necessary (or desirable) to the Board of
Governors of the Federal Reserve System (the "Federal Reserve"),
the Pennsylvania Department of Banking (the "Banking
Department"), the SEC, the FDIC, the OTS, other regulatory
authorities, holders of the voting shares of capital stock of
Steelton, and any other persons for the purpose of obtaining any
approvals or consents necessary to consummate the transactions
contemplated by this Agreement and the Reorganization. Prior to
the making of any such filings with any regulatory authority or
the making of any written disclosures with respect to the
transactions contemplated hereby to shareholders or any third
person (such as mailings to shareholders or press releases), the
Parties shall submit to each other the materials to be filed,
mailed or released. Any such materials must be acceptable to both
Sun and Steelton (such acceptance not to be unreasonably
withheld) prior to the filings with any regulatory authorities or
the disclosures to shareholders or any third person, except to
the extent
7
that any party is legally required to proceed prior to obtaining
the acceptances of the other Parties.
(k) Steelton Liquidation. Immediately following the Merger of Sun
Acquisition with and into Steelton, Steelton shall adopt,
undertake and effectuate a complete liquidation and dissolution
under the Steelton Plan of Liquidation.
(l) Mechanics Merger. Following the effectuation of the Steelton Plan
of Liquidation, Mechanics shall merge with and into Sun Bank
pursuant to the Mechanics Merger.
(m) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Dissenting Shares shall not be converted into or
exchangeable for the right to receive the Merger Consideration
provided in Section 1(c) hereof, unless and until the holder of
such Dissenting Shares shall have lost his right to dissent under
the Business Corporation Law. If such holder shall have lost such
right before the Effective Date, each of his shares of Steelton
Common Stock shall thereupon be deemed to have been converted
into an Eligible Share. If such holder shall have lost such right
after the Effective Date, each of his shares of Steelton Common
Stock shall thereupon be deemed to have been converted into, as
of the Effective Date, the Merger Consideration.
2. REPRESENTATIONS AND WARRANTIES BY SUN AND SUN ACQUISITION. Sun and Sun
Acquisition, as applicable, represent and warrant to Steelton as follows:
(a) Organization, Good Standing, Authority, Insurance, Etc. Sun is a
registered bank holding company under the Bank Holding Company Act of
1956, as amended, and is validly existing and in good standing under
the laws of the Commonwealth of Pennsylvania. Sun has all requisite
corporate power and authority to conduct its business as it is now
conducted, to own and operate its properties and assets and to lease
properties used in its business. Sun has all requisite corporate power
and authority to enter into this Agreement, and subject to obtaining
any required regulatory and shareholder approvals, to perform and
carry out the provisions of and all its obligations under this
Agreement. Sun owns, directly or indirectly, all of the issued and
outstanding shares of Sun Bank. Sun Bank is a Pennsylvania-chartered
bank and trust company, having its corporate headquarters in
Selinsgrove, Pennsylvania, and is duly organized to engage in the
banking business as an insured bank under the Federal Deposit
Insurance Act, as amended.
(b) Agreement, Authority, Absence of Conflicts. The execution, delivery
and performance of this Agreement and the consummation of the
transactions
8
contemplated herein have been duly and validly authorized by the Board
of Directors of Sun. Assuming receipt of regulatory approvals, no
other corporate action on the part of Sun is necessary for Sun to
authorize this Agreement or to consummate the transactions
contemplated herein. This Agreement has been duly executed and
delivered by Sun and, assuming due authorization, execution and
delivery by Steelton and Mechanics, constitutes a valid and binding
obligation of Sun, enforceable in accordance with its terms, except as
it may be limited by bankruptcy, insolvency, receivership or similar
laws, now or hereafter in effect relating to creditor's rights. The
execution, delivery and consummation of this Agreement will not
constitute a violation or breach or a default under the Articles of
Incorporation or Bylaws of Sun, any agreement, indenture or other
instrument to which Sun is a party, or, to the knowledge of Sun, any
statute, rule, regulation, order, writ, injunction, decree, or
directive applicable to Sun.
(c) Sufficient Resources. Sun has sufficient resources to capitalize and
shall capitalize Sun Acquisition no later than the Effective Date with
sufficient financial resources to enable Sun Acquisition to lawfully
satisfy its obligations pursuant to this Agreement without the need to
borrow funds or to raise additional equity capital, unless otherwise
required after the date hereof by a regulatory agency.
(d) Sun Acquisition Representations and Warranties. (i) Sun Acquisition is
a Pennsylvania business corporation organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania; (ii)
Sun Acquisition has all requisite corporate power and authority to
enter into this Agreement and the Merger Agreement, and subject to
obtaining any required regulatory and shareholder approvals, to carry
out the provisions of and all of its obligations under this Agreement
and the Merger Agreement; and (iii) the Board of Directors of Sun
Acquisition shall duly and validly authorize the execution, delivery
and performance of this Agreement and the Merger Agreement, which
agreements shall be approved by Sun as the sole shareholder of Sun
Acquisition. This Agreement and the Merger Agreement will constitute a
valid and binding obligation of Sun Acquisition enforceable in
accordance with its terms, except as it may be limited by bankruptcy,
insolvency, receivership or similar laws now or hereafter in effect
relating to creditors' rights. The execution, delivery and
consummation of this Agreement will not constitute a violation or
breach or default under the Articles of Incorporation or Bylaws of Sun
Acquisition, any statute, rule, regulation, order, writ, injunction,
decree or other instrument or agreement to which Sun Acquisition is a
party at such time.
(e) Ownership of Steelton Common Stock. As of the date hereof, neither Sun
nor any subsidiaries of Sun directly or indirectly owns, or has any
rights to acquire, any shares of Steelton Common Stock, other than
pursuant to this Agreement.
9
(f) Full Disclosure. None of the information with respect to Sun or any
subsidiary of Sun which has been furnished to Steelton or Mechanics
has been or will be included by Sun in the Proxy Statement, or any
application to, or filing with, any regulatory authority made in
connection with the transactions contemplated hereby will, at the
respective time it is furnished, distributed, mailed or filed, be
false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements
therein not misleading in light of the circumstances under which they
were made.
(g) CRA Rating. Sun Bank has satisfactory Community Reinvestment Act
rating.
(h) Tax Treatment. As of the date of this Agreement, there exist no facts
or circumstances that would preclude or impair satisfaction of the
conditions set forth in Section 9(e) of this Agreement.
3. REPRESENTATIONS AND WARRANTIES BY STEELTON AND MECHANICS.
Steelton and Mechanics represent and warrant to Sun and Sun Acquisition
(and the word "it" in this Section 3 refers to Steelton, Mechanics and each
subsidiary of either) that, as of even date herewith and except as
specifically disclosed in the Annex of disclosure schedules included
herewith, as follows:
(a) Organization, Good Standing, Authority, Deposit Insurance, Etc.
Steelton is a corporation organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. Each of
the subsidiaries of Steelton, including Mechanics and any subsidiary
thereof (individually a "Steelton Subsidiary," collectively the
"Steelton Subsidiaries") is an entity of the respective type set forth
on Schedule 3(a) hereto, and is organized, validly existing and in
good standing under the laws of the respective jurisdiction of
incorporation set forth on Schedule 3(a). All subsidiaries of Steelton
are listed on Schedule 3(a). Each of Steelton and the Steelton
Subsidiaries has all requisite corporate power and authority to
conduct its business as it is now conducted, to own and operate its
properties and assets and to lease properties used in its business.
Each of Steelton and Mechanics has all requisite corporate power and
authority to enter into this Agreement, the Merger Agreement, and all
exhibits attached hereto, as applicable and, subject to obtaining any
required regulatory and shareholder approvals, to perform and carry
out the provisions of and all of their respective obligations under
this Agreement, the Merger Agreement, and all exhibits hereto. Each of
Steelton and the Steelton Subsidiaries is qualified to do business as
a foreign corporation and is in good standing in each jurisdiction in
which such qualification is necessary under applicable law, except
where the failure to be so qualified and in good standing would not
have a Material Adverse Effect on the business, operations, assets or
financial condition of Steelton and the Steelton Subsidiaries taken as
a whole. Mechanics is federally
10
chartered savings bank and a member in good standing of the Federal
Home Loan Bank of Pittsburgh. All customer deposits held by Mechanics
are insured by the SAIF administered by the FDIC in accordance with
the Federal Deposit Insurance Act. Mechanics has paid all assessments
and filed all reports required by the Federal Deposit Insurance Act.
(b) Capitalization, Investments. As of the date hereof, the authorized
capital stock of Steelton consists of 8,000,000 shares of common
stock, par value $.10 per share, of which 300,290 shares are duly
issued and outstanding, fully paid and non-assessable, plus 116,225
shares are held in treasury as issued but not outstanding, and
2,000,000 shares of preferred stock, no par value, none of which are
issued and outstanding. Except as set forth in Schedule 3(b) hereto,
there are no authorized, issued or outstanding options, convertible
securities, warrants or other rights to purchase or acquire any of
Mechanics' or Steelton's capital stock from Mechanics or Steelton,
there is no commitment of Mechanics or Steelton to issue the same, and
other than by operation of law, there are no outstanding agreements,
restrictions, contracts, commitments or demands of any character to
which Steelton or Mechanics is a party, which relate to the transfer
or restrict the transfer of any shares of Steelton's or Mechanics'
capital stock. Except as disclosed in Schedule 3(b), to the knowledge
of Steelton, there are no shareholder agreements, understandings or
commitments relating to the right of any shareholder to vote or
dispose of shares of Steelton or shares of Mechanics. The authorized
capital stock of each of the Steelton Subsidiaries ("Steelton
Subsidiaries' Capital Stock") consists of the respective number of
shares of capital stock, with the respective par value per share, set
forth on Schedule 3(b), of which the respective number of outstanding
shares set forth on Schedule 3(b) have been duly authorized, validly
issued, and are fully paid and non-assessable. Except as set forth on
Schedule 3(b), all shares of the Steelton Subsidiaries' Capital Stock,
which are issued and outstanding, are owned directly or indirectly by
Steelton. Except as set forth on Schedule 3(b), there is no
authorized, issued or outstanding capital stock of any of the Steelton
Subsidiaries, there is no commitment of any of the Steelton
Subsidiaries to issue any of the same and, other than by operation of
law, there are no outstanding agreements, restrictions, contracts,
commitments or demands of any character which relate to the transfer
or restrict the transfer of any shares of the Steelton Subsidiaries'
Capital Stock. No share of Steelton or of a Steelton Subsidiary has
been issued in violation of the preemptive rights of any person.
(c) Financial Statements and Exchange Act Reports. Steelton has furnished
to Sun or made available to Sun audited consolidated statements of
financial condition for Steelton and its subsidiaries as of the end of
Steelton's last two fiscal years, and audited consolidated statements
of (i) operations, (ii) shareholders' equity, and (iii) cash flows for
each of the last two fiscal years, including the notes to said audited
consolidated financial statements, together with the reports of
11
Steelton's independent certified public accountants, pertaining to
said audited consolidated financial statements. Steelton has also
furnished to Sun or made available to Sun Steelton's (i) Quarterly
Reports on Form 10-QSB for the quarters ended March 31, June 30, and
September 30, 2002, containing unaudited statements of financial
condition of Steelton as of such dates and unaudited statements of
operations and cash flows of Steelton for the interim periods
reflected therein, (ii) any Current Reports on Form 8-K filed by
Steelton since December 31, 2000, and (iii) all management letters
from Steelton's independent certified public accountants since January
1, 2000. For purposes of this Agreement, the "Steelton Statement"
shall mean the audited consolidated statements of financial condition
(balance sheet and income statement) and the audited statements of
operations, shareholder equity and cash flows for Steelton and the
Steelton Subsidiaries as of December 31, 2001 (including the notes
thereto) and the Quarterly Reports on Form 10-QSB for the quarters
ended March 31, June 30, and September 30, 2002, containing unaudited
statements of financial condition of Steelton as of such dates and
unaudited statements of operations and cash flows of Steelton for the
interim periods reflected therein. The above audited and unaudited
consolidated statements of financial condition (balance sheet and
income statement) present fairly the financial condition of Steelton
on a consolidated basis at the dates thereof, in accordance with
generally accepted accounting principles consistently applied. The
above audited and unaudited consolidated statements of (i) operations,
(ii) shareholders' equity, and (iii) cash flows present fairly the
results of the operations of Steelton on a consolidated basis for the
periods indicated, in accordance with generally accepted accounting
principles consistently applied. Except as and to the extent reflected
or reserved against in the Steelton Statement, or as otherwise
disclosed pursuant to this Agreement or in Steelton's 2002 Annual
Report to Shareholders or as set forth in Schedule 3(c), neither
Steelton nor any of the Steelton Subsidiaries had, at the date
thereof, any material liabilities or obligations, or any other
liabilities or obligations which in the aggregate would be material,
secured or unsecured (whether accrued, absolute, contingent or
otherwise), including, without limitation, any tax liabilities, which
should be reflected in the Steelton Statement in accordance with
generally accepted accounting principles consistently applied. The
financial statements, books and records of Steelton and the Steelton
Subsidiaries are maintained in accordance with generally accepted
accounting principles consistently applied.
