Filed Pursuant to
Rule 424(b)(3)
Registration No. 333-81543
THE FIRST NATIONAL BANK OF SPANGLER
1808 Bigler Avenue, P. O. Box 579
Spangler, Pennsylvania 15775
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held August 17, 1999
Notice is hereby given that a Special Meeting of the Shareholders of The
First National Bank of Spangler ("Spangler") will be held at the office of
Spangler, 1808 Bigler Avenue, Spangler, Pennsylvania on August 17, 1999 at 11:00
a.m. local time, for the following purposes:
(1) To consider and vote upon an Agreement and Plan of Merger dated as
of April 27, 1999 providing for the merger of Spangler with and into County
National Bank, a wholly-owned subsidiary of CNB Financial Corporation, and for
the exchange of 95 shares of CNB Financial Corporation common stock for each
outstanding share of Spangler common stock. A copy of the Agreement and Plan
of Merger is attached to the accompanying Prospectus/Proxy Statement; and
(2) To transact such other business as may properly come before the
meeting.
The Board of Directors has established the close of business on July 14,
1999 as the record date for the determination of shareholders entitled to notice
of and to vote at the Special Meeting or any adjournments or postponements
thereof.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING
REGARDLESS OF THE NUMBER OF SHARES THAT YOU HOLD. PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. YOUR PROXY CAN BE WITHDRAWN BY
YOU AT ANY TIME BEFORE IT IS VOTED BY NOTICE TO THE SECRETARY OF SPANGLER, OR BY
APPEARING AT THE MEETING AND VOTING IN PERSON.
By Order of the Board of Directors,
ALLAN J. KIRSCH
Cashier
July 15, 1999
YOUR ATTENTION IS DIRECTED TO THE PROSPECTUS/PROXY STATEMENT ACCOMPANYING
THIS NOTICE OF SPECIAL MEETING OF SHAREHOLDERS.
SPANGLER'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF SPANGLER VOTE TO APPROVE THE MERGER AGREEMENT. FAILURE TO VOTE
IS EQUIVALENT TO VOTING AGAINST THE MERGER AGREEMENT.
PROSPECTUS
237,500 Shares of Common Stock
CNB Financial Corporation
____________________________
PROXY STATEMENT
for Special Meeting of The First National
Bank of Spangler Stockholders
to be held August 17, 1999
This Prospectus/Proxy Statement relates to the consideration of the Agreement
and Plan of Merger dated as of April 27, 1999 between CNB Financial Corporation,
a Pennsylvania corporation ("CNB"), and County National Bank, a national banking
association and a wholly-owned subsidiary of CNB ("County"), and The First
National Bank of Spangler, a national banking association ("Spangler"), which
appears later in this Prospectus/Proxy Statement as Appendix A. The merger
agreement provides for the merger of Spangler into County and the issuance of
shares of CNB Common Stock, $1.00 par value per share, to the stockholders of
Spangler upon the consummation of the merger. This Prospectus/Proxy Statement is
first being mailed to the stockholders of Spangler on or about July 15, 1999.
This Prospectus/Proxy Statement is a prospectus of CNB relating to its
offering of shares of CNB Common Stock to the Spangler stockholders. If the
merger agreement is approved by the requisite vote of Spangler stockholders, and
if, following the satisfaction of certain other conditions, the merger is
consummated, each issued and outstanding share of Spangler Common Stock, $20.00
par value per share, other than shares held by Spangler stockholders who
exercise their rights as dissenters, will be converted into the right to receive
95 shares of CNB Common Stock, on the terms and subject to the limitations
described herein and in the merger agreement. See "THE MERGER" at page 23.
This Prospectus/Proxy Statement is being furnished to the stockholders of
Spangler in connection with the solicitation of proxies by the Board of
Directors of Spangler for use at a special meeting of stockholders of Spangler
to be held at 11:00 a.m., local time, on August 17, 1999, at the office of
Spangler, 1808 Bigler Avenue, Spangler, Pennsylvania, and at any adjournment or
postponement thereof.
Based on (i) 2,500 shares of Spangler Common Stock outstanding on
July 14, 1999, (ii) an exchange ratio of 95 shares of CNB Common Stock for
each share of Spangler Common Stock, and (iii) the existence of no dissenting
Spangler stockholders, a maximum of 237,500 shares of CNB Common Stock will be
issued as a result of the merger, which represent approximately 6.48% percent of
the maximum number of shares of CNB Common Stock that would be outstanding
immediately after the merger.
____________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
____________________________
The date of this Prospectus/Proxy Statement is July 14, 1999.
This Prospectus/Proxy Statement incorporates important business and financial
information about CNB and County that is not included in or delivered with this
Prospectus/Proxy Statement. Such information is available without charge to the
Spangler stockholders upon written or oral request directed to CNB Financial
Corporation, 1 South Second Street, Clearfield, PA 16830 (telephone (814) 765-
9621), attention: Treasurer. To obtain timely delivery of such information in
advance of the meeting of the Spangler stockholders, any such request should be
made prior to August 10, 1999.
______________________________
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION..................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 5
SUMMARY................................................................... 6
The Parties.............................................................. 6
Recent Developments...................................................... 7
CNB Selected Financial Data.............................................. 7
The Spangler Stockholders Meeting........................................ 8
Vote Required............................................................ 8
The Merger............................................................... 9
Management and Operations After the Merger............................... 14
Stock Prices and Dividends............................................... 14
Federal Income Tax Consequences.......................................... 15
Resale of CNB Common Stock............................................... 15
Dissenters' Appraisal Rights............................................. 15
Comparison of Stockholder Rights......................................... 16
THE SPANGLER STOCKHOLDERS MEETING......................................... 16
Purpose of Meeting....................................................... 16
Date and Time of Meeting................................................. 16
Voting................................................................... 16
Certain Stockholders of Spangler......................................... 17
CNB FINANCIAL CORPORATION................................................. 18
Business................................................................. 18
Competition.............................................................. 19
Supervision and Regulation............................................... 19
Monetary Policies........................................................ 23
Property................................................................. 23
Employees................................................................ 23
Legal Proceedings........................................................ 23
THE MERGER................................................................ 23
General.................................................................. 23
Merger Consideration..................................................... 24
Background of the Merger................................................. 24
Spangler Board's Reasons for the Merger.................................. 25
2
Opinion of Spangler Financial Advisor.................................... 26
CNB Board's Reasons for the Merger....................................... 28
Recommendation of the Spangler Board..................................... 29
Effective Time; Closing Date............................................. 29
Exchange of Certificates by Spangler Stockholders........................ 29
Dividends................................................................ 30
Conduct of Spangler Business............................................. 30
Regulatory Approval...................................................... 31
Conditions to Effecting the Merger....................................... 32
Termination.............................................................. 33
Waiver and Amendment..................................................... 33
Expenses................................................................. 34
Accounting Treatment..................................................... 34
Interest of Certain Persons in the Merger................................ 34
MANAGEMENT AND OPERATIONS OF CNB AFTER THE MERGER......................... 35
Directors and Executive Officers......................................... 35
Operations After the Merger.............................................. 35
STOCK PRICES AND DIVIDENDS................................................ 35
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER............................. 36
RESALE OF CNB COMMON STOCK................................................ 37
DISSENTERS' APPRAISAL RIGHTS.............................................. 37
Valuation of Shares...................................................... 38
DESCRIPTION OF CNB COMMON STOCK........................................... 39
COMPARISON OF RIGHTS OF SPANGLER STOCKHOLDERS
AND CNB STOCKHOLDERS..................................................... 39
General.................................................................. 40
Preemptive Rights........................................................ 40
Election of Directors.................................................... 40
Amendment of Charter..................................................... 40
Amendment of Bylaws...................................................... 41
Mergers and Other Fundamental Transactions............................... 41
Dividends................................................................ 41
Dissenters' Appraisal Rights............................................. 41
Stockholder Action Without a Meeting..................................... 42
Meetings of Stockholders................................................. 42
Derivative Suits......................................................... 42
Fiduciary Duty, Liability and Indemnification of Directors and Officers.. 42
Statutory Antitakeover Provisions........................................ 44
EXPERTS................................................................... 45
LEGAL MATTERS............................................................. 45
INDEX TO SPANGLER FINANCIAL INFORMATION................................... 46
APPENDIX A - Agreement and Plan of Merger................................. A-1
APPENDIX B - Opinion of Danielson Associates Inc.......................... B-1
APPENDIX C - Statutory Dissenters' Appraisal Rights....................... C-1
3
AVAILABLE INFORMATION
CNB is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange
Act"), and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information filed by CNB can be inspected
and copied at Room 1024 of the Commission's office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's Regional Offices in New York (7
World Trade Center, 13/th/ Floor, New York, New York 10048) and Chicago
(Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661),
and the public may read and copy such materials at the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public
may obtain information on the operation of the Public Reference Room by calling
the Commission at 1-800-SEC-0330. The Commission maintains an Internet web site
that contains reports, proxy and information statements and other information
regarding issuers who file electronically with the Commission. The address of
that site is http://www.sec.gov.