(d) Absence of Certain Developments. Since December 31, 2001, except as
disclosed in reports filed by Steelton prior to the date of this
Agreement pursuant to the Securities Act of 1933 or the Exchange Act,
there has been no material adverse change in the financial condition,
business or results of operations of Steelton and the Steelton
Subsidiaries taken as a whole. Since such date, each of Steelton and
the Steelton Subsidiaries has conducted its business only in the
12
ordinary course and is in compliance in all material respects with all
laws which govern the ownership of its property and the conduct of its
business.
(e) Taxes. Mechanics is a "domestic building and loan association" as
defined in Section 7701(a)(19) of the Code. Except as set forth on
Schedule 3(e) hereto, (i) each of Steelton and the Steelton
Subsidiaries has filed all tax returns (as described below) that it is
required to file and all taxes (as described below) of Steelton or any
of the Steelton Subsidiaries to be due from Steelton or any of the
Steelton Subsidiaries have been duly paid, other than taxes or charges
which are not as yet due, delinquent or have not been finally
determined, and no extensions for the time of payment have been
requested; (ii) no additional assessments of tax for which adequate
provisions in the Steelton Statement have not been made, have been
proposed, are pending or, to the knowledge of Steelton, threatened by
any governmental authority; and (iii) no waivers of statutes of
limitation concerning taxes associated with either Steelton or any of
the Steelton Subsidiaries are in effect as of the date hereof. Except
as set forth on Schedule 3(e), the accruals and reserves for tax
liabilities reflected in the Steelton Statement are adequate for the
payment of all of Steelton's and the Steelton Subsidiaries' respective
federal, state, county, municipal, local and foreign tax liabilities,
including interest and penalties, whether proposed, pending,
threatened or disputed, for all periods ended on or prior to December
31, 2001, and for which Steelton or any of the Steelton Subsidiaries
may, at said date, have been liable, other than tax liabilities with
respect to property acquired after December 31, 2001, through
repossession, foreclosure or purchase under similar circumstances or
as a result of the transactions contemplated by this Agreement. Except
as set forth on Schedule 3(e), Internal Revenue Service audits of
Steelton and the Steelton Subsidiaries have been completed (or not
commenced) through the year ended December 31, 1997, and all
deficiencies, if any, resulting from completed audits have been paid.
Copies of all material correspondence and documents relating to
federal, state, county, municipal or local income, capital stock,
franchise, or other similar taxes in respect of the five most recently
completed tax years have been made available to Sun. Except as set
forth on Schedule 3(e), neither Steelton nor any of the Steelton
Subsidiaries has executed or filed with the Internal Revenue Service
any agreement that is currently in effect and extends the period for
assessment and collection of any federal tax.
The Internal Revenue Service has not, to the knowledge of Steelton,
commenced, or given notice of its intention to commence, any
examination or audit of the federal income tax returns of Steelton or
any Steelton Subsidiary for any year subsequent to the year ended
December 31, 1997. Except as disclosed on Schedule 3(e), the accruals
and reserves reflected in the Steelton Statement as of this date are
adequate to cover all taxes, including interest and penalties thereon,
if any, payable or accrued as a result of Steelton's operations for
all prior periods. For purposes of this Section 3(e), "tax returns"
shall mean all
13
federal, state, county, municipal and local tax returns, reports and
declarations, including, without limitation, consolidated federal
income tax returns of Steelton and the Steelton Subsidiaries,
declarations of estimated tax and tax reports required to be filed on
or before this date with respect to income, properties or operations,
and "taxes" shall mean all federal, state, county, municipal, and
local or foreign income, gross receipts, windfall profits, severance,
property, production, sales, use, license, excise, franchise,
employment, withholding or similar taxes, together with any interest,
additions, or penalties with respect thereto and any interest in
respect of such additions or penalties.
(f) Litigation. Except as set forth on Schedule 3(f) hereto, no material
action, suit, claim, counterclaim or other litigation, proceeding or
investigation of Steelton, is pending or, to the knowledge of
Steelton, threatened against Steelton or any of the Steelton
Subsidiaries before any court or governmental or administrative
agency, domestic or foreign. There are no outstanding orders, writs,
injunctions, judgments, decrees, directives, consent agreements or
memoranda of understanding involving Steelton or any Steelton
subsidiary and any federal regulatory agency, federal, state or local
court or governmental authority or arbitration tribunal that could
materially and adversely affect the condition, financial or otherwise,
of the assets, liabilities, business or operations of Steelton and the
Steelton Subsidiaries taken as a whole or that in any manner restrict
the right of Steelton and the Steelton Subsidiaries taken as a whole
to conduct their business as presently conducted. Neither Steelton nor
any of the Steelton Subsidiaries is aware of any fact or condition
presently existing that might, to their knowledge, give rise to any
litigation, investigation, or proceeding which, if determined
adversely to Steelton or any of the Steelton Subsidiaries, would
materially and adversely affect the condition, financial or otherwise,
of the assets, liabilities, business or operations of Steelton and the
Steelton Subsidiaries taken as a whole.
(g) Brokerage. Except as set forth on Schedule 3(g) hereto, there are no
claims for brokerage commissions, finder's fees or similar
compensation arising out of or due to any act of Steelton or any of
the Steelton Subsidiaries in connection with the transactions
contemplated by this Agreement or based on any agreement or
arrangement made by or on behalf of Steelton or any of the Steelton
Subsidiaries.
(h) Properties. Except as set forth on Schedule 3(h) hereto, each of
Steelton and the Steelton Subsidiaries has good and marketable title,
free and clear of any mortgage, pledge, lien, charge or other
encumbrance, to all of its real or personal property, loans and other
assets reflected in the Steelton Statement or acquired by it
subsequent to the date thereof, except for (i) mortgages, pledges,
liens, charges or encumbrances on such property or assets described or
referred to, or reflected, in the Steelton Statement; (ii) liens for
current taxes not yet due; (iii)
14
such imperfections of title, encumbrances and easements, if any, as
are not individually or in the aggregate substantial or material in
character, amount or extent and do not materially detract from the
value, or interfere with the present or proposed use, of their
properties and assets subject thereto; (iv) dispositions of such
property or assets in the ordinary course of business; (v) mortgages,
pledges, liens, charges or encumbrances, on assets other than real or
personal property, incurred in the ordinary course of business
subsequent to December 31, 2001; and (vi) liens or encumbrances on
property acquired through repossession, foreclosure or purchase under
similar circumstances. The structure and other improvements to real
estate, furniture, fixtures and equipment reflected in the Steelton
Statement or acquired subsequent to the date of such statement are in
good operating condition and repair (ordinary wear and tear excepted)
and comply in all material respects with all applicable laws,
ordinances and regulations, including, without limitation, all
building codes, zoning ordinances and other similar laws. Except as
set forth on Schedule 3(h), Steelton and each of the Steelton
Subsidiaries own or have the right to use all real and personal
properties and assets necessary to conduct their respective business
as now conducted. Except as set forth on Schedule 3(h), each lease
pursuant to which Steelton or any of the Steelton Subsidiaries, 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, or operating results of Steelton and
the Steelton Subsidiaries taken as a whole. Except as set forth on
Schedule 3(h), each of such leases is assumable by Sun or its assigns
in connection with the transactions contemplated by this Agreement and
without payment of any penalty or special assessment.
(i) Compliance with Applicable Laws. Except as disclosed on Schedule 3(i)
hereto, Steelton and the Steelton Subsidiaries are in compliance in
all material respects with all statutes, laws, ordinances, rules,
regulations, judgments, orders, decrees, directives, consent
agreements, memoranda of understanding, permits, concessions, grants,
franchises, licenses, and other governmental authorizations or
approvals applicable to Steelton and the Steelton Subsidiaries or to
any of their properties, and all permits, concessions, grants,
franchises, licenses, certificates of authority, and other
governmental authorizations and approvals necessary for the conduct of
the business of Steelton and the Steelton Subsidiaries as presently
conducted (the absence of which could have a Material Adverse Effect
on the business, prospects, operations, assets or financial condition
of Steelton and the Steelton Subsidiaries taken as a whole) have been
duly obtained and are in full force and effect and there are no
proceedings pending, or to the knowledge of Steelton and the Steelton
Subsidiaries, threatened, which may result in the revocation,
cancellation, suspension or
15
material adverse modification of any such permits, concessions,
grants, franchises, licenses, and other governmental authorizations
and approvals.
(j) Contracts and Commitments, Etc. Each contract (other than loans to or
contracts with customers incurred by Steelton in the ordinary course
of business) which involves aggregate payments or receipts in excess
of $50,000 per year to which Steelton or any of the Steelton
Subsidiaries is a party, or by which Steelton or any of the Steelton
Subsidiaries is bound, including without limitation every employment
contract, employment benefit plan, agreement, lease, license and other
commitment to which Steelton is a party or by which Steelton or its
properties may be bound ("Material Contracts"), is identified in
Schedule 3(j) hereto. Except as disclosed on Schedule 3(j), all such
Material Contracts are valid and in full force and effect, and all
parties thereto have in all material respects performed all
obligations required to be performed by them to date and are not in
default in any material respect and no event has occurred which, with
the lapse of time or notice by a third party or both could result in a
default by Steelton or a Steelton Subsidiary under such Material
Contract or under any provision of the Articles of Incorporation or
Bylaws of Steelton or any of the Steelton Subsidiaries. Schedule 3(j)
identifies each such Material Contract that requires the consent or
approval of third parties to the execution and delivery of this
Agreement or to the consummation of the transactions contemplated
herein.
(k) Insurance. Steelton and the Steelton Subsidiaries have in effect and
full force insurance coverage and policies with reputable insurers,
which in respect of amounts, types and risks insured is customary with
industry practices for the businesses conducted by Steelton and the
Steelton Subsidiaries. No notices of cancellation have been received
in connection therewith.
(l) No Guarantees. Except as disclosed in Schedule 3(l) hereto, neither
Steelton nor any of the Steelton Subsidiaries is obligated as
guarantor, co-signor or surety (or otherwise in a secondary liability
capacity) for any obligation of any kind of any other person or entity
(other than Steelton or any of the Steelton Subsidiaries).
(m) Examination Reports. Neither Steelton nor any of the Steelton
Subsidiaries is subject to any cease and desist order, written
agreement or memorandum of understanding with, or is 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 since
January 1, 2000, providing for the taking of corrective measures at
the request of or as mandated by federal or state governmental
authorities charged with the supervision or regulation of savings and
loan associations or savings and loan holding companies or engaged in
the insurance of savings deposits (collectively "Thrift Regulators"
and individually "Thrift Regulator"), nor has it been advised by any
Thrift Regulator that it is contemplating issuing or requesting (or is
16
considering the appropriateness of issuing or requesting) any such
order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions
(of the type described above) or similar undertaking.