CNB has filed with the Commission a Registration Statement on Form S-4
(together with any amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the CNB Common Stock issuable in connection with the Merger.
This Prospectus/Proxy Statement does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information about CNB and the CNB Common Stock, reference is made to the
Registration Statement. The Registration Statement, including the exhibits
filed or incorporated by reference as a part thereof, may be inspected without
charge at the public reference facilities of the Commission at 450 Fifth Street,
N. W., Washington, D.C. 20549, and copies may be obtained from the Commission at
prescribed rates. Although CNB and Spangler believe the statements or summaries
contained in this Prospectus/Proxy Statement or in any document incorporated by
reference herein as to the contents of any contract or other document referred
to herein or therein contain a description of the material provisions of such
contract or other document, these statements or summaries are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED BY THIS PROSPECTUS/PROXY STATEMENT, NOR THE SOLICITATION OF A PROXY, IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR THE DISTRIBUTION OF ANY OF
THE SECURITIES COVERED HEREBY AT ANY TIME SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CNB OR SPANGLER
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS/PROXY STATEMENT.
All information contained in this Prospectus/Proxy Statement with respect to
CNB and County and their respective directors and officers has been supplied by
CNB, and all information with respect to Spangler and its directors and officers
has been supplied by Spangler.
4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus/Proxy Statement incorporates important business and financial
information about CNB that is not included in or delivered with this
Prospectus/Proxy Statement.
The following documents, filed by CNB with the Commission, are incorporated in
this Prospectus/Proxy Statement by reference: (i) Annual Report on Form 10-K
for the year ended December 31, 1998; (ii) Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999; (iii) two Current Reports on Form 8-K, both dated
May 10, 1999.
All reports and definitive proxy or information statements filed by CNB
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent
to the date of this Prospectus/Proxy Statement and prior to the date of the
special meeting of Spangler stockholders shall be deemed to be incorporated by
reference into this Prospectus/Proxy Statement from the dates of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated in this Prospectus/Proxy Statement shall be deemed to be modified
or superseded for purposes of this Prospectus/Proxy Statement to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference modifies or supersedes such
statement.
Copies of CNB's documents incorporated by reference (excluding exhibits
unless such exhibits are specifically incorporated by reference into the
information incorporated herein) that are not presented herein or delivered
herewith will be provided by first class mail without charge to each person,
including any beneficial owner, to whom a Prospectus/Proxy Statement is
delivered, upon oral or written request. Requests for such documents should be
directed to CNB Financial Corporation, 1 South Second Street, Clearfield, PA
16830 (telephone (814) 765-9621), attention: Treasurer. In order to ensure
timely delivery of the documents in advance of the Spangler stockholders'
meeting, any such request should be made prior to August 10, 1999.
5
SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus/Proxy Statement. This summary does not purport to be complete and is
qualified in its entirety by the more detailed information appearing elsewhere
in this Prospectus/Proxy Statement. You are urged to read carefully
the entire Prospectus/Proxy Statement including the Appendices.
Certain information and statements contained in this Prospectus/Proxy
Statement are "forward looking statements," such as statements relating to
future financial results, plans for future business development activities,
capital spending or financing services, capital structure and the effects of
regulation and competition, and are thus prospective. Potential risks and
uncertainties include, but are not limited to, the interest rate environment,
the effect of federal and state banking and tax regulations, the effect of
economic conditions, the impact of competitive products and pricing, and other
risks described herein and as detailed from time to time in CNB's filings with
the Commission.
The Parties
CNB. CNB is a bank holding company registered under the federal Bank
Holding Company Act of 1956, as amended. It was incorporated in the Commonwealth
of Pennsylvania in 1983. CNB's principal executive offices are located at 1
South Second Street, Clearfield, Pennsylvania 16830, and its telephone number is
(814) 765-9621.
CNB owns all of the issued and outstanding capital stock of County, a
national banking association formed in 1934 under the national bank act with its
main office located in Clearfield, Pennsylvania. County is engaged in commercial
and retail banking and offers a broad range of lending, leasing, depository and
related financial services including accepting deposits; commercial and
industrial, consumer and real estate lending; trust services; safe deposit box
operations; and other banking services tailored for individual, commercial and
industrial, and governmental customers. At June 30, 1999, County had
approximately 194 full time equivalent employees operating in 16 offices located
in western Pennsylvania.
As of March 31, 1999, CNB had total consolidated assets of approximately
$458 million and its ratio of total risk-based capital to risk-weighted assets
was 12.53%. CNB's fiscal year ends December 31.
See "CNB FINANCIAL CORPORATION" at page 18.
Spangler. Spangler is a national banking association which was formed in 1904
under the national bank act. Spangler's executive offices and banking
activities are located at 1808 Bigler Avenue, Spangler, Pennsylvania 15775, and
its telephone number is (814) 948-6410. Spangler has no branch offices.
Spangler has nine full time equivalent employees. Spangler offers a full
range of banking services including checking accounts, savings accounts, time
deposit accounts, commercial, mortgage and installment loans, money order
services, safe deposit boxes and other incidental banking services normally
offered by commercial banks.
As of March 31, 1999, Spangler had total assets of approximately $33 million
and its ratio of total risk-based capital to net risk-weighted assets was
31.02%. Spangler's fiscal year ends December 31.
Recent Developments
On May 4, 1999, County and PNC Bank, N.A. entered into a definitive agreement
for County to purchase four PNC Bank branch banks located in Northwest
Pennsylvania for a purchase price of $9.6 million. Through this acquisition,
County will acquire approximately $113 million in deposits, approximately $27
million in consumer and small business loans, and related fixed assets, leases
and safe deposit business. PNC Bank will retain the large corporate, brokerage,
trust, merchant services and mortgage customers of those branches. The
transaction is subject to regulatory approval and is expected to close by
September 30, 1999.
6
The selected consolidated financial data below should be read in conjunction
with CNB's Consolidated Financial Statements and notes thereto. The selected
consolidated financial data of CNB for the five years ended December 31, 1998
have been derived from the audited Consolidated Financial Statements of CNB
which are included in its Annual Report on Form 10-K and incorporated herein by
reference.