(n) Agreement, Authority, Absence of Conflicts. The execution, delivery
and performance of this Agreement and the Merger Agreement have been
duly and validly authorized by the Boards of Directors of Steelton and
Mechanics, as the case may be, and do not and, subject to obtaining
all required authorizations and approvals, will not violate any of the
(i) provisions of, or constitute a default under or give any person or
party the right to accelerate payment or performance under any
Material Contract; or (ii) the Articles of Incorporation or Bylaws of
Steelton or any of the Steelton Subsidiaries. This Agreement and the
Merger Agreement have been duly executed and delivered by Steelton and
constitute, assuming the due authorization, execution and delivery
thereof by Sun or Sun Acquisition, as the case may be, a valid and
binding obligation of Steelton and Mechanics, respectively,
enforceable in accordance with its terms, except as may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium,
conservatorship, receivership or other similar laws now or hereafter
in effect relating to or affecting the enforcement of creditors'
rights generally or the rights of creditors of federal savings
institutions or their holding companies, (ii) general equitable
principles, and (iii) laws relating to the safety and soundness of
insured depository institutions, and except that no representation is
expressed as to the effect or availability of equitable remedies or
injunctive relief (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(o) Reporting. Since January 1, 2000, Steelton has timely filed all
reports required to be filed by it pursuant to the Securities Act of
1933 and the Exchange Act and the rules and regulations promulgated
thereunder, and all such reports are complete and correct in all
material respects.
(p) Full Disclosure. None of the information with respect to Steelton or
any of the Steelton Subsidiaries which has been furnished to Sun
pursuant to this Agreement or has been or will be included by Steelton
in the Proxy Statement, or any application to, or filing with, any
regulatory agency made in connection with the transactions
contemplated hereby will, at the respective time it is furnished,
distributed, mailed or filed, be false or misleading with respect to
any material fact, or omit to state any material fact necessary in
order to make the statements therein not misleading in light of the
circumstances under which they were made.
(q) Employee Benefit Plans. Each "employee benefit plan," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), that now covers any employee of Steelton, its
predecessors or
17
affiliates, or any of the Steelton Subsidiaries, complies in all
material respects with all applicable requirements of ERISA, the Code
and other applicable laws. Neither Steelton nor any of its
predecessors or affiliates or any of the Steelton Subsidiaries has
engaged in any "prohibited transaction" (as defined in Section 406 of
ERISA or Section 4975 of the Code) or any breach of fiduciary
responsibility under Part 4 of Title I of ERISA, with respect to any
such plan, which prohibited transaction is likely to result in any
material penalties or taxes under Section 502 of ERISA or Section 4975
of the Code, or any material liability to any participant or
beneficiary of such plan. No material liability to the Pension Benefit
Guaranty Corporation has been incurred by Steelton with respect to
itself or its predecessors or affiliates or any of the Steelton
Subsidiaries with respect to any such plan which is subject to Title
IV of ERISA, or with respect to any "single employer plan" (as defined
in Section 4001(a)(15) of ERISA) currently or formerly maintained. No
such plan had an "accumulated funding deficiency" (as defined in
Section 302 of ERISA) (whether or not waived) as of the last day of
the end of the most recent plan year ending prior to the date hereof.
The fair market value of the assets of each such plan exceeds the
present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under each such plan as of the end of the most
recent plan year, calculated on the basis of the actuarial assumptions
used in the most recent actuarial valuation for each such plan. As of
January 1, 2002, all accrued contributions and other payments to be
made under each qualified retirement plan have been set aside
therefor. 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 such plans within the
12-month period ending on the date hereof. Neither Steelton, its
predecessors or affiliates nor any of the Steelton Subsidiaries has
provided, or is required to provide, security to any such plans
pursuant to Section 401(a)(29) of the Code. Steelton, its predecessors
and affiliates and each of the Steelton Subsidiaries have contributed
to no "multiemployer plan," as defined in Section 3(37) of ERISA, on
or after September 26, 1980 except as set forth on Schedule 3(q).
Steelton, its predecessors and affiliates and each of the Steelton
Subsidiaries have no obligation for retiree health and life benefits
under any benefit plan, contract or arrangement except as set forth on
Schedule 3(q) hereto. Steelton, its predecessors and affiliates and
each of the Steelton Subsidiaries have no obligation for any post
retirement benefits under any plan, contract or arrangement, except as
set forth on Schedule 3(q) hereto. To the knowledge of Steelton, all
actuarial valuations and other documents and information concerning
benefit plans delivered or made available in connection with this
Agreement are true and correct as of the date(s) shown thereon, and
all actuarial methods and assumptions are appropriate for such plans,
and are consistent with the methods and assumptions permitted by the
Code and ERISA. Except as set forth on Schedule 3(q), all such plans
are funded to such level as would permit termination without further
funding such that, upon termination, the assets of
18
each such plan would then be sufficient to pay all vested accrued
benefits thereunder, and there would be no employer liability under
Title IV of ERISA. Since 1990, there has been no audit of any benefit
plan of Steelton or of any Steelton Subsidiary by the Department of
Labor, the IRS or the Pension Benefit Guarantee Corporation.
(r) Labor Matters. Neither Steelton nor any Steelton Subsidiary is a party
to, or is bound by, any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor
organization, nor is Steelton or any Steelton Subsidiary the subject
of a proceeding asserting that Steelton or any Steelton Subsidiary has
committed an unfair labor practice or seeking to compel Steelton or
such Steelton Subsidiary to bargain with any labor organization as to
wages and conditions of employment, nor is there any strike or other
labor dispute involving Steelton or any Steelton Subsidiary pending,
or, to the knowledge of Steelton, threatened, that might have a
Material Adverse Effect on the condition, financial or otherwise, of
the assets, liabilities, business or operations of Steelton and the
Steelton Subsidiaries taken as a whole. Neither Steelton nor any
Steelton Subsidiary is subject to or a party in any complaint or
action before any local human relations commission, the Pennsylvania
Human Relations Commission, the Equal Employment Opportunity
Commission or the Department of Labor.
Except as provided on Schedule 3(r), Steelton has no pension,
retirement, stock purchase, stock bonus, savings or profit sharing
plan, any deferred compensation, consultant, bonus, life insurance,
death or survivor benefit, health insurance, sickness, disability,
medical, surgical, hospital, severance, layoff or vacation plan or any
other incentive welfare, or employee benefit plan or arrangement. With
respect to those plans and arrangements listed on Schedule 3(r),
Steelton has provided to Sun an accurate and complete copy of the most
recent plan documents, the most recent annual report filed with the
United States Department of Labor and the Internal Revenue Service,
the most recent financial and actuarial reports, and the most recently
issued Internal Revenue Service Rulings or determination letters.
(s) Environmental Matters. For purposes of this paragraph (s), 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 (1) 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 (2) the use, storage, recycling,
treatment, generation,
19
transportation, processing, handling, labeling, production, release or
disposal of Hazardous Substances. The term Environmental Law includes
without limitation (1) the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. ss.9601, et
seq.; the Resource Conservation and Recovery Act, as amended, 42
U.S.C.ss.6901, et seq.; the Clean Air Act, as amended, 42
U.S.C.ss.7401, et seq.; the Federal Water Pollution Control Act, as
amended, 33 U.S.C.ss.1251, et seq.; the Toxic Substances Control Act,
as amended, 15 U.S.C.ss.9601, et seq.; the Emergency Planning and
Community Right to Know Act, 42 U.S.C.ss.11001, et seq.; the Safe
Drinking Water Act, 42 U.S.C.ss.300f, et seq.; and all comparable
state and local laws, and (2) 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 matter containing any such substance as a
component. Hazardous Substances include without limitation petroleum
or any derivative or by-product thereof, asbestos, radioactive matter,
and polychlorinated biphenyls.
"Steelton Loan Portfolio Properties and Other Properties Owned" means
those properties serving as collateral for loans in Steelton's loan
portfolio, or properties currently owned or operated by Steelton or
any Steelton Subsidiary (including, without limitation, in a fiduciary
capacity).
Except as set forth on Schedule 3(s) hereto:
(1) Neither Steelton nor any Steelton Subsidiary is, to the knowledge
of Steelton or Mechanics, in violation of or liable under any
Environmental Law;
(2) None of the Steelton Loan Portfolio Properties and Other
Properties Owned, to the knowledge of Steelton or Mechanics, are
in violation of or liable under any Environmental Law;
(3) None of the Steelton Loan Portfolio Properties and Other
Properties Owned have, to the knowledge of Steelton or Mechanics,
Hazardous Substances on or in them; and
(4) There are no actions, suits, demands, notices, claims,
investigations or proceedings pending or, to the knowledge of
Steelton, threatened relating to the liability of Steelton or any
Steelton Subsidiary in connection with
20
any property that previously served as collateral for a loan or
was previously owned or leased or that relates to the Steelton
Loan Portfolio Properties and Other Properties Owned under any
Environmental Law, including without limitation any notices,
demand letters or requests for information from any federal or
state environmental agency relating to any such liabilities under
or violations of Environmental Law.
(t) Proceedings. As of the date of this Agreement, there is no pending or,
to the knowledge of Steelton or Mechanics, threatened, legal or
governmental proceeding against Steelton or any Steelton Subsidiary,
and Steelton and Mechanics are not aware of any fact or circumstance
which would adversely affect Steelton's or Mechanics' ability to
obtain any of the required regulatory approvals or satisfy any of the
other conditions required to be satisfied in order to consummate the
transactions contemplated by this Agreement.
(u) Undisclosed Liabilities. Except as set forth on Schedule 3(u), since
December 31, 2001, neither Steelton nor any Steelton Subsidiary has
incurred any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except liabilities or
obligations incurred in the ordinary course of business or which would
not have a Material Adverse Effect on the financial condition,
business, prospects or operating results of Steelton and the Steelton
Subsidiaries taken as a whole.
(v) Financial Institutions Bond. Since January 1, 2000, Steelton and the
Steelton Subsidiaries have continuously maintained in full force and
effect a financial institutions bond insuring against acts of
dishonesty by each of its employees. Except as disclosed on Schedule
3(v) hereto, no claim has been made under any such bond since January
1, 2000, and Steelton and Mechanics is unaware of any fact or
condition presently existing which might form the basis of a claim
under any such bond. Mechanics has no reason to believe that its
present financial institutions bond will not be renewed by its carrier
on substantially the same basis and terms (other than an immaterial
premium rate increase) as those now in effect.
(w) Repurchase Agreements. With respect to any agreement pursuant to which
Steelton or any Steelton Subsidiary has purchased securities subject
to an agreement to resell, Steelton or the Steelton Subsidiary has a
valid, perfected first lien or security interest in the government
securities or other collateral securing the repurchase agreement, and
the value of such collateral equals or exceeds the amount of the debt
secured thereby. Except as disclosed on Schedule 3(w) which identifies
location and type of securities, Steelton maintains physical
possession of purchased securities that are subject to an agreement to
resell.
21
(x) Assumability of Leases and Contracts. Except as disclosed on Schedule
3(x) hereto, all Material Contracts are assumable and assignable and
do not contain any term or provision that would accelerate or increase
payments that would otherwise be due by Steelton or the Steelton
Subsidiary to such person or entity or change or modify the provisions
or terms of such contract by reason of this Agreement or the
transactions contemplated hereby.
(y) Loans. Except as disclosed on Schedule 3(y) hereto, the loans
reflected as assets on the Steelton Statement, or acquired since that
date, are, in all material respects, the legal, valid and binding
obligations of the respective obligors named therein, enforceable in
accordance with their terms, subject to bankruptcy, insolvency and
other laws of general applicability relating to or affecting
creditors' rights and to general equity principles. All such loans,
and the collateral and other security therefor, and the documentation
for and administration of the same, satisfy in all material respects
the rules, regulations or directives of the OTS, FDIC, or other
applicable governmental authorities and are in accordance with their
terms in all material respects.
(z) Loan Portfolio. Except as disclosed on Schedule 3(z) hereto, all
evidences of indebtedness reflected as assets of Steelton or any
Steelton Subsidiary in the Steelton Statement are in all material
respects binding obligations of the respective primary obligors
associated therewith, and no material amount thereof is subject to any
defenses known to Steelton or any Steelton Subsidiary which may be
asserted against Steelton or any Steelton Subsidiary. Except as set
forth in Schedule 3(z), Steelton has made available or delivered to
Sun a true and correct list and brief description of all real property
(other than personal residences) in which Steelton or any Steelton
Subsidiary has an interest as creditor or mortgagee securing an amount
or amounts greater than $50,000 to one borrower, or a series of
related borrowers. Except as set forth in Schedule 3(z), (i) there are
no outstanding real property loans (other than personal residences)
held by Steelton with an unpaid balance of $10,000 or more on which a
default has occurred and (ii) Mechanics has no loans reflected as
assets in such financial statements which have principal balances in
excess of $10,000 except for fully-secured mortgage loans. For
purposes hereof, "default" shall include but not be limited to a
failure of an obligor to make payments with respect to any loans for
60 days or more past the due date for such payment.
(aa) Trademarks, Trade Names. Steelton owns, or has the right to use, all
trademarks, servicemarks, trade names and copyrights used in or
necessary for the ordinary conduct of its existing business as
heretofore conducted, and the consummation of the transactions
contemplated hereby will not alter or impair any such rights. Except
as set forth in Schedule 3(aa), no claims are pending for the use of
any trademarks, servicemarks, trade names or copyrights or challenging
or questioning the validity or effectiveness of any license or
22
agreement relating to the same nor is there any valid basis for any
such claim, challenge or question, and, to the knowledge of Steelton,
the use of such trademarks, servicemarks, trade names and copyrights
by Steelton or any Steelton Subsidiary does not infringe on the rights
of any person.
(bb) Accuracy of Representations. Until Closing, Steelton will promptly
notify Sun if any of the representations contained in this Section 3
ceases to be true and correct in all material respects subsequent to
the date hereof.
(cc) Absence of Questionable Payments. From and after December 31, 2001,
Steelton has not, nor, to the knowledge of Steelton, has any director,
officer, agent, employee, consultant or other person associated with,
or acting on behalf of, Steelton, (i) used any Steelton or Steelton
Subsidiary 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 Steelton corporate funds, or established or
maintained any unlawful or unrecorded accounts with funds received
from Steelton or any Steelton Subsidiary.
(dd) Powers of Attorney, Guarantees. Except as set forth on Schedule 3(dd),
neither Steelton nor any Steelton Subsidiary has any power of attorney
outstanding, or any obligation or liability, either actual, accruing
or contingent, as guarantor, surety, cosigner, endorser, comaker 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 Schedule 3(dd).
(ee) CRA Compliance. Mechanics has a satisfactory Community Reinvestment
Act rating.
(ff) Derivatives. Except as set forth in Schedule 3(ff), neither Steelton
nor any Steelton Subsidiary owns or holds any derivatives, "caps" or
"floors" in their investment portfolio in an amount of $100,000 in the
aggregate.
(gg) Loan Loss Reserves. The loan loss reserve of Mechanics reflected in
the Steelton Statements is and the loan loss reserve shown on the
consolidated financial statements of Steelton and the Steelton
Subsidiaries for periods after the date of this Agreement will be, in
the reasonable good faith judgment of management of Steelton, adequate
in accordance with generally accepted accounting principles,
directives of governmental authorities, and all regulations, rules and
directives of the FDIC and the OTS.
23
4. ACCESS TO AND INFORMATION CONCERNING PROPERTIES, RECORDS, ETC. Steelton and
Mechanics shall, to the extent permitted by law, give to Sun, its counsel,
accountants, financial advisors and other representatives full access, at
reasonable times and upon reasonable notice (so as not to interfere
unreasonably with the ordinary course and conduct of business of Steelton
or any of the Steelton Subsidiaries), throughout the period prior to the
Closing, access to all of their respective properties, books, contracts,
commitments and records, including, but not limited to, minute books,
Charters, Articles of Incorporation and Bylaws, and shall furnish to Sun
during such period all such information concerning Steelton and the
Steelton Subsidiaries and their respective affairs as Sun may reasonably
request. Without limiting the effect of the foregoing, such access shall in
no event be more limited than that granted by a public company to its
independent accountants in the course of their conduct of an audit of its
financial statements (to the extent such access is permitted by applicable
law, regulation or order). In addition, Steelton and the Steelton
Subsidiaries shall make their respective officers available at reasonable
times and upon reasonable notice to discuss with Sun's designated
representatives the substance of all documents, financial statements and
other information provided by Steelton and the Steelton Subsidiaries, and
other matters as Sun shall reasonably deem pertinent to the transactions
contemplated under this Agreement. All information disclosed by any party
hereto or any subsidiary thereof to another party pursuant to this Section
4 shall be subject to Section 13 hereof (regarding confidential treatment
of confidential or non-public information).
5. AFFIRMATIVE COVENANTS OF SUN AND SUN ACQUISITION.
(a) Sun covenants and agrees that, throughout the period commencing on the
date hereof and ending on the date of Closing, Sun will for its own
part:
(i) Conduct of Business. Conduct its business in a manner that will
not adversely affect Sun's ability to obtain all necessary
regulatory approvals for the transactions contemplated hereby or
Sun's ability to perform its obligations under this Agreement;
(ii) Laws, Rules, Etc. Comply with and perform all material
obligations and duties imposed upon it by all federal and state
laws and all rules, regulations and orders imposed by federal or
state governmental authorities, except in respects not materially
adverse to the business, operations, assets or financial
condition of Sun or which would not materially impair the ability
of Sun to consummate the transactions contemplated hereby;
(iii)Best Efforts. Use its best efforts to assure, to the extent
reasonably within its control, as soon as it is reasonably
practicable, the satisfaction of the conditions to the
effectiveness of the transactions contemplated hereunder and the
transactions contemplated by this Agreement;
24
(iv) Notices. Notify Steelton of (i) any fact or circumstance of which
the executive officers of Sun have knowledge which would, absent
disclosure by Sun to Steelton and Steelton's subsequent consent
to such fact or circumstance, not permit Sun to satisfy the
conditions set forth in Section 10(a)(i) of this Agreement, and
(ii) any material breach of any of its covenants and agreements
contained herein; and
(v) Regulatory Applications. Use its best efforts to file all
requisite regulatory applications with respect to the
transactions contemplated by this Agreement as soon as possible,
and to thereafter use its best efforts to file any necessary
amendments promptly. Copies of such applications and all
correspondence to and from the regulatory authorities shall be
promptly provided to Steelton and its counsel.
(vi) Tax Treatment. Take no action that, in the reasonable good faith
judgment of management of Sun, would preclude or impair the
satisfaction of the conditions set forth in Section 9(e) of this
Agreement.
(b) Sun Acquisition covenants and agrees that, throughout the period
commencing on the date hereof and ending on the date of Closing, Sun
Acquisition will, for its own part prior to the Effective Date of the
Merger, engage only in the transactions contemplated by this Agreement
and the Merger Agreement, and will have no material liabilities and
will have incurred no material obligations except in connection with
the performance of the transactions provided in this Agreement and in
the Merger Agreement.
6. AFFIRMATIVE COVENANTS OF STEELTON AND MECHANICS. Steelton and Mechanics
covenant and agree that, throughout the period commencing on the date
hereof and ending on the date of Closing, except for specific proposed
actions or inaction as shall otherwise be consented to in writing by Sun,
Steelton will for its own part, and it will cause the Steelton Subsidiaries
to:
(a) Conduct of Business. Conduct their businesses, including extensions of
credit and mortgage banking operations, only in the ordinary course
consistent with past practices and written policies, and there will be
no Material Adverse Effect (as defined in Section 19 hereof) in the
business, operations, assets or financial condition of Steelton and
the Steelton Subsidiaries taken as a whole between the date hereof and
the date of Closing;
(b) Preservation of Business. Use their best efforts to maintain and
preserve their businesses and business organizations intact,
including, but not limited to, maintaining goodwill and relationships
with customers and others having business dealings with Steelton and
the Steelton Subsidiaries, preserving and
25
collecting all material claims and causes of action belonging to
Steelton and the Steelton Subsidiaries, and maintaining their books of
account and other records;
(c) Properties. Maintain and keep their properties, both real property and
tangible personal property, in as good repair and condition in all
material respects as they presently exist, except for depreciation due
to ordinary wear and tear and damage due to unavoidable casualty;
(d) Insurance. Maintain in full force and effect all insurances customary
with industry practices for the businesses conducted by Steelton and
the Steelton Subsidiaries;
(e) Contracts, Etc. Perform all its material obligations under agreements,
contracts, leases, documents and instruments relating to or affecting
their assets, properties and businesses;
(f) Financial Statements. Furnish to Sun:
(i) As soon as practicable and in any event within forty-five (45)
days after the end of each of the first three quarters in each
fiscal year, consolidated statements of operations of Steelton
and the Steelton Subsidiaries for such period and for the period
beginning at the commencement of the fiscal year and ending at
the end of such quarterly period, and a consolidated balance
sheet of Steelton and the Steelton Subsidiaries as of the end of
such quarterly period, setting forth in each case in comparative
form figures for the corresponding periods ending in the
preceding fiscal year, subject to changes resulting from year-end
adjustments;
(ii) Within ninety days of the end of the period being audited, copies
of all audit reports submitted to Steelton by independent
auditors in connection with each annual, interim or special audit
of the books of Steelton and the Steelton Subsidiaries made by
such accountants;
(iii)As soon as practicable, copies of all such financial statements
and reports as it shall send to its shareholders and of such
regular and periodic reports as Steelton or the Steelton
Subsidiaries may file with the SEC, the OTS, or any other
regulatory authority;
(iv) Promptly upon any executive officer of Steelton obtaining
knowledge of any condition or event which would constitute a
material violation of the terms and conditions of this Agreement
or the Merger Agreement or which would constitute a material
default under any material indenture, mortgage, agreement or
other instrument securing or relating to any indebtedness of
Steelton or the Steelton Subsidiaries for borrowed
26
money, a certificate of the President of Steelton, specifying the
nature of such material violation or default and what action
Steelton has taken or is taking or proposes to take with respect
thereto;
(v) Promptly upon becoming aware that any person has given notice to
Steelton or any Steelton Subsidiary or taken any other action
with respect to a claimed violation or default of the type
referred to in subsection (iv) of this Subsection (f), a written
notice describing the notice given or action taken by such
person, the nature of such violation or default and what action
Steelton has taken or is taking or proposes to take with respect
thereto; and
(vi) With reasonable promptness, such additional financial data as Sun
may reasonably request.
(g) Laws, Rules, Etc. Comply with and perform all material obligations and
duties imposed upon it by all federal, state, county, local and
municipal laws and all rules, regulations, directives, decrees,
orders, and ordinances imposed by federal, state, county, local or
municipal governmental authorities, including, but not by way of
limitation of the above, compliance with examination reports,
regulations and rulings of the OTS;
(h) Corporate Existence. Maintain its existence, in the case of Steelton,
as a corporation validly existing in good standing under the laws of
the Commonwealth of Pennsylvania, and in the case of the Steelton
Subsidiaries, as an entity of the respective type set forth on
Schedule 3(a) in good standing under the laws of the respective
jurisdictions set forth on Schedule 3(a);
(i) Notices. Notify Sun of (i) any fact or circumstance of which the
executive officers of Steelton have knowledge which would, absent
disclosure by Steelton to Sun and Sun's subsequent consent to such
fact or circumstance, not permit Steelton to satisfy the conditions
set forth in Section 9(a)(i) of this Agreement, (ii) any material
breach of any of its covenants and agreements contained herein, and
(iii) any Material Adverse Effect (as defined in Section 19 hereof) in
its financial condition, business, operations, assets, prospects or
operating results on a consolidated basis;
(j) Best Efforts. Use its best efforts to assure, to the extent reasonably
within its control, as soon as it is reasonably practicable, the
satisfaction of the conditions to the effectiveness of the
transactions contemplated by this Agreement. Steelton and the Steelton
Subsidiaries shall cooperate with Sun and shall use their best efforts
to do or cause to be done all things necessary or appropriate on their
part in order to fulfill the conditions precedent set forth in this
Agreement and to consummate this Agreement and the Merger Agreement.