CNB Financial Corporation
Selected Financial Data
(dollars in thousands, except per share data)
Year Ended December 31,
Three Months Ended ------------------------------------------------
March 31, 1999 1998 1997 1996 1995 1994
-------------- ---- ---- ---- ---- ----
(unaudited)
Interest income
Loans including fees $ 6,186 $ 23,466 $ 21,512 $ 18,231 $ 16,849 $ 14,813
Deposits with banks 3 12 1 - 1 91
Federal funds sold 121 262 209 87 81 43
Investment securities:
U.S. treasury securities 138 755 886 854 747 729
Securities of U.S. government agencies and corporations 536 2,502 1,662 1,755 1,480 1,060
Obligations of states and political subdivisions 473 1,410 1,302 1,294 1,222 1,238
Other securities 258 693 633 837 1,038 1,194
-------- -------- -------- -------- -------- --------
Total interest income $ 7,715 29,100 26,205 23,058 21,418 19,168
Interest expense
Deposits 3,425 12,562 11,392 9,421 8,946 6,986
Other borrowings 271 934 430 376 277 239
-------- -------- -------- -------- -------- --------
Total interest expense 3,696 13,496 11,822 9,797 9,223 7,225
Net interest income 4,019 15,604 14,383 13,261 12,195 11,943
Provision for loan losses 150 675 900 600 380 525
-------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses 3,869 14,929 13,483 12,661 11,815 11,418
Other income 685 3,027 2,686 1,875 1,943 1,510
Other expenses 3,335 11,527 10,422 8,960 8,768 8,082
-------- -------- -------- -------- -------- --------
Income before taxes and cumulative effect adjustment 1,219 6,429 5,747 5,576 4,990 4,846
Applicable income taxes 230 1,682 1,445 1,450 1,173 1,137
-------- -------- -------- -------- -------- --------
Income before cumulative effect adjustment 989 4,747 4,302 4,126 3,817 3,709
Cumulative effect adjustment - - - 156 - -
-------- -------- -------- -------- -------- --------
Net income $ 989 $ 4,747 $ 4,302 $ 4,282 $ 3,817 $ 3,709
======== ======== ======== ======== ======== ========
Per share data
Income before cumulative effect adjustment $ 0.29 $ 1.38 $ 1.25 $ 1.20 $ 1.11 $ 1.08
Cumulative effect adjustment $ - $ - $ - $ 0.05 $ - $ -
Net income $ 0.29 $ 1.38 $ 1.25 $ 1.25 $ 1.11 $ 1.08
Dividends declared $ 0.20 $ 0.72 $ 0.68 $ 0.62 $ 0.58 $ 0.54
Book value per share at year end 12.90 $ 13.00 $ 12.25 $ 11.53 $ 10.90 $ 10.02
At end of period
Total assets $458,104 $436,852 $372,867 $327,008 $297,523 $269,698
Investment securities 116,131 107,803 77,032 78,696 75,928 71,314
7
Loans, net of unearned discount 299,132 288,389 263,902 223,103 200,038 181,789
Allowance for loan losses 3,268 3,100 2,849 2,473 2,145 2,033
Deposits 386,829 370,814 319,473 270,056 255,787 230,641
Shareholders' equity 44,199 44,781 42,208 39,716 37,543 34,515
Key ratios
Return on average assets 0.89% 1.20% 1.23% 1.40% 1.36% 1.39%
Return on average equity 9.15% 10.87% 10.57% 11.73% 10.58% 11.07%
Loan to deposit ratio 77.33% 77.77% 82.02% 81.70% 77.36% 77.94%
Dividend payout ratio 68.97% 52.26% 54.46% 49.88% 52.36% 50.18%
Average equity to average assets ratio 9.62% 11.08% 11.64% 12.59% 12.86% 12.43%
The Spangler Stockholders Meeting
A special meeting of the stockholders of Spangler will be held on
August 17, 1999 at 11:00 a.m., local time, at the office of Spangler, 1808
Bigler Avenue, Spangler, Pennsylvania, for the purpose of voting on a proposal
that the merger agreement be ratified and confirmed. The stockholders will also
be asked to approve a proposal to adjourn the meeting if necessary to permit
further solicitation of proxies if there are not sufficient votes at the time of
the meeting to ratify and confirm the merger Agreement. Only holders of record
of Spangler Common Stock at the close of business on July 14, 1999 are entitled
to notice of and to vote at the meeting. See "THE SPANGLER STOCKHOLDERS MEETING"
at page 16.
Vote Required
To ratify and confirm the merger agreement, stockholders of Spangler owning at
least two-thirds of the outstanding shares of Spangler Common Stock must vote in
favor of it. On July 14, 1999, there were 2,500 shares of Spangler Common
Stock outstanding, of which 37.4% was beneficially owned by the directors and
officers of Spangler. Neither CNB or County nor any of their directors or
officers beneficially own any shares of Spangler Common Stock.
Stockholders who submit a proxy may revoke it at any time before it is voted
by filing with the Secretary of Spangler an instrument revoking the proxy or by
submitting a new, duly executed proxy, or by attending the meeting and voting in
person. Attendance at the meeting will not by itself revoke the proxy.
The directors and officers of Spangler beneficially own a total of 936 shares
of Spangler Common Stock and have agreed to vote in favor of the merger
agreement all of the 298 shares for which they have sole voting power. They have
also agreed to use their best efforts to have voted in favor of the merger
agreement the remaining 638 shares for which they have shared voting power.
The Board of Directors of Spangler has approved the merger agreement and
recommends that the stockholders of Spangler vote in favor of it too. The
respective Boards of Directors of CNB and County have approved the merger
agreement. The merger agreement need not and will not be submitted to the
stockholders of CNB for their approval.
8
The Merger
The following includes a brief summary of certain provisions of the merger
agreement, which appears later in this document as Appendix A and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the merger agreement.
General. Pursuant to the merger agreement, Spangler will be merged with and
into County, with County being the surviving entity. Unless the merger
agreement has been terminated as provided below, the merger will become
effective upon the close of business on the day selected by CNB and Spangler and
approved by the Office of the Comptroller of the Currency (the "OCC") or, in the
absence of such agreement, on the first business day after the last to occur of:
(i) the receipt of all approvals and consents of government regulatory
authorities as legally required to consummate the merger and the expiration of
all statutory waiting periods and (ii) the ratification and confirmation of the
merger agreement by the Spangler stockholders (the "Effective Time"). It is
presently contemplated that the Effective Time will be as soon as practicable
following the fulfillment or waiver of each of the conditions to the merger.
Merger Consideration. Subject to the terms and conditions set forth in the
merger agreement, each share of Spangler Common Stock issued and outstanding
immediately prior to the merger (except shares held by Spangler stockholders who
have perfected their dissenters' appraisal rights) will be converted into the
right to receive 95 shares of CNB Common Stock, subject to appropriate
adjustment in the event of any split, combination, stock dividend or similar
event with respect to shares of CNB Common Stock effected by CNB prior to the
Effective Time.
Example: If you own 10 shares of Spangler Common Stock and you do not exercise
your dissenter's appraisal rights, then after the merger you will be entitled to
receive 950 shares of CNB Common Stock (subject to any adjustment referred to
in the preceding paragraph).
No fractional shares will be issued by CNB, and CNB will pay cash for any
fractional shares resulting from the merger in an amount equal to the product of
the fraction of one share of CNB Common Stock multiplied by the "Measurement
Price," which is defined as the trading price of one share of CNB Common Stock
as measured by the average of the bid and asked prices for the 20 trading days
(i.e., days on which such stock is actually traded) ended on the date that is
ten business days prior to the merger.
Based solely on the closing price of the CNB Common Stock on the Nasdaq
National Market on July 13, 1999 of $30.00, the market value of the merger
consideration to be received by Spangler stockholders would be $2,850.00 per
share of Spangler Common Stock.
Spangler Board's Reasons for the Merger. In its deliberations with respect
to the proposed merger, the Spangler Board, with the assistance of Danielson
Associates Inc. ("Danielson"), its financial advisory, considered a variety of
factors, including the following: (i) The financial terms of the merger,
including the value of the consideration offered, its relationship to book
value, the prices paid in comparable transactions, relative earnings per share,
historical dividend payments and stockholders' equity of CNB and Spangler, and
the ability to continue to pay semi-annual dividends to Spangler's stockholders
pending the consummation of the merger. The Spangler Board also considered the
fact that CNB Common Stock is more widely held than the Spangler Common Stock
and more actively traded than the Spangler Common Stock because of the larger
number of shares, lower per share trading price and listing on the Nasdaq
National Market; (ii) The future prospects of Spangler and possible
alternatives to the proposed merger, including the prospects of continuing as an
independent institution. The Spangler Board considered the timing of the offer
and the prospects for receiving a better financial offer from another
institution. The Spangler Board was concerned that Spangler's market area was
not likely to engender a great deal of interest by financial institutions trying
to enter the market area as evidenced by certain attempted sales of bank
branches by institutions desiring to withdraw from Spangler's market area; (iii)
The opinion of Danielson that the terms of the merger as provided in the merger
agreement are fair, from a financial point of view, to Spangler's stockholders;
(iv) Information with respect to the financial condition, results of
9
operations, business and prospects of Spangler and the current industry,
economic, and market conditions, as well as the risks associated with achieving
those prospects; (v) The fact that the merger is intended to qualify as a
tax-free reorganization to Spangler's stockholders; (vi) The business and
financial condition and earnings prospects of CNB, the potential growth in CNB
Common Stock, the competence, experience, and integrity of CNB and its
management; and (vii) The likelihood of the proposed merger being approved by
appropriate regulatory authorities.
Each of the above factors support, directly or indirectly, the determination
of the Spangler Board to approve and recommend the proposed merger. The
Spangler Board did not quantify or attempt to assign relative weights to the
specific factors considered in reaching its determination. The Spangler Board
placed special emphasis, however, on the consideration payable in the proposed
merger and the receipt of a favorable fairness opinion from Danielson.
Opinion of Spangler's Financial Advisor. Spangler retained Danielson to
advise the Spangler Board as to its "fair" sale value and the fairness to its
stockholders of the financial terms of the offer to acquire Spangler. Danielson
was selected by Spangler because of its knowledge of, expertise with, and
reputation in the financial services industry. In such capacity, Danielson
reviewed the merger agreement with respect to the pricing and other terms and
conditions of the merger, but the decision as to accepting the offer was
ultimately made by the Spangler Board.
Danielson rendered its oral opinion to the Spangler Board, which it
subsequently confirmed in writing, that as of the date of such opinion, the
financial terms of the CNB offer were "fair" to Spangler and its stockholders.
In arriving at its opinion, Danielson (i) reviewed certain business and
financial information relating to Spangler and CNB, including annual reports for
the fiscal year ended December 31, 1998 and call report data from 1990 to 1998
and quarterly reports for 1998; (ii) discussed the past and current operations,
financial condition and prospects of Spangler with its senior executives; (iii)
analyzed the pro forma impact of the merger on CNB's earnings per share,
capitalization, and financial ratios; (iv) reviewed the reported prices and
trading activity for the CNB Common Stock and compared it to similar bank
holding companies; (v) reviewed and compared the financial terms, to the extent
publicly available, with comparable transactions; (vi) reviewed the merger
agreement and certain related documents; and (vii) considered such other factors
as were deemed appropriate.
In arriving at its opinion, Danielson performed a variety of financial
analyses, including pro forma merger analysis, comparable companies, and
comparable transaction analysis. See "THE MERGER - Opinion of Spangler's
Financial Advisor" at page 26.
In its analyses, Danielson made certain assumptions with respect to industry
performance, business and economic conditions, and other matters, many of which
were beyond Spangler's or CNB's control. Any estimates contained in Danielson's
analyses are not necessarily indicative of the future results or value, which
may be significantly more or less favorable than such estimates. Estimates of
the value of companies do not purport to be appraisals or necessarily reflect
the prices at which companies or their securities may actually be sold.
The full text of the opinion of Danielson dated as of April 20, 1999, which
sets forth assumptions made and matters considered, appears later in this
Prospectus/Proxy Statement as Appendix B. You are urged to read this opinion in
its entirety. Danielson's opinion is directed only to the consideration to be
received by Spangler's stockholders in the merger and does not constitute a
recommendation to any Spangler stockholder as to how such stockholder should
vote at the meeting.
10
CNB Board's Reasons for the Merger. CNB's strategy for increasing long-term
value for CNB stockholders has been to build a banking organization primarily
focused on the western Pennsylvania banking market composed of Clearfield,
Cambria, Centre, Elk, Jefferson and McKean counties that continuously gains
efficiency, spreads costs over a growing asset base and provides innovative
products and services over a growing customer base. By acquiring Spangler, CNB
will expand its operations into Cambria County. Following the merger, CNB will
operate 17 offices in western Pennsylvania. The acquisition of Spangler is
consistent with CNB's strategy of focusing its growth primarily on this area of
Pennsylvania.
Recommendation of the Spangler Board. The Spangler Board has unanimously
approved and adopted the merger agreement and the transactions contemplated
thereby and has determined that the merger is fair to, and in the best interests
of, Spangler and its stockholders.
THE SPANGLER BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL
TO RATIFY AND CONFIRM THE MERGER AGREEMENT.
Exchange of Certificates by Spangler Stockholders. After the mailing to
Spangler stockholders of this Prospectus/Proxy Statement, CNB will mail or cause
to be mailed to the Spangler stockholders transmittal materials for use in
surrendering the stock certificates representing the shares of Spangler Common
Stock held by them (the "Spangler Certificates") and provide instructions for
the transmittal of the Spangler Certificates.
SPANGLER STOCKHOLDERS SHOULD NOT SEND IN THEIR SPANGLER CERTIFICATES UNTIL
THEY RECEIVE THE TRANSMITTAL MATERIALS FROM CNB.
Following the merger, upon the delivery by a Spangler stockholder of all
necessary transmittal materials and the Spangler Certificate and satisfactory
proof of ownership of shares not represented by certificates, there will be
mailed to such stockholder a stock certificate or certificates representing
shares of CNB Common Stock (the "CNB Certificates") and a check for the amount
representing any fractional shares of CNB Common Stock. No dividends or other
distributions declared after the Effective Time with respect to CNB Common Stock
payable to the holders of record thereof after the Effective Time will be paid
to the holder of any unsurrendered Spangler Certificate until the holder of
record shall deliver such Spangler Certificate, along with the transmittal
materials, to CNB.
Dividends. The merger agreement provides that the parties intend and expect
the stockholders of Spangler to continue to receive dividends in the ordinary
course; consequently, if in view of the scheduled Effective Time in relation to
the record dates of the dividends declared by Spangler and by CNB, the
stockholders of Spangler would otherwise be deprived of a quarterly dividend
from either Spangler or CNB, then upon the approval by CNB, which approval shall
not be unreasonably withheld, Spangler shall be entitled to declare and pay a
dividend to its stockholders in an amount based on its most recent prior
dividend paid and the amount of the CNB dividend that its stockholders were
foreclosed from receiving purely as a result of the timing of the Effective
Time.
For the third quarter of 1999, CNB has declared a cash dividend of $.20 per
share, payable September 17, 1999 to its stockholders of record on September 7,
1999. Consequently, it is expected that if the merger is consummated on or
before September 7, 1999, the Spangler stockholders who exchange their shares
for CNB Common Stock will receive that dividend and that no further dividends
will be paid on the Spangler Common Stock. See "STOCK PRICES AND DIVIDENDS" at
page 35.
Conduct of Spangler Business. Spangler has agreed in the merger agreement
that until the Effective Time it will conduct its business only in the usual and
ordinary course and in substantially the same manner as previously conducted and
will not engage in certain types of transactions. See "THE MERGER - Conduct of
Spangler Business" at page 30.
In addition, Spangler has agreed that until the Effective Time it will not
authorize or permit any officer, director, employee, investment banker,
financial consultant, attorney, accountant or other agent or representative of
Spangler, directly or indirectly, to (i) initiate contact with any person or
11
entity in an effort to solicit, initiate or encourage any "Takeover Proposal"
(defined as any proposal for a merger or other business combination involving
Spangler or for the acquisition of a substantial equity interest in Spangler, or
for the acquisition of a substantial portion of the assets of Spangler), (ii)
cooperate with, or furnish or cause to be furnished any non-public information
concerning the assets, operations, business, properties, prospects, or condition
(financial or otherwise) of Spangler to any person or entity in connection with
any Takeover Proposal, (iii) negotiate or discuss any Takeover Proposal with any
person or entity, or (iv) enter into any agreement or agreement in principle as
to any Takeover Proposal.
Regulatory Approval. The merger is subject to the prior approval of the OCC.
CNB filed an application for approval of the merger with the OCC on May 27, 1999
and anticipates obtaining approval during the third quarter of 1999. There can
be no assurance as to the timing of such approval or that the OCC will approve
the merger.
The OCC, when considering a transaction such as the merger, must take into
consideration the financial and managerial resources (including the competence,
experience and integrity of the officers, directors and principal stockholders),
and the future prospects of the existing and proposed institutions and the
convenience to and the needs of the communities to be served. In considering
financial resources and future prospects, the OCC will, among other things,
evaluate the adequacy of the capital levels of the parties to a proposed
transaction and of the resulting institutions. In addition, under the Community
Reinvestment Act of 1977, as amended, the OCC must take into account the record
of performance of the existing institutions in meeting the credit needs of the
entire community, including low- and moderate-income neighborhoods, served by
such institutions.