In particular,
27
without limiting the generality of the foregoing, Steelton and the
Steelton Subsidiaries shall:
(i) cooperate with Sun in the preparation of all required
applications for regulatory approval of the transactions
contemplated by this Agreement;
(ii) in the case of Steelton, 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 and the Merger Agreement
by its shareholders at that meeting;
(iii)cooperate with Sun in making the employees of Steelton and the
Steelton Subsidiaries reasonably available for training by Sun
prior to the Effective Date, to the extent such training is
deemed reasonably necessary by Sun; and
(iv) make additions to loan loss reserves and make loan writeoffs,
writedowns and other adjustments that reasonably should be made
by Mechanics in light of generally accepted accounting
principles, directives of governmental authorities, and all
regulations, rules and directives of the FDIC and the OTS from
the date of this Agreement until the Effective Date;
(v) use its best efforts to assure that persons who currently hold
outstanding stock options of Steelton agree to surrender same in
accordance with the terms of this Agreement.
(k) Amend Corporate Documents. Amend or modify the Articles of
Incorporation or Bylaws or any other documents of Steelton or the
Steelton Subsidiaries in a manner reasonably requested by Sun if
necessary to effectuate the transactions contemplated hereby;
(l) Terminate Stock Plans. Terminate all plans involving the issuance of
Steelton Common Stock as of the date hereof (other than the issuance
of Common Stock pursuant to the grants of options issued, as of the
date hereof, pursuant to Mechanic Savings Bank's 2000 Stock Option
Plan or vesting of awards under the Restricted Stock Plan and
allocations under the ESOP Plan) and amend or terminate the
outstanding Steelton stock plans by the Effective Date. On, or prior
to the Effective Date, Mechanics Bank shall take such actions as are
necessary to provide for the vesting of all outstanding awards under
the Restricted Stock Plan (as disclosed as Schedule 7(b)) and the
distribution of the Common Stock related to such awards and of any
accrued cash attributable to cash dividends previously paid on the
Common Stock represented by such
28
awards and held in arrears, including any necessary withholding of
Common Stock related to such awards valued at $22.04 per share in
order to satisfy any federal, state or local income and employment tax
obligations of the recipient of such awards and any related tax
reporting of such vesting, distribution or withholding activities;
(m) Steelton Benefit Plans. All Steelton employee benefit plans, except
the Supplemental Director Retirement Plan, shall be terminated prior
to or as of the Effective Date. The ESOP shall be terminated as of the
Effective Date in accordance with its terms in effect as of the date
of this Agreement. The 401K Plan shall be terminated as of the
Effective Date in accordance with its terms; all participants shall be
100% vested as of the Effective Date. The Mechanics Defined Benefit
Plan shall be terminated as of the Effective Date;
(n) Good Faith Cooperative Effort to Revise Structure. Steelton and
Mechanics hereby agree to cooperate with Sun to approve any revision
to this Agreement, or to the attached Exhibits, involving a structural
change to the Merger and the transactions contemplated thereunder
provided that such cooperation and approval does not impact upon the
amount of consideration to be received by the shareholders of Steelton
or other payments to other parties under this Agreement; and
(o) Change in Control. All change in control payments shall be paid out by
Steelton or Mechanics to the individuals and in the amounts as set
forth in Schedule 6(o).
7. NEGATIVE COVENANTS OF STEELTON AND MECHANICS. Steelton and Mechanics
covenant and agree that, throughout the period commencing on the date
hereof and ending on the date of Closing, except for proposed specific
actions as shall otherwise be consented to in writing by Sun, they will not
for their own part, nor will they cause or permit any of the Steelton
Subsidiaries or affiliates to:
(a) Amend its Charter, Articles of Incorporation or Bylaws;
(b) Except as set forth in Schedule 7(b), issue, sell or otherwise dispose
of (or authorize or agree to issue, sell or dispose of) any shares of
its capital stock or any securities or documents convertible into or
representing a right or option to purchase any such shares, or enter
into any other agreements to issue or sell any shares of capital stock
or change the presently outstanding shares of capital stock into a
greater or lesser number of shares either by way of a
recapitalization, reclassification, reorganization, consolidation of
shares or the like, or by a stock split, stock dividend, or by way of
a merger or consolidation;
(c) Purchase, redeem, retire or otherwise acquire, or hypothecate, pledge
or otherwise encumber, any shares of capital stock;
29
(d) Merge into, consolidate with, or be purchased or acquired by, any
other corporation, entity or person (or agree to any such merger,
consolidation, affiliation, purchase or acquisition), or permit (or
agree to permit) any other corporation, entity or person to be merged,
consolidated or affiliated with it or be purchased or acquired by it,
or, except to realize upon collateral and except for purchases or
sales of loans in the ordinary course of its business, acquire (or
agree to acquire) all or substantially all of the assets of any other
corporation, entity or person or sell or dispose (or agree to sell or
dispose) all or any substantial part of its assets, in each case;
(e) Make, declare or pay any dividend, other than its regular semiannual
cash dividend in an amount not to exceed $.09 per share on the
Steelton Common Stock consistent with its prior declaration and
payment dates, or declare or make any distribution on any shares of
its capital stock;
(f) Enter into any employment contracts, deferred compensation
arrangements, or other agreements or arrangements affecting
compensation or benefits including change of control agreements or
severance agreements, or pay any bonus to, or increase the rate of
compensation of any director, officer, employee or consultant of
Steelton or any Steelton Subsidiary, other than bonuses and increases
in the rate of compensation of employees of Steelton or any Steelton
Subsidiary in the ordinary course of business consistent with past
practice or as set forth in Schedule 7(f);
(g) Enter into or modify (except as may be required by applicable law or
to effect the transactions contemplated by this Agreement) any
pension, retirement, stock option, stock purchase, severance, profit
sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any
current or former directors, officers or other employees;
(h) Except for indebtedness and contingent liabilities incurred in the
ordinary course of business (e.g., deposit liabilities, Federal Home
Loan Bank advances by Mechanics, and non-material reverse repurchase
agreements), incur any indebtedness or liability for borrowed money
evidenced by notes, bonds, debentures or other similar obligations;
(i) Solicit or encourage inquiries or proposals with respect to, or
furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition or purchase of
all or a material portion of its assets (whether owned by it directly
or owned by any Steelton Subsidiary), or of a substantial equity
interest in it or any business combination with it or any Steelton
Subsidiary, provided however, that it may respond to an unsolicited,
bona fide, written offer, if the Steelton Board of Directors
determines in good
30
faith, after consultation with outside legal counsel that the failure
to do so would constitute a breach of the Steelton Board of Directors'
fiduciary duty under Pennsylvania law, and Steelton shall notify Sun
immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or
discussions are sought to be initiated with, Steelton or any Steelton
Subsidiary; and Steelton and the Steelton Subsidiaries shall not
permit any officer, director, agent, advisor, or affiliate to do any
of the above and shall instruct its and each Steelton Subsidiary's
officers, directors, agents, advisors and affiliates to comply with
the above except to the extent that the Steelton Board of Directors,
after consultation with outside legal counsel, determines that the
failure to do so would constitute a breach of the Steelton Board of
Directors fiduciary duty under Pennsylvania law;
(j) Except in the ordinary course of business, 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 a transaction or subject any of Steelton's or Steelton
Subsidiaries' properties or assets to any material lien, claim,
charge, or encumbrance of any kind whatsoever;
(k) Take or permit to be taken any action which would constitute a breach
of any representation, warranty or covenant set forth in this
Agreement;
(l) Enter into any related party transaction except such related party
transactions relating to extensions of credit made in accordance with
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;
(m) Sell or otherwise dispose of any capital stock of any Steelton
Subsidiary;
(n) Change any method, practice or principle of accounting except as may
be required by generally accepted accounting principles or any
applicable regulator;
(o) Waive, release, grant or transfer any rights of value or modify or
change in any material respect any existing agreement to which
Steelton or any Steelton Subsidiary is a party, other than the
ordinary course of business, consistent with past practice;
(p) Other than residential mortgages, make any loan or other credit
facility commitment in excess of $75,000 to any affiliate in the
ordinary course of business or compromise, expend, renew or modify any
such commitment outstanding;
31
(q) Except consistent with past practice, enter into, renew, extend or
modify any other transaction with any affiliate;
(r) Enter into any swap or similar commitment, agreement or arrangement
which is not consistent with past practice and which increases the
credit or interest rate risk over the levels existing at June 30,
2002;
(s) Enter into any derivative, cap or floor or similar commitment,
agreement or arrangement, except in the ordinary course of business
and consistent with past practices;
(t) Knowingly take any action that would, under any statute, regulation or
administrative practice of the Federal Reserve, the FDIC, the
Department of Banking, the SEC, or the OTS, materially or adversely
affect the ability of either party to obtain any required approvals
for consummation of the transaction;
(u) Sell, transfer, lease or encumber any servicing rights or other assets
except for mortgage loans and related servicing rights in the ordinary
course of business, which ordinary course of business shall not
include, however, the present servicing portfolio on closed loans
maintained by Steelton and the Steelton Subsidiaries, or purchase any
assets except for mortgage loans and servicing rights related thereto
from third party mortgage loan originators with respect to which
Mechanics is a party to an existing contract;
(v) Materially alter or vary its methods or policies of (i) underwriting,
pricing, originating, warehousing, selling and servicing, or buying or
selling rights to service mortgage loans, (ii) hedging (which term
includes both buying futures and forward commitments from financial
institutions) its mortgage loan positions or commitments, and (iii)
obtaining financing and credit;
(w) Incur any debt other than debt incurred to fund or purchase mortgage
loans from Steelton or a Steelton Subsidiary;
(x) Directly or indirectly agree to take any of the foregoing actions
specified in subsections (a) through (w) above.
8. CONDITIONS TO THE OBLIGATIONS OF SUN, SUN ACQUISITION, STEELTON, AND
MECHANICS. The Closing shall be expressly conditioned upon the following:
(a) Approval of Shareholders. Approval and adoption of this Agreement and
the transactions and agreements contemplated hereby by a vote of the
shareholders of Steelton, as required by applicable law and by
Steelton's Articles of Incorporation, shall have been obtained and
certified;
32
(b) Approval of Regulatory Agencies. All required consents and approvals
of all regulatory agencies and other authorities having jurisdiction
over the transactions contemplated by this Agreement, the Merger
Agreement, the Steelton Plan of Liquidation and the Mechanics Merger,
including without limitation the SEC, OTS, Department of Banking, FDIC
and Federal Reserve, shall have been granted and obtained, without the
imposition of any non-standard term or condition which would
materially impair the value of Steelton and the Steelton Subsidiaries
to Sun or otherwise impact Sun in a materially adverse way and all
applicable notice and waiting periods shall have expired or passed;
(c) Dissenters' Rights. Holders of no more than ten percent (10%) of
outstanding shares of Steelton shall have exercised their statutory
appraisal or dissenters' rights;
(d) Antitrust Laws. The pre-merger notification provisions of Section 7A
of the Clayton Act shall have been complied with by the Parties
hereto, and all other statutory or regulatory requirements with
respect to the Clayton Act shall have been satisfied;
(e) Suits, Actions. No Party hereto shall be subject to any action, suit,
proceeding, order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of
the transactions contemplated by this Agreement;
(f) Statutes, Orders. No statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced by
any governmental authority which prohibits or makes illegal the
consummation of the transactions contemplated by this Agreement; and
(g) Other Requirements. All other requirements prescribed by law which are
necessary to the consummation of the transactions contemplated by this
Agreement shall have been satisfied.
(h) Payment of Retention Bonuses. Retention bonuses as set forth in
Schedule 8(h) shall have been paid out by Mechanics on or prior to the
Effective Date in an amount not to exceed $12,600 in the aggregate.