The OCC will furnish notice and a copy of the application for approval of the
merger to the Federal Deposit Insurance Corporation, the United
States Department of Justice (the "DOJ") and the appropriate Federal Reserve
Bank. These agencies have thirty days to submit their views and recommendations
to the OCC. Furthermore, applicable federal law provides for the publication of
notice and public comment on applications filed with the OCC and authorizes such
agency to permit interested parties to intervene in the proceedings. If an
interested party is permitted to intervene, such intervention could delay the
regulatory approvals required for consummation of the merger. In addition,
under federal law, a period of 30 days (or, with the consent of the OCC and the
DOJ, 15 days) must expire following approval by the OCC before the merger may be
consummated, within which period the DOJ may file objections to the merger under
the federal antitrust laws. The DOJ could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the merger. While CNB believes that the likelihood of such
action by the DOJ is remote in this case, there can be no assurance that the DOJ
will not initiate such a proceeding.
Conditions to Effecting the Merger. The obligations of CNB and Spangler to
consummate the merger are subject to the usual and customary conditions. See
"THE MERGER - Conditions to Effecting the Merger" at page 32. In addition, the
obligation of CNB and County to effect the merger is conditioned upon each of
the following: (i) receipt of a comfort letter, dated within five business days
prior to the closing date, from Spangler's independent certified public
accountants, in customary form, as to Spangler's financial statement matters;
(ii) the other parties to Spangler's contracts give their consent to the merger,
to the extent that the contracts may require such consent; (iii) Spangler has
not more than 2,500 shares of common stock, and no other equity securities or
rights to acquire equity securities, outstanding at the Effective Time; (iv) the
directors and officers of Spangler shall have submitted their resignations,
effective as of the Effective Time; (v) the Measurement Price does not exceed
$39.00, as appropriately adjusted for any CNB stock splits, reverse stock
splits, stock dividends, recapitalizations or similar events; and (vi) the
number of shares
12
of Spangler Common Stock that are voted against the merger agreement, plus the
number of shares of Spangler Common Stock as to which the record holders serve
notice of their dissent from the merger agreement, (without double-counting such
shares) does not exceed 10% of the Spangler Common Stock outstanding immediately
prior to the merger.
In addition, the obligation of Spangler to effect the merger is conditioned
upon (i) receipt of an opinion of its counsel, dated the closing date, that the
merger will be treated for federal income tax purposes as a tax-free
reorganization with respect to the Spangler stockholders and (ii) the
Measurement Price not being less than $28.00, as appropriately adjusted for any
CNB stock splits, reverse stock splits, stock dividends, recapitalizations or
similar events.
Termination. The merger agreement may be terminated by any of the parties at
any time prior to the Effective Time, whether before or after approval by the
stockholders of Spangler, if (i) the stockholders of Spangler shall not have
approved the merger agreement by September 30, 1999, (ii) final regulatory
approvals have not been obtained by September 30, 1999, or (iii) the merger
shall not have occurred by October 31, 1999, unless otherwise agreed in writing
by the parties.
In addition, the merger may be terminated at any time prior to the Effective
Time: (i) by the mutual consent in writing of CNB and Spangler duly authorized
by Board action of each of them; (ii) by CNB if (A) one or more of the
conditions to its obligation to effect the merger have not been satisfied
(through no fault of CNB or County) by September 15, 1999 and such conditions
are not waived by CNB or (B) there has been a material breach on the part of
Spangler of any representation, warranty or agreement contained in the merger
agreement which cannot be or has not been cured within 30 days after written
notice by CNB to Spangler of such breach (provided that CNB or County is not
then in material breach of any representation, warranty, covenant or other
agreement contained in the merger agreement); (iii) by Spangler if (A) one or
more of the conditions to its obligation to effect the merger have not been
satisfied (through no fault of Spangler) by September 15, 1999, and such
conditions are not waived by Spangler or (B) there has been a material breach on
the part of CNB or County of any representation, warranty or agreement contained
in the merger agreement which cannot be or has not been cured within 30 days
after written notice by Spangler to CNB of such breach (provided that Spangler
is not then in material breach of any representation, warranty, covenant or
other agreement contained in the merger agreement); or (iv) by Spangler in the
event that CNB or County enters into an agreement to sell all or substantially
all of its assets or stock or to merge with a third party.
Waiver and Amendment. The merger agreement provides that CNB, County or
Spangler may, in writing, waive any condition to its obligation to consummate
the transactions contemplated by the merger agreement, except those conditions
that are required by applicable law, such as governmental approvals and approval
of the merger agreement by the requisite vote of the Spangler stockholders.
The merger agreement may be amended at any time by written agreement signed by
the party against whom enforcement of the amendment is sought; provided,
however, that after the Spangler stockholders have approved the merger
agreement, there can be no amendment which, in the judgment of CNB, County or
Spangler, would have a materially adverse effect on the rights of the Spangler
stockholders.
Expenses. The merger agreement provides that each party will bear and pay all
costs and expenses incurred by it or on its behalf in connection with the merger
agreement and the transactions contemplated by the merger agreement, including
the fees and expenses of its own financial or other consultants, investment
bankers, accountants and counsel; provided, however, that (i) if the merger
agreement is terminated by Spangler because of a material breach by CNB or
13
County of any of their representations, warranties or agreements in the merger
agreement, or by CNB because of a material breach by Spangler of any of its
representations, warranties or agreements in the merger agreement, the party
terminating the merger agreement will be entitled to reimbursement from the
other party for the costs and expenses actually and reasonably incurred by it,
but not to exceed $40,000, and (ii) in the event the merger agreement is not
approved by the stockholders of Spangler by the requisite vote, CNB and County
will be entitled to such reimbursement from Spangler, but not to exceed $75,000.
Accounting Treatment. CNB and Spangler undertake and agree in the merger
agreement to use their best efforts to cause the merger to qualify for "pooling
of interests" accounting treatment. CNB and Spangler believe that the merger
will qualify as a pooling of interests for accounting and financial reporting
purposes. Under this method of accounting, CNB will restate at the Effective
Time its consolidated financial statements to include the assets, liabilities,
stockholders' equity and results of operations of Spangler. It is anticipated
that following the merger the fiscal year of CNB will remain the calendar year.
Management and Operations after the Merger
The directors and executive officers of CNB immediately prior to the merger
will continue as the directors and executive officers of CNB after the merger.
In addition, no change is anticipated in the business and operations of CNB or
County as a result of the merger.
Stock Prices and Dividends
The Spangler Common Stock is not publicly traded. The CNB Common Stock is
traded on the Nasdaq National Market (Symbol: CCNE). The book value per share
of Spangler Common Stock at March 31, 1999 was $1,853.70.
The following table sets forth the last reported sale price per share of CNB
Common Stock on the Nasdaq National Market on February 22, 1999, the date
immediately prior to the public announcement of the merger, and on July 13,
1999, the latest practicable trading day before the mailing of this
Prospectus/Proxy Statement, and the equivalent per share prices for Spangler
Common Stock. The equivalent per share price of Spangler Common Stock on any
date equals the last reported sale price of CNB Common Stock on such date
multiplied by 95 (the conversion ratio).
Spangler Common
CNB Common Stock Stock Equivalent
---------------- ----------------
February 22, 1999.............. $34.25 $3,253.75
July 13, 1999.................. 30.00 2,850.00
The conversion ratio is fixed in the merger agreement. Consequently, the
market value of CNB Common Stock that you will receive upon consummation of
the merger may vary significantly from the market value of the CNB Common
Stock that you would receive if the merger were consummated and you received
your CNB Common Stock on July 13, 1999.
The following table sets forth the dividends paid per share of CNB Common
Stock and Spangler Common Stock in the year 1998 and in the first and second
quarters of 1999 and the equivalent per share
14
dividends that would have been paid on the Spangler Common Stock in those
periods. The Spangler Common Stock Equivalent column reflects the dividends
paid per share of CNB Common Stock multiplied by 95 and is
based on the assumption that the merger was effected on January 1, 1998.
CNB Common Spangler Spangler Common
Stock Common Stock Stock Equivalent
---------- ------------ ----------------
Year 1998........... $0.72 $43.00 $68.40
First Quarter 1999.. 0.20 - 19.00
Second Quarter 1999. 0.20 25.00 19.00
Dividends are paid on the CNB Common Stock at the discretion of the Board of
Directors. In addition, the amount of dividends that may be paid to the
stockholders of CNB and County is subject to regulatory restrictions.
Consequently, there is no assurance that after the merger dividends will
continue to be paid on the CNB Common Stock at the current rate. It is not
anticipated, however, that the merger itself will result in any change in the
dividend rate.
See "CNB FINANCIAL CORPORATION - Supervision and Regulation" and "STOCK PRICES
AND DIVIDENDS" at pages 19 and 35.
Federal Income Tax Consequences
The merger is intended to qualify as a tax-free reorganization under Section
368(a) of the Internal Revenue Code. Assuming the merger so qualifies, Spangler
stockholders will recognize no gain or loss as a result of the exchange of their
Spangler Common Stock for CNB Common Stock, and the tax basis of the CNB Common
Stock will equal the tax basis of the Spangler Common Stock that they surrender.
Spangler stockholders who exercise their dissenters' appraisal rights and thus
receive cash in exchange for their Spangler Common Stock will be treated as if
they had sold their stock to Spangler in a taxable transaction. See "FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER" at page 36.
Resale of CNB Common Stock
The CNB Common Stock issued to Spangler stockholders in connection with the
merger will be freely transferable except for those shares issued to persons who
may be deemed to be "affililates" of Spangler. See "RESALE OF CNB COMMON
STOCK" at page 37.
Dissenters' Appraisal Rights
Spangler stockholders who vote against the merger agreement, or who give
written notice at or prior to the meeting to the President of Spangler that they
dissent from the merger agreement, will be entitled to receive, in cash, the
value of their shares of Spangler Common Stock upon written request made to CNB
at any time before 30 days after the date of the merger, accompanied by the
surrender of their Spangler stock certificates. A Spangler stockholder who
votes in favor of the merger agreement will not be entitled to receive the value
of his or her shares; and a stockholder who votes against the merger agreement,
or who at or prior to the meeting gives written notice of dissent from the
merger agreement, nonetheless will not be entitled to receive the value of his
or her shares unless he or she makes the requisite request for payment within 29
days after the date of the merger.
15
The value of the Spangler shares held by stockholders who perfect their
dissenters' rights will be determined by an appraisal made by a committee of
three persons, composed of (i) one selected by majority vote of those who have
perfected their dissenters' rights, (ii) one selected by the directors of County
and (iii) one selected by the two so selected. The valuation agreed upon by any
two of the three appraisers will govern and will be promptly paid to the
dissenting stockholders by CNB. See "DISSENTERS' APPRAISAL RIGHTS" at page 37
for a further discussion of such rights.
Comparison of Stockholder Rights
Your rights as a Spangler stockholder are governed by the national bank act
and Spangler's Articles of Association and bylaws. Following the merger, the
rights of Spangler stockholders who become CNB stockholders will be governed by
the Pennsylvania Business Corporation Law and the Articles of Incorporation and
bylaws of CNB. There are important differences between the rights of Spangler
stockholders and CNB stockholders with respect to such matters as preemptive
rights, the election of directors, the procedures for amending the articles and
bylaws, the vote required for mergers or other fundamental transactions, and the
fiduciary duty of directors. See "COMPARISON OF RIGHTS OF SPANGLER STOCKHOLDERS
AND CNB STOCKHOLDERS" at page 39 for a discussion of these differences.
THE SPANGLER STOCKHOLDERS MEETING
Purpose of Meeting
At the special meeting (the "Meeting"), Spangler's stockholders will be asked
to approve the Agreement and Plan of Merger dated as of April 27, 1999 between
CNB and County and Spangler (the "Merger Agreement"), which is attached to this
Prospectus/Proxy Statement as Appendix A. The Merger Agreement provides for the
merger of Spangler with and into County (the "Merger") and the issuance of
shares of CNB Common Stock to the stockholders of Spangler upon the consummation
of the Merger. It is not anticipated that any other matters will come before the
Meeting.
Date and Time of Meeting
The Meeting will be held on August 17, 1999 at 11:00 a.m. local time at
Spangler's banking office, 1808 Bigler Avenue, Spangler, Pennsylvania. The
approximate date of the mailing of this Prospectus/Proxy Statement is July 15,
1999.
Voting
Shares of Spangler Common Stock may be voted by stockholders in person or by
proxy. Holders of Spangler Common Stock are entitled to one vote per share.
When the Proxy enclosed herewith is properly executed and returned, the shares
represented by it will be voted in accordance with the directions thereon or, if
no directions are indicated, the Proxy will be voted "FOR" ratification and
confirmation of the Merger Agreement and the transactions contemplated thereby.
If any other matters should be presented at the Meeting upon which a vote may
properly be taken, it is intended that the shares represented by Proxies at such
meeting will be voted on such matters in accordance with the sole discretion of
the Proxy holder.
If the enclosed Proxy is executed and returned, it nevertheless may be revoked
at any time prior to its exercise, either by giving written notice of revocation
to the Secretary of Spangler (at The First National Bank of Spangler, Attention:
Secretary, 1808 Bigler Avenue, P. O. Box 579, Spangler, Pennsylvania 15775), or
by appearing at the Meeting and voting in person.
The close of business on July 14, 1999 has been fixed as the record date for
determination of stockholders entitled to notice of and to vote at the Meeting
(the "Record Date"). As of the Record
16
Date Spangler had outstanding 2,500 shares of Common Stock, held of record by
approximately 90 persons.
Certain Stockholders of Spangler
The following table sets forth information as of the Record Date regarding the
amount and nature of ownership of Spangler Common Stock and of CNB Common Stock
to be received in the Merger by (i) each of the directors and executive officers
of Spangler, (ii) all of the directors and executive officers of Spangler as a
group and (iii) each person known to Spangler to own of record and beneficially
more than 5% of the outstanding Spangler Common Stock. Approval of the Merger
Agreement requires the affirmative vote of two-thirds of the outstanding shares
of Spangler Common Stock.
Amount and Percentage of Shares of CNB
Nature of Outstanding Common Stock
Beneficial Spangler Common to be Received
Name of Beneficial Owner Ownership Stock in the Merger (a)(b)
- ------------------------ --------- ----- -------------------
Andrew J. Kuzneski, Jr. (c) 482(d) 19.28 45,790
George P. Elias (c) 81 3.24 7,695
John G. Emerick (c) 125 5.00 11,875
Dale E. Hill (c) 42 1.68 3,990
Allan J. Kirsch (c) 70 2.80 6,650
Bernard J. Kortz 81 3.24 7,695
John Paul Lantzy 55 2.20 5,225
All directors and executive
officers as a group (7 persons) 936 34.20 88,920
Berkshire Securities Corp. 400 16.00 38,000
Claire Ann Scally 290 11.60 27,550
Helen K. Senita and Mary
Frances Zadzilko 186 7.44 17,670
_____________________________________
(a) Based on the exchange ratio of 95 shares of CNB Common Stock for each share
of Spangler Common Stock owned.
(b) Assumes a total of 237,500 shares of CNB Common Stock is issued in the
Merger. In each case, the number of shares does not exceed one percent
of the total.
(c) May include shares owned jointly with or by the listed person's spouse.
(d) Includes 400 shares of Spangler Common Stock held of record by Berkshire
Securities Corp. for which Mr. Kuzneski serves as President, and in that
capacity, has sole voting authority and shared investment authority.
Management and the Board of Directors of Spangler have approved the
Merger Agreement and recommend that the stockholders of Spangler vote "FOR" the
Merger Agreement.
17
CNB FINANCIAL CORPORATION
Business
CNB Financial Corporation. CNB is a bank holding company registered under the
federal Bank Holding Company Act of 1956, as amended ("BHCA"). It was
incorporated under the laws of the Commonwealth of Pennsylvania in 1983 for the
purpose of engaging in the business of a bank holding company. On April 26,
1984, CNB acquired all of the outstanding capital stock of County. CNB is
subject to regulation, supervision and examination by the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"). In general, CNB is
limited to owning or controlling banks and engaging in such other activity as
the Federal Reserve Board may determine to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. CNB is
currently engaged in one nonbanking activity through its wholly-owned subsidiary
CNB Investment Corporation. CNB Investment Corporation was formed in November
1998 to hold and manage investments that were previously owned by County and to
provide CNB with additional latitude to purchase other investments.