(i) Vacation. Individuals set forth in Schedule 8(i) shall have been paid
by Mechanics for all unused vacation leaves as of the Effective Date
in an amount not to exceed $16,500 in the aggregate.
9. CONDITIONS TO THE OBLIGATIONS OF SUN AND SUN ACQUISITION. Consummation by
Sun and Sun Acquisition of the transactions contemplated hereby is
33
subject to the following conditions precedent, any of which, however, may
be waived, to the extent permitted by applicable law or regulation, by the
consent in writing of Sun and Sun Acquisition.
(a) Representations, Warranties and Covenants.
(i) The representations and warranties of Steelton (both on its own
behalf and on behalf of the Steelton Subsidiaries) contained
herein (A) shall have been true and correct in all material
respects on the date hereof, and (B) other than as disclosed by
Steelton to, and approved by, Sun in writing prior to or at the
Closing, shall be true and correct in all material respects as of
the Closing, except as otherwise provided or permitted by this
Agreement and except as to any representation or warranty which
specifically relates to an earlier date.
(ii) Steelton and the Steelton Subsidiaries shall have duly performed
or complied in all material respects with all covenants, not
otherwise waived by Sun and Sun Acquisition in writing, required
by this Agreement to be performed by Steelton and the Steelton
Subsidiaries prior to or at the Closing.
(iii)Sun shall have received a certificate of Steelton dated as of
the Closing, signed by the President and the Chief Financial
Officer of Steelton, certifying in such detail as Sun may
reasonably request the fulfillment of the conditions set forth in
Sections 9(a)(i) and (ii) above.
(b) Opinion of Special Counsel. Sun shall have received an opinion or
opinions dated as of the Effective Date from Malizia, Spidi & Fisch,
or other counsel reasonably satisfactory to Sun substantially in the
form attached hereto as Exhibit 4.
(c) Suit, Action, Etc. No suit, action or other proceeding shall be
pending or directly threatened by any federal, state or other
governmental agency, commission or authority having jurisdiction or
authority over Steelton, any Steelton Subsidiary, Sun or Sun
Acquisition or by any other person, in which it is sought to restrain
or prohibit consummation of the transactions contemplated by this
Agreement and which in the reasonable and good faith judgment of the
management of Sun, based upon the written advice of its counsel, is
meritorious and adversely affects the prospects of such consummation.
(d) Financial Statements. Sun shall have received audited consolidated
statements of financial condition (balance sheet, statement of income,
statements of operations, shareholders equity and cash flow and
related notes) for Steelton and its subsidiaries as of December 31,
2002.
34
(e) Tax Ruling or Opinion. Sun shall have received at the Closing, a
ruling from the Internal Revenue Service or an opinion of its
independent public accountant, that the transactions contemplated by
this Agreement, the Merger Agreement, the Steelton Plan of Liquidation
and the Mechanics Merger will not be taxable transactions to Sun, will
qualify for treatment under Section 338 of the Internal Revenue Code
of 1986, as amended, and will not have adverse tax consequences or
result in adverse tax attributes to the Parties. Such ruling or
opinion shall be in a form and of content reasonably satisfactory to
Sun.
(f) Closing Documents. Steelton and Mechanics shall have delivered to Sun
and Sun Acquisition such other certificates and documents as Sun and
Sun Acquisition and their counsel may reasonably request (all of the
foregoing certificates and other documents being herein referred to as
"Steelton Closing Documents").
(g) Outstanding Stock Options. All unexercised stock options, derivatives
or other instruments of Steelton that are issuable by Steelton or
issued and outstanding of Steelton shall have been retired, redeemed,
surrendered, exercised or otherwise satisfied or settled prior to the
Effective Date.
(h) Effectiveness of Transactions. All transactions contemplated by and
provided for in this Agreement, the Merger Agreement, the Steelton
Plan of Liquidation, and the Mechanics Merger Agreement shall be
imminent and there shall be no impediment existing that would
materially impair the Parties' ability to effectuate same.
10. CONDITIONS TO THE OBLIGATIONS OF STEELTON AND MECHANICS. Consummation by
Steelton and Mechanics of the transactions contemplated hereby is subject
to the following conditions precedent, any of which, however, may be
waived, to the extent permitted by applicable law or regulation, by the
consent in writing of Steelton and Mechanics.
(a) Representations and Warranties.
(i) The representations and warranties of Sun and Sun Acquisition
contained herein (A) shall have been true and correct in all
material respects on the date hereof, and (B) other than as
disclosed by Sun to, and approved by, Steelton and Mechanics in
writing prior to or at the Closing, shall be true and correct in
all material respects as of the Closing, except as otherwise
permitted by this Agreement and except as to any representation
or warranty which specifically relates to an earlier date.
(ii) Sun and Sun Acquisition shall have duly performed or complied in
all material respects with all covenants, not otherwise waived by
Steelton
35
and Mechanics in writing, required by this Agreement to be
performed by Sun and Sun Acquisition prior to or at the Closing.
(iii)Steelton shall have received a certificate of Sun dated as of
the Closing, signed by the President and the Chief Financial
Officer of Sun, certifying in such detail as Steelton may
reasonably request the fulfillment of the conditions set forth in
Sections 10(a)(i) and (ii) above.
(b) Opinion of Special Counsel. Steelton shall have received an opinion or
opinions dated as of the Effective Date from Shumaker Williams, P.C.,
or other counsel reasonably satisfactory to Steelton substantially in
the form attached hereto as Exhibit 5.
(c) Suit, Action, Etc. No suit, action or other proceeding shall be
pending or directly threatened by any federal, state or other
governmental agency, commission or authority having jurisdiction or
authority over Steelton, any Steelton Subsidiary, Sun or Sun
Acquisition, or by any other person, in which it is sought to restrain
or prohibit consummation of the transactions contemplated by this
Agreement.
(d) Deposit into Payment Fund. On or prior to the Effective Date, Sun
Acquisition shall have deposited cash into the Payment Fund in an
amount sufficient to enable Sun and Sun Acquisition to satisfy their
obligations to pay the Aggregate Merger Consideration under this
Agreement.
(e) Steelton Fairness Opinion. Steelton shall have obtained from its
independent financial advisors an opinion dated within five business
days of the date that the Steelton Board of Directors approved this
Agreement stating that the Merger Consideration to be received by the
holders of Steelton Common Stock is fair from a financial point of
view and an update of such opinion within five business days of the
date of mailing of the Proxy Statement for the Steelton Shareholders'
Meeting.
11. TERMINATION OF AGREEMENT. This Agreement may be terminated at any time
prior to the Effective Date, whether before or after its approval and
adoption by the shareholders of Steelton, only if one or more of the
following events shall occur:
(a) By any Party to this Agreement, if the Closing shall not have occurred
on or before June 30, 2003, unless the failure to so consummate by
such time is due to the breach of this Agreement by the Party seeking
to terminate, or such later date as shall have been agreed to by the
Parties hereto (the "Termination Date").
(b) At any time by the mutual written agreement of the Parties hereto.
36
(c) By Sun, immediately upon the expiration of thirty (30) days from the
date that Sun or Sun Acquisition has given notice to Steelton of
Steelton's or Mechanics' material misrepresentation or breach of any
warranty or representation or breach in any material respect,
individually or collectively, of any covenant or agreement herein;
provided, however, that no such termination shall take effect unless
it is reasonably evident that Steelton or Mechanics cannot or will not
fully and completely correct the grounds for termination as specified
in the aforementioned notice on or before the date of Closing.
(d) By Steelton, immediately upon the expiration of thirty (30) days from
the date that Steelton or Mechanics has given notice to Sun of Sun's
or Sun Acquisition's material misrepresentation or breach of any
warranty or representation or breach in any material respect,
individually or collectively, of any covenant or agreement herein;
provided, however, that no such termination shall take effect unless
it is reasonably evident that Sun or Sun Acquisition cannot or will
not fully and completely correct the grounds for termination as
specified in the aforementioned notice on or before the date of
Closing.
(e) By any Party, by giving written notice to Steelton in the event that,
prior to the Effective Date, Steelton permits or agrees to permit, any
of the following: (i) a merger of Steelton or Mechanics with any other
corporation, financial institution, entity or Person; (ii) a
consolidation of Steelton or Mechanics with any other corporation,
financial institution, entity or Person; (iii) an acquisition by
Steelton or Mechanics of control over any other entity, financial
institution, corporation or Person; (iv) the creation of any
subsidiary; (v) the acquisition, liquidation, sale or disposal of all
or substantially all of Steelton's or Mechanics' assets; or upon the
occurrence of any of the following: (vi) the failure of Steelton's
shareholders to approve this Agreement or the Merger Agreement at a
meeting called for such purpose after the disclosure by any person
(other than Sun) or the receipt by Steelton of an offer or proposal to
acquire 20 percent or more of Steelton or Mechanics Common Stock, or
to acquire, merge or consolidate with Steelton or Mechanics or to
purchase or acquire all or substantially all of Steelton's or
Mechanics' assets; (vii) the acquisition by any person (other than
Sun) of beneficial ownership of 20 percent or more of Steelton or
Mechanics Common Stock exclusive of shares of Steelton or Mechanics
Common Stock sold directly or indirectly to such person by Sun; or
(viii) any person (other than Sun) 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 Steelton or Mechanics such that,
upon consummation of such offer, such person would own, control or
have the right to acquire 20 percent or more of Steelton or Mechanics
Common Stock.
37
(f) By any Party to this Agreement any Party has been informed in writing
by the SEC, OTS, the FDIC, the Banking Department, the Federal Reserve
or any other required regulatory authority that a required approval or
consent will not be granted and the time period for all appeals and
reconsideration has expired.
(g) By any Party to this Agreement, by giving written notice to the other
Parties if the shareholders of Steelton fail to approve this
Agreement, so long as Steelton has not breached its obligations
pursuant to Section 6(j)(ii) of this Agreement and none of the events
listed in Section 11(e)(i) through (viii) shall have occurred.
(h) By any Party to this Agreement, if Steelton shall give notice that it
has entered into or intends to enter into an Acquisition Transaction
with a party other than Sun, Sun Acquisition or Sun Bank. For purposes
of this Agreement, "Acquisition Transaction" means any merger,
consolidation, share exchange, joint venture, business combination or
similar transaction or any purchase of all or any material portion of
the assets of an entity.
12. EXPENSES. Any termination of this Agreement pursuant to Sections 11(a),
11(b) or 11(g) hereof shall be without cost, expense or liability on the
part of any Party to the others. Any termination of this Agreement pursuant
to Section 11(c) or 11(d) hereof shall also be without cost, liability or
expense on the part of any Party to the others, unless the breach of a
representation or warranty or covenant is caused by the willful conduct or
gross negligence of a Party, in which event said Party shall be liable to
the other Parties for 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).
So long as Sun shall not have breached its obligations hereunder, if this
Agreement is terminated by any Party pursuant to Section 11(e) or 11(h)
hereof, Steelton shall promptly, but in no event later than three (3)
business days after such termination, pay Sun a fee of $350,000, which
amount shall be payable by wire transfer of same day funds. If Steelton
fails to promptly pay the amount due pursuant to this Section 12, and, in
order to obtain such payment, Sun commences a suit which results in a
judgment against Steelton for all or a substantial portion of the fee set
forth in this Section 12, Steelton shall pay to Sun all costs and expenses
(including reasonable attorneys' fees) incurred by Sun in connection with
such suit.
Subject to the provisions of this Section 12, 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
38
paid by Sun. Notwithstanding anything herein to the contrary, in no event
shall fees payable by any Party upon the termination of the Agreement in
accordance with Section (11)(c), (d), (e), (g) or (h) exceed an aggregate
of $350,000.