CNB does not currently engage in any operating business activities other than
the ownership and management of County and CNB Investment Corporation.
County National Bank. County is a nationally chartered banking institution
incorporated in 1934 under the national bank act ("NBA"). County's main office
is located at 1 South Second Street, Clearfield, (Clearfield County)
Pennsylvania. County's primary marketing area consists of the Pennsylvania
counties of Clearfield, Elk (excluding the Townships of Millstone and Spring
Creek), McKean and Cameron. It also includes a portion of western Centre County
including Philipsburg Borough, Rush Township and the western portions of Snow
Shoe and Burnside Townships; and a portion of Jefferson County consisting of the
boroughs of Brockway, Punxsutawney, Reynoldsville, Timblin and Worthville, and
the townships of Beaver, Oliver, Ringgold, Porter, Perry, Bell, Young, Snider,
Polk, Heath, Barnet, Warsaw, Eldred, Gaskill, McCalmont, Washington, Winslow and
Henderson; and a portion of Indiana County consisting of the Townships of Canoe,
Banks and North Mahoning. The approximate population of the general trade area
is 120,000. The economy is diversified and includes manufacturing industries,
wholesale and retail trade, services industries, family farms and the production
of natural resources of coal, oil, gas and timber.
In addition to the main office, County has 13 full-service branch offices and
2 limited service branch facilities located in various communities in its market
area.
County is a full-service bank engaged in a full range of banking activities
and services for individual, business, governmental and institutional customers.
These activities and services principally include checking, savings, time and
deposit accounts; real estate, commercial, industrial, residential and consumer
loans; and a variety of other specialized financial services. Its trust
division offers a full range of trust services.
County's customer base is such that the loss of one customer relationship or a
related group of depositors would not have a materially adverse effect on the
business of County.
County's loan portfolio is diversified so that one industry, group of related
industries or consumer business does not comprise a material portion of the loan
portfolio.
County's business is not seasonal nor does it have any risks attendant to
foreign sources.
18
Competition
The banking industry in County's service area is extremely competitive, both
among commercial banks and with financial service providers such as consumer
finance companies, thrifts, investment firms, mutual funds and credit unions.
Competition has increased markedly in recent years as a result of changes in the
legal and regulatory guidelines and the robust economic conditions. Mortgage
banking firms, leasing companies, financial affiliates of industrial companies,
brokerage firms, retirement fund management firms, and even government agencies
provide additional competition for loans and other financial services. Some of
the financial service providers operating in County's market area operate on a
large-scale regional basis and possess resources much greater than those of
County and CNB. County is generally competitive with all competing financial
institutions in its service area with respect to interest rates paid on time and
savings deposits, service charges on deposit accounts and interest rates charged
on loans.
Supervision and Regulation
CNB. As a bank holding company registered under the BHCA, CNB is subject
to supervision, regulation and inspection by the Federal Reserve Board.
The activities of bank holding companies and those of the companies and
banks that they control or in which they hold more than 5% of the voting stock
are limited to banking, managing or controlling banks, furnishing services to or
performing services for their subsidiaries or any other activity which the
Federal Reserve Board determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. In making such
determinations, the Federal Reserve Board is required to consider whether the
performance of such activities by a bank holding company or its subsidiaries can
reasonably be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency that outweigh possible
adverse effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. Generally,
bank holding companies are required to obtain prior approval of the Federal
Reserve Board to engage in any new activity or to acquire, directly or
indirectly, more than 5% of any class of voting stock of any company.
Bank holding companies are also required to obtain the prior approval of
the Federal Reserve Board before acquiring more than 5% of any class of voting
stock of any bank which is not already majority-owned by the bank holding
company. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Banking and Branching Act"), bank holding companies
became able to acquire banks in states other than their home state beginning
September 29, 1995, without regard to the permissibility of such acquisitions
under state law, but subject to any state requirement that the bank has been
organized and operating for a minimum period of time, not to exceed five years,
and the requirement that the bank holding company, prior to or following the
proposed acquisition, controls no more than 10% of the total amount of deposits
of insured depository institutions in the United States and less than 30% of
such deposits in that state (or such lesser or greater amount as may be set by
state law).
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, thereby creating interstate branches. This provision, which
became effective June 1, 1997, allowed each state, prior to the effective date,
the opportunity to "opt out" of this provision, thereby prohibiting interstate
branching within that state. Pennsylvania, the state in which County is
located, has not adopted legislation to "opt out" of the interstate branching
provisions. Pennsylvania chose to "opt-in" early, effective July 6, 1995,
thereby enabling Pennsylvania banks, including national banks having their main
office in Pennsylvania, to merge with out-of-state banks to create interstate
19
branches inside or outside Pennsylvania. In addition, Pennsylvania has
permitted de novo branching into and out of Pennsylvania as long as the law of
the other state is reciprocal in this regard.
CNB derives funds to pay cash dividends to its stockholders from a variety of
sources, including cash and temporary investments. The primary source of such
funds, however, is dividends received from County, which is a national bank.
The prior approval of the Office of the Comptroller of the Currency (the "OCC")
is required for the payment of any dividend by a national bank if the total of
all dividends declared by the board of directors of such bank in any calendar
year will exceed the sum of such bank's year-to-date net profits for such year
and its retained net profits for the preceding two calendar years, less any
required transfers to surplus. Federal law also prohibits any national bank
from paying dividends which would be greater than such bank's undivided profits
after deducting statutory bad debt in excess of such bank's allowance for loan
losses.
Under the foregoing dividend restrictions, as of December 31, 1998 County
had additional dividends available to CNB for 1998 of $2.1 million without
obtaining any governmental approvals. During 1998, County paid $3.5 million in
cash dividends to CNB.
The ability of CNB and County to pay dividends may also be affected by the
various minimum capital requirements and the capital and non-capital standards
established under the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), as described below. The right of CNB and its stockholders to
participate in any distribution of the assets or earnings of County or CNB is
further subject to the prior claims of creditors.
According to Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary bank. Consistent with the
"source of strength" policy for subsidiary banks, the Federal Reserve Board has
stated that, as a matter of prudent banking, a bank holding company generally
should not maintain a rate of cash dividends unless its net income available to
common stockholders has been sufficient to fully fund the dividends and the
prospective rate of earnings retention appears to be consistent with the
corporation's capital needs, asset quality and overall financial condition.
Similarly, under the cross-guarantee provisions of the Federal Deposit Insurance
Act, in the event of a loss suffered or anticipated by the Federal Deposit
Insurance Corporation ("FDIC") -- either as a result of default of a banking or
thrift subsidiary of a bank holding company such as CNB or the provision of FDIC
assistance to a subsidiary in danger of default -- the other banking
subsidiaries of such bank holding company may be assessed for the FDIC's loss,
subject to certain exceptions. Such liability could have a material adverse
effect on the financial condition of any assessed bank and CNB.
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. The likelihood and timing of any such
proposals or bills being enacted and the impact they might have on CNB and its
subsidiaries cannot be determined at this time.
County. County is subject to supervision and examination by certain federal
and state banking agencies, including the OCC. In addition, County is insured by
and subject to some or all of the regulations of the FDIC. County is also
subject to various requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits, restrictions on
the types, amounts and terms and conditions of loans that may be granted, and
limitations on the types of investments that may be made and the types of
services that may be offered. Various consumer laws and regulations also affect
the operations of County. In addition to the impact of regulation, commercial
banks are affected significantly by the actions of the Federal Reserve Board,
including actions taken with respect to interest rates, as it attempts to
control the money supply and credit availability in order to influence the
economy.