13. CONFIDENTIALITY. Any non-public or confidential information disclosed by
either Steelton (including any Steelton Subsidiary) or by Sun to the other
Parties pursuant to this Agreement or as a result of the discussions and
negotiations leading to this Agreement or otherwise, or to which any Party
has acquired or may acquire access pursuant to which the disclosing Party
indicates (either expressly, in writing or orally, or by the context of the
disclosure or access) that such information is non-public or confidential
shall be kept strictly confidential and shall not be used in any manner by
the recipient except in connection with the transactions contemplated by
this Agreement. To that end, the Parties hereto will each, to the maximum
extent practicable, restrict knowledge of and access to non-public or
confidential information of the other Party to its officers, directors,
employees and professional advisors who are directly involved in the
transactions contemplated hereby and who reasonably need to know such
information. Further to that end, all non-public or confidential documents
(including all copies thereof) obtained hereunder by any Party shall be
returned as soon as practicable after receiving a request from the other
Party following any termination of this Agreement.
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. The representations,
warranties and agreements of the parties set forth in this Agreement shall
not survive the Closing, and shall be terminated and extinguished at the
Closing, and from and after the Closing none of the Parties hereto shall
have any liability to the other on account of any breach or failure of any
of those representations, warranties and agreements; provided, however,
that the foregoing clause shall not (i) apply to agreements of the Parties
which by their terms are intended to be performed either in whole or in
part after the Closing, and (ii) shall not relieve any Party or person of
liability for fraud, deception or intentional misrepresentation.
15. CERTAIN POST-MERGER AGREEMENTS. The Parties hereto agree that:
(a) Employees.
(i) Immediately prior to or as of the Effective Date, Steelton shall
terminate all employee benefit plans, including all qualified
employee pension, profit sharing and stock bonus plans (including
its Employee Stock Ownership Plan but excluding the Supplemental
Director Retirement Plan) and all employees of Steelton and the
Steelton Subsidiaries will, to the extent provided by the
relevant plan and by law, become fully vested in and eligible to
receive benefits under all such plans of Steelton and the
Steelton Subsidiaries and such plans will be fully funded prior
to termination. Steelton shall distribute all vested accrued
benefits as soon
39
as reasonably practicable following such termination and shall
obtain such regulatory determinations as may be appropriate to
ensure the qualified status of such plans pursuant to '401(a) of
the Code upon termination. Sun and Sun Acquisition shall have no
liability under such plans.
(ii) Sun shall grant to all employees accepting employment credit for
all their respective service with Steelton for the purposes of
determining their participation, eligibility and vesting rights,
but not for the purposes of benefit accrual, in any and all
thrift, medical, life insurance, disability, pension plans,
severance and other employee benefits plans or programs currently
maintained by Sun. Sun shall provide coverage for pre-existing
medical conditions to the extent that such condition is currently
covered under Steelton's plan, provided that such conditions
would be covered under Sun's plan if it were not pre-existing. In
such an event of differing coverages such person shall be covered
by Steelton's COBRA plan.
(iii)Nothing in this Agreement shall obligate or require Sun to hire
or employ any Steelton, Mechanics, or Steelton Subsidiary
employee on or after the Effective Date nor will it grant any
third party beneficiary right to any such employee.
(iv) As provided herein, provided the affected employee executes a
satisfactory release, Sun will provide or allow severance
payments to employees of Steelton and the Steelton Subsidiaries
(other than employees whose severance benefits are provided for
in written employment agreements) whose employment is terminated
(other than for cause) on or after the Effective Date and before
the expiration of six months following the Effective Date, in the
amount equal to two weeks pay for each year of service with
Steelton or a Steelton Subsidiary, with a minimum of four weeks
pay and maximum of 26 weeks pay. In computing such severance
payments for non-exempt, full time employees, overtime and bonus
are excluded. In computing such severance payments for exempt
part-time employees, the weekly compensation shall be based on
one-fifty-second (1/52) of the employee's total compensation,
excluding overtime and bonus payments paid in 2002. For full-time
exempt employees, weekly compensation is calculated by taking
1/52 of the employee's 2002 annual salary, excluding bonus.
(b) Existing Employment Agreements. As of the Effective Date Mechanics
shall pay out the change of control provisions of the employment
contracts in effect as of the date hereof with the following persons:
Harold Stremmel, James Nelson and Shannon Aylesworth. As of the
Effective Date, Mechanics shall pay out the
40
change of control obligations in effect as of the date hereof for
Barbara Coates and Michael Leonzo. Such payout amounts as are set
forth in Schedule 15(b).
(c) Board of Directors of Sun. Upon consummation of all of the
transactions contemplated by this Agreement, and subject to receipt of
any required regulatory approvals, Sun will appoint Joseph A.
Wiedeman, CPA to its Board of Directors for a term expiring at the
annual shareholders' meeting to be held in 2004.
(d) Sun Bank Advisory Board. Following the Merger, Sun will form a paid
advisory board whose membership will be initially comprised of those
members of the Steelton Board of Directors as of the Effective Date.
The board fees payable to such advisory directors are set forth in
Schedule 15(d).
(e) Supplemental Director Retirement Plan. Sun will honor the terms of
Steelton's Supplemental Director Retirement Plan.
(f) Indemnification and Insurance. On and after the Effective Date and for
a period ending six (6) years thereafter, Sun shall indemnify, defend
and hold harmless all former and then-existing directors, officers,
employees and agents of Steelton or of any of Steelton Subsidiary
against all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement (with the approval of
Sun, which approval shall not be unreasonably withheld) or in
connection with any claim, action, suit, proceeding or investigation
based in whole or in part on or arising in whole or in part out of the
fact that such person is or was a director, officer, employee or agent
of Steelton or any Steelton Subsidiary, whether pertaining to any
matter existing or occurring at or prior to the Effective Date and
whether asserted or claimed prior to, or at or after, the Effective
Date to the same extent as such officer, director, employee or agent
would be entitled to indemnification by Steelton or any Steelton
Subsidiary as of the date hereof including the right to advancement of
expenses, provided, however, that any such officer, director, employee
or agent of Steelton may be indemnified by Sun only to the extent
permitted by applicable law and to the extent permitted by Sun's
Articles of Incorporation and Bylaws. In addition, Sun shall use
commercially reasonable efforts to obtain and maintain a directors'
and officers' liability insurance tail coverage policy with respect to
the directors and officers of Steelton and the Steelton Subsidiaries
relating to periods prior to the Effective Date and for a period
ending three (3) years thereafter.
(g) Adjustments. After approval of this Agreement, the Merger Agreement
and the transactions contemplated hereby by the Steelton Shareholders
at the Steelton Shareholders' Meeting and at or immediately prior to
the Effective Date, Steelton and Mechanics shall make reasonable
writedowns, charge offs, adjustments and expense payments that Sun may
reasonably request.
41
16. ENTIRE AGREEMENT. This Agreement, together with such other agreements as
are executed by the parties in connection herewith, on the date hereof,
represents the entire understanding of the parties hereto with reference to
the transactions contemplated hereby and supersedes 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.
17. PUBLICITY. The content and timing of all publicity and announcements
concerning this Agreement, and all transactions contemplated by this
Agreement, shall be subject to joint consultation and approval of the
Parties hereto, subject, however, to the legal obligations applicable to
public companies.
18. AMENDMENT AND WAIVER. Prior to the Effective Date, any provision of this
Agreement may be: (i) waived by the party benefited 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.
19. CERTAIN DEFINITIONS; INTERPRETATION. As used in this Agreement, the
following terms shall have the meanings indicated:
"Material" means having, or reasonably likely to have a Material
Adverse Effect on the Party in question (as the case may be).
"Material Adverse Effect," when applied to a Party, shall mean an
event, occurrence or circumstance which (a) has or is reasonably
likely to have a Material Adverse Effect on the financial position
results of operations or business of the Party and its subsidiaries,
taken as a whole, or (b) would materially impair the Party's ability
to perform its under this Agreement or the consummation of the Merger
and the other transactions contemplated by this Agreement; provided
however, that Material Adverse Effect and material impairment shall
not be deemed to include the impact of (i) changes in banking and
similar laws of general applicability or interpretations thereof by
courts of governmental authorities (ii) changes in generally accepted
accounting principles or regulatory accounting requirements applicable
to thrifts, banks, savings and loan holding companies or bank holding
companies, generally (iii) actions or omission of Sun or Steelton
taken with the prior written consent of the other in contemplation of
the transactions contemplated hereby, and (iv) the Merger and related
expenses associated with the transactions contemplated by this
Agreement on the operating performance of the Parties to this
Agreement; and further provided that the negative impact to the
financial position or results of
42
operations or business of Steelton or Mechanics because of the
exceptions itemized in clauses (i), (ii) and (iv) of this Section 19
(excluding consideration of transaction expenses set forth at
Disclosure Schedule 19) do not or would not exceed, individually or in
the aggregate, Three Hundred and Fifty Thousand Dollars ($350,000).
"Person" includes an individual, corporation, partnership,
association, limited liability company, 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 or
Schedules, such reference shall be to a Section of, 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.
20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania except to the
extent that federal law is controlling.
21. COMMUNICATIONS. All notices, claims, requests, demands, consents and other
communications which are required or permitted to be given hereunder shall
be in writing and shall be deemed to have been duly given if hand
delivered, sent by recognized overnight delivery service, sent by certified
or registered mail, postage prepaid, return receipt requested, or by
confirmed telecopy as follows:
(a) If to Sun or Sun Acquisition, to:
Robert J. McCormack
President and Chief Executive Officer
SUN BANCORP, INC.
155 North 15th Street
Lewisburg, PA 17837
or to such other person or place as shall be designated to Steelton in
writing, and with a copy to:
43
Sun's counsel:
Nicholas Bybel, Jr., Esquire
SHUMAKER WILLIAMS, P.C.
3425 Simpson Ferry Road
Camp Hill, Pennsylvania 17011
(b) If to Steelton or Mechanics, to:
Harold E. Stremmel
President and Chief Executive Officer
STEELTON BANCORP, INC.
51 South Front Street
P.O. Box 7614
Steelton, PA 17113
or to such other person or place as shall be designated to Sun in
writing, and with a copy to:
Steelton's counsel:
Richard Fisch, Esquire
MALIZIA, SPIDI & FISCH
1100 New York Avenue NW, Suite 340W
Washington, DC 20005
Any such notice or other communication so addressed shall be deemed to have
been received by the addressee (i) if hand-delivered or sent by overnight
delivery, on the next business day following the date so delivered or sent,
(ii) if sent by registered or certified mail, five (5) business days
following the date sent, or (iii) if sent by telecopy, upon verbal
telephone confirmation of receipt thereof by an individual authorized to
accept telecopy communications at the above-specified telecopy number as of
the date of such receipt or confirmation.
22. SUCCESSORS AND ASSIGNS. The rights and obligations of the Parties hereto
shall inure to the benefit of and shall be binding upon the successors and
assigns of each of them; provided, however, that neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by
any Party hereto without the prior written consent of the other Parties.
23. HEADINGS, ETC. The headings of the Sections and Subsections of this
Agreement have been inserted for convenience only and shall not be deemed
to be a part of this Agreement.
44
24. SEVERABILITY. In the event that any one or more provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable in
any respect, by any court of competent jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provisions of
this Agreement and the Parties shall use their best efforts to substitute a
valid, legal and enforceable provision which, insofar as practicable,
implements the purposes and intents of this Agreement.
25. NO THIRD PARTY BENEFICIARY. Except as expressly provided for herein,
including but not limited to Section 15 hereof, nothing in this Agreement
is intended to confer upon any person who is not a Party hereto any rights
or remedies of any nature whatsoever under or by reason of this Agreement.
26. COUNTERPARTS. To facilitate execution, this Agreement may be executed in as
many counterparts as may be required; and it shall not be necessary that
the signatures of, or on behalf of, each Party, or that the signatures of
all persons required to bind any Party, appear on each counterpart; but it
shall be sufficient that the signature of, or on behalf of, each Party, or
that the signatures of the persons required to bind any Party, appear on
one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of
this Agreement to produce or account for more than a number of counterparts
containing the respective signatures of, or on behalf of, all of the
Parties hereto.
27. FURTHER ASSURANCES. Each Party will execute and deliver such instruments
and take such other actions as any other Party hereto may reasonably
request in order to carry out the intent and purposes of this Agreement.
28. DISCLOSURE SCHEDULES. The inclusion of a given item in a disclosure
schedule annexed to this Agreement shall not be deemed a conclusion or
admission that such item (or any other item) is material or has a Material
Adverse Effect. Information disclosed for on section shall constitute
disclosure for other sections whether or not specifically referenced.
[Remainder of this page intentionally left blank]
45
APPENDIX B
FORM OF FAIRNESS OPINION
------------------
[FORM OF FAIRNESS OPINION]
________ __, 2003
Board of Directors
Steelton Bancorp, Inc.
Mechanics Savings Bank
51 South Front Street
Steelton, PA 17113
Dear Board Member:
You have requested our written opinion, as an independent financial advisor to
Steelton Bancorp, Inc. and Mechanics Savings Bank (the two entities collectively
referred to as "SELO") as to the fairness, from a financial point of view to
SELO shareholders, of the cash consideration to be paid for the shares as
proposed in the Agreement and Plan of Reorganization dated December 20, 2002
(the "Agreement"), pursuant to which Sun Bancorp, Inc. and Sun Bank (the two
entities collectively referred to as "Sun") will acquire SELO.
Pursuant to the Agreement and discussions with management, all shares of SELO
common stock will be acquired for cash by Sun. The cash consideration will be
$22.04 per share of SELO common stock. The merger may be taxable to SELO
shareholders.
In general, FinPro, Inc. ("FinPro") provides investment banking services to the
bank and thrift industry, including appraisals and valuations of bank and thrift
institutions and their securities in connection with mergers, acquisitions and
other securities transactions. FinPro has knowledge of and experience with the
Pennsylvania bank and thrift market and financial institutions operating in this
market. SELO's Board chose FinPro because of its expertise, experience and
familiarity with the bank and thrift industry.
SELO retained FinPro to act as an independent financial advisor, to render
general advisory services and also to specifically advise the Board of Directors
of SELO in connection with its merger and acquisition activities. Pursuant to
its engagement, FinPro will be paid a fee for rendering its fairness opinions
relating to the merger. SELO will pay FinPro a fee equal to 1.25% of the
Aggregate Purchase Price, as defined in the engagement letter, or approximately
$90,000 for rendering its fairness opinion and for its financial advisory
assistance. A portion of FinPro's fee is contingent upon the consummation of the
proposed acquisition.
Prior to being retained as SELO's financial advisor for this transaction, FinPro
has provided consulting and financial advisory services to SELO including
strategic planning, financial advisory and appraisal services.
In connection with its opinion, FinPro reviewed and considered, among other
things:
(i) the Agreement and the exhibits thereto;
(ii) changes in the market for bank and thrift stocks;
(iii) the performance of SELO's common stock;
(iv) trends and changes in the financial condition of SELO and Sun;
(v) the most recent annual report to shareholders of SELO and Sun;
(vi) quarterly reports on Form 10-Q of SELO and Sun;
- --------------------------------------------------------------------------------
Fairness Opinion at __________, 2003 Page 2
- --------------------------------------------------------------------------------
(vii) quarterly regulatory reports of SELO and Sun;
(viii) the most recent audit letter to SELO and Sun; and (ix) recent regulatory
exam reports of SELO and Sun.
We also had discussions with the management of SELO and Sun regarding their
respective financial results and have analyzed the most current financial data
available for SELO and Sun. In addition, we considered financial studies,
analyses and investigations and economic and market information that we deemed
relevant.
We considered certain financial data of SELO and compared that data to other
thrift institutions and their holding companies that were recently merged or
acquired. Furthermore, we considered the financial terms of these business
combinations involving these thrift institutions and their holding companies.
FinPro did not independently verify the financial data provided by or on behalf
of SELO and Sun, but instead relied upon and assumed the accuracy and
completeness of the data provided.
In reaching our opinion, we took into consideration the financial benefits of
the proposed transaction to SELO shareholders. Based on all factors deemed
relevant and assuming the accuracy and completeness of the information and data
provided by SELO and Sun, it is FinPro's opinion as of this date, that the cash
consideration is fair from the financial point of view of SELO shareholders.
Respectfully Submitted,
/s/Finpro, Inc.
---------------
FinPro, Inc.
Liberty Corner, New Jersey
- --------------------------------------------------------------------------------
APPENDIX C
DISSENTER'S RIGHTS
Pennsylvania Business Corporation Law of 1988, as Amended,
Provisions For Dissenting Stockholders
Subchapter D.--Dissenters Rights.
(ss.) 1571. Application and effect of subchapter.
(a) General rule.--Except as otherwise provided in subsection (b), any
stockholder (as defined in Section 1572 (relating to definitions 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, only where this part expressly provides that a
stockholder shall have the rights and remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of
election).
Section 2904(b) (relating to procedure).
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 shall not have the
right to dissent and obtain payment of the fair value of the shares under this
subchapter if, on the record date fixed to determine the stockholders 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, or on the first
public announcement that such a plan has been approved by the stockholders by
consent without a meeting, the shares are either:
(i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc.; or
(ii) held beneficially or of record by more than 2,000 persons.
(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) (Repealed).
(ii) Shares of any preferred or special class or series unless the
articles, the plan or the terms of the transaction entitle all stockholders 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 stockholders of the class or series.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The stockholders 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 stockholders 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 stockholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such stockholder 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 stockholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
stockholders 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) Computation of beneficial ownership. For purposes of subsection
(b)(1)(ii), shares that are held beneficially as joint tenants, tenants by the
entireties, tenants in common on in trust by two or more persons, as fiduciaries
or otherwise, shall be deemed to be held beneficially by one person.
(h) Cross references.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished),
1763(c) (relating to determination of stockholders of record) and 2512 (relating
to dissenters rights procedure).
(ss.) 1572. Definitions.
The following words and phrases when used in this subchapter shall have
the meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The designated successor corporation or corporations 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 stockholder 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 the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
"Stockholder." A stockholder as defined in Section 1103 (relating to
definitions), or an ultimate beneficial owner of shares, including without
limitation, a holder of depository receipts, where the beneficial interest owned
includes an interest in the assets of the corporation upon dissolution.
(ss.) 1573. Record and beneficial holders and owners.
(a) Record holders of shares.--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different stockholders.
(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 stockholder under the terms of this subchapter if he
submits to the corporation not later than the time of the assertion of
dissenters rights a written consent of the record holder. A beneficial owner may
not dissent with respect to some but less than all shares of the same class or
series owned by the owner, whether or not the shares so owned by him are
registered in his name.
(ss.) 1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a meeting of
stockholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
(ss.) 1575. Notice to demand payment.
(a) General rule.--If the proposed corporate action is approved by the
required vote at a meeting of stockholders 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 stockholders, the corporation shall send to all
stockholders 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 stockholder, or the person on
whose behalf the stockholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set for receipt
of the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
(ss.) 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of stockholder to act.--A stockholder who fails
to timely demand payment, or fails (in the case of certificated shares) to
timely deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by stockholder.--The dissenter shall retain all
other rights of a stockholder until those rights are modified by effectuation of
the proposed corporate action.
(ss.) 1577. Release of restrictions or payment for shares.
(a) Failure to effectuate corporate action.--Within 60 days after the
date set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment.--When uncertificated shares
have been released from transfer restrictions and deposited certificates have
been returned, the corporation may at any later time send a new notice
conforming to the requirements of section 1575 (relating to notice to demand
payment), with like effect.
(c) Payment of fair value of shares.--Promptly after effectuation of
the proposed corporation action, or upon timely receipt of demand for payment if
the corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more than
16 months before the date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment.--If the corporation does not remit the
amount of its estimate of the fair value of the shares as provided by subsection
(c), it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenters had
after making demand for payment of their fair value.
(ss.) 1578. Estimate by dissenter of fair value of shares.
(a) General rule.--If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) Effect of failure to file estimate.--Where the dissenter does not
file his own estimate under subsection (a) within 30 days after the mailing by
the corporation of its remittance or notice, the dissenter shall be entitled to
no more than the amount stated in the notice or remitted to him by the
corporation.
(ss.) 1579. Valuation proceedings generally.
(a) General rule.--Within 60 days after the latest of:
(1) Effectuation of the proposed corporate action;
(2) Timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) Timely receipt of any estimates pursuant to section 1578 (relating
to estimate by dissenter of fair value of shares);
If any demands for payment remain unsettled, the business corporation
may file in court an application for relief requesting that the fair value of
the shares be determined by the court.
(b) Mandatory joinder of dissenters.--All dissenters, wherever
residing, whose demands have not been settled shall be made parties to the
proceeding as in an action against their shares. A copy of the application shall
be served on each such dissenter. If a dissenter is a nonresident, the copy may
be served on him in the manner provided or prescribed by or pursuant to 42
Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each
dissenter entitled to file an application shall be paid the corporation's
estimate of the fair value of the shares and no more, and may bring an action to
recover any amount not previously remitted.
(ss.) 1580. Costs and expenses of valuation proceedings.
(a) General rule.-- The costs and expenses of any proceeding under
section 1579 (relating to valuation proceedings generally), including the
reasonable compensation and expenses of the appraiser appointed by the court,
shall be determined by the court and assessed against the business corporation
except that any part of the costs and expenses may be apportioned and assessed
as the court deems appropriate against all or some of the dissenters who are
parties and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears.--Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefitted.
(ss.) 1930. Dissenters rights.
(a) General rule.--If any stockholder 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 stockholder shall be entitled to the rights and remedies
of dissenting stockholders therein provided, if any. See also section 1906(c)
(relating to dissenters rights upon special treatment).
(b) Plans adopted by directors only.--Except as otherwise provided
pursuant to section 1571(c) (relating to grant of optional dissenters rights),
Subchapter D of Chapter 15 shall not apply to any of the shares of a corporation
that is a party to a merger or consolidation pursuant to section 1924(b)(1)(i)
(relating to adoption by board of directors).
(c) Cross references.--See sections 1571(b) (relating to exceptions)
and 1904 (relating to de facto transaction doctrine abolished).
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Steelton Bancorp, Inc.
51 South Front Street
Steelton, Pennsylvania 17113
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SPECIAL MEETING OF STOCKHOLDERS
_______ __, 2003
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The undersigned hereby appoints the Board of Directors of Steelton
Bancorp, Inc. (the "Company"), or its designee, with full powers of
substitution, to act as attorneys and proxies for the undersigned, to vote all
shares of Common Stock of the Company which the undersigned is entitled to vote
at the special meeting of stockholders to be held in the Company's headquarters
located at 51 South Front Street, Steelton, Pennsylvania 17113 on ________,
_______ __, 2003, at __:____ _.m., Eastern Time (the "Meeting"), and at any and
all adjournments thereof, in the following manner:
FOR AGAINST ABSTAIN
--- ------- -------
1. The approval of the Agreement and Plan
of Reorganization, dated December 20, 2002, by [ ] [ ] [ ]
and among Sun Bancorp, Inc., Sun Bank, Sun
Acquisition Corporation, Steelton Bancorp, Inc.
and Mechanics Savings Bank.
The Board of Directors recommends a vote "FOR" the above listed
proposition.
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THIS SIGNED PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS SIGNED PROXY WILL BE VOTED FOR THE ABOVE PROPOSITION. IF ANY
OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS SIGNED PROXY WILL BE VOTED BY
THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD
OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting, or
at any adjournments thereof, and after notification to the Secretary of the
Company at the Meeting of the Stockholder's decision to terminate this Proxy,
the power of said attorneys and proxies shall be deemed terminated and of no
further force and effect. The undersigned may also revoke this Proxy by filing a
subsequently dated Proxy or by written notification to the Secretary of the
Company of his or her decision to terminate this Proxy.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Special Meeting of Stockholders and a
Proxy Statement dated ___________ __, 2003.
Please check the box if you are planning to attend the Meeting. |_|
Dated: , 2003
---------------------
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PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- --------------------------------- ----------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this Proxy. When signing as
attorney, executor, administrator, trustee, or guardian, please give your full
title. If shares are held jointly, each holder should sign.
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PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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