20
The Federal Reserve Board, the OCC and the FDIC have issued substantially
similar risk-based and leverage capital guidelines applicable to United States
banking organizations. In addition, those regulatory agencies may from time to
time require that a banking organization maintain capital above the minimum
levels, whether because of the nature of its operations, its financial condition
or its actual or anticipated growth. The Federal Reserve Board risk-based
guidelines define a two-tier capital framework. Tier 1 capital consists of
common and qualifying preferred stockholders' equity, less certain intangibles
and other adjustments. Tier 2 capital consists of subordinated and other
qualifying debt, and the reserve for possible loan losses up to 1.25% of risk-
weighted assets. The sum of Tier 1 and Tier 2 capital, less investments in
unconsolidated subsidiaries, represents qualifying total capital, at least 50%
of which must consist of Tier 1 capital. Risk-based capital ratios are
calculated by dividing Tier 1 and total capital by risk-weighted assets. Risk-
weighted assets are calculated by assigning assets and off-balance sheet
exposures to one of four categories of risk weights, based primarily on relative
credit risk. The minimum Tier 1 risk-based capital ratio is 4% and the minimum
total risk-based capital ratio is 8%. CNB's Tier 1 and total risk-based capital
ratios under these guidelines at March 31, 1999, were 11.38% and 12.53%,
respectively.
The leverage ratio is determined by dividing Tier 1 capital by adjusted
average total assets. Although the stated minimum ratio is 3%, most banking
organizations are required to maintain ratios of at least 100 to 200 basis
points above 3%. CNB's leverage ratio at March 31, 1999 was 8.04%.
FDICIA, among other things, identifies five capital categories for insured
depository institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective Federal regulatory agencies to
implement systems for "prompt corrective action" for insured depository
institutions that do not meet minimum capital requirements within such
categories. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital guidelines
could also subject a banking institution to capital raising requirements. An
"undercapitalized" bank must develop a capital restoration plan and its parent
holding company must guarantee that bank's compliance with the plan. The
liability of the parent holding company under any such guarantee is limited to
the lesser of 5% of the bank's assets at the time it became "undercapitalized"
or the amount needed to comply with the plan. Furthermore, in the event of the
bankruptcy of the parent holding company, such guarantee would take priority
over the parent's general unsecured creditors. In addition, FDICIA requires the
various regulatory agencies to prescribe certain non-capital standards for
safety and soundness related generally to operations and management, asset
quality and executive compensation and permits regulatory action against a
financial institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar
regulations that define the five capital categories identified by FDICIA, using
the total risk-based capital, Tier 1 risk-based capital and leverage capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least 6%, a total capital ratio of at least
10% and a leverage ratio of a least 5% and not be subject to an order, written
agreement, capital directive or prompt corrective action directive to meet and
maintain a specific level for any capital measure. An "adequately capitalized"
institution must have a Tier 1 capital ratio of at least 4%, a total capital
ratio of at least 8% and a leverage ratio of at least 4%, or 3% in some cases.
Under these guidelines, County is considered well capitalized at March 31, 1999.
The banking agencies have also adopted final regulations which mandate that
regulators take into consideration concentrations of credit risk and risks from
nontraditional activities, as well as an
21
institution's ability to manage those risks, when determining the adequacy of an
institution's capital. This evaluation will be made as a part of the
institution's regular safety and soundness examination. Banking agencies also
have adopted final regulations requiring regulators to consider interest rate
risk (when the interest rate sensitivity of an institution's assets does not
match the sensitivity of its liabilities or its off-balance sheet positions) in
the determination of a bank's capital adequacy.
County is subject to FDIC deposit insurance assessments. The FDIC has
adopted a risk-based premium schedule. Each financial institution is assigned to
one of three capital groups - well capitalized, adequately capitalized or
undercapitalized - and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state supervisors, and on the basis of other
information relevant to the institution's financial condition and the risk posed
to the applicable insurance fund. The actual assessment rate applicable to a
particular institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), adopted in August 1989 to provide for the resolution of insolvent
savings associations, required the FDIC to establish separate deposit insurance
funds - the Bank Insurance Fund ("BIF") for banks and the Savings Association
Insurance Fund ("SAIF") for savings associations. FIRREA also required the FDIC
to set deposit insurance assessments at such levels as would cause BIF and SAIF
to reach their "designated reserve ratios" of 1.25 percent of the deposits
insured by them within a reasonable period of time. Due to the low costs of
resolving bank insolvencies in the last few years, BIF reached its designated
reserve ratio in May 1995. As a result, effective January 1, 1996, the FDIC
eliminated deposit insurance assessments (except for the minimum $2,000 payment
required by law) for banks that are well capitalized and well managed and
reduced the deposit insurance assessments for all other banks.
The Deposit Insurance Funds Act of 1996 (the "Funds Act"), enacted as part
of the Omnibus Appropriations Bill on September 30, 1996, required the FDIC to
take immediate steps to recapitalize the SAIF to the 1.25% level, and to change
the basis on which funds are raised to make the scheduled payments on the
Financing Corporation ("FICO") bonds issued in 1987 to replenish the Federal
Savings and Loan Insurance Corporation. The new legislation combined with
regulations issued by the FDIC immediately after enactment of the Funds Act,
provided for a special assessment in the amount of 65.7 basis points on SAIF-
insured deposits held by depository institutions on March 31, 1995 (the special
assessment was required by the Funds Act to recapitalize the SAIF to the
designated reserve ratio of 1.25 percent of the deposits insured by SAIF).
Payments of this assessment were made in November 1996. Institutions (which
excludes County) that had deposits insured by both the BIF and SAIF ("Oakar
Banks") were required to pay the special assessment of 80% of their "adjusted
attributable deposit amounts" ("AADA"). In addition, for purposes of future
regular deposit insurance assessments, the AADA on which Oakar Banks pay
assessments to SAIF was also reduced by 20%. Commencing January 1, 1997, BIF
insured institutions are responsible for a portion of the annual carrying costs
of the FICO bonds. Such institutions will be assessed 80% of the rate
applicable to SAIF-insured institutions until December 31, 1999. Effective
January 1, 1997, the Funds Act also reduced ongoing SAIF deposit insurance
assessment rates to a range from $0.064 to $0.23 (from previous rates of $0.23
to $0.31) per $100 of insured deposits and increased ongoing BIF deposit
insurance assessment rates to a range from $0.00 to $0.013 per $100 of insured
deposits. Additionally, pursuant to the Funds Act, if the reserves in BIF at
the end of any semiannual assessment period exceed 1.25% of insured deposits,
the FDIC is required to refund the excess to the BIF-insured institutions.
The Funds Act contemplates the merger of the SAIF and BIF into the Deposit
Insurance Fund, provided that certain conditions are met. In the meantime,
depository institutions will continue to
22
be prohibited from shifting deposits from SAIF insurance coverage to BIF
insurance coverage in an attempt to avoid the higher SAIF assessments. The FDIC
is required to issue regulations to guard against the shifting of deposits from
SAIF to BIF.
Monetary Policies
The earnings and growth of the banking industry are affected by the credit
policies of monetary authorities, including the Federal Reserve Board. An
important function of the Federal Reserve Board is to regulate the national
supply of bank credit in order to control recessionary and inflationary
pressures. Among the instruments of monetary policy used by the Federal Reserve
Board to implement these objectives are open market activities in U.S.
government securities, changes in the discount rate on member bank borrowings
and changes in reserve requirements against member bank deposits. These
operations are used in varying combinations to influence overall economic growth
and indirectly, bank loans, investments and deposits. These variables may also
affect interest rates charged on loans or paid for deposits. The monetary
policies of the Federal Reserve Board have had a significant effect on the
operating results of commercial banks in the past and are expected to continue
to have such an effect in the future.
In view of the changing conditions in the national economy and in the money
markets, as well as the effect of actions by monetary and fiscal authorities,
including the Federal Reserve Board, no prediction can be made as to possible
future changes in interest rates, deposit levels, loan demand or their effect on
the business and earnings of CNB and County.
Property
The headquarters of both CNB and County are located at 1 South Second Street
in Clearfield, Pennsylvania. Of County's 16 offices, 12 are owned by County and
the remaining four are leased from independent owners. There are no
encumbrances on the offices owned by County, and the rentals for the leased
offices are not material in relation to operating expenses.
Employees
CNB has no employees who are not employees of County. As of June 30, 1999,
County had a total of 215 employees of which 173 were full time and 42 were part
time.
Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business, to which CNB or either of its
subsidiaries is a party or of which any of their properties is the subject.
THE MERGER
The following includes a brief summary of the material provisions of the
Merger Agreement, which is appended hereto as Appendix A and is incorporated
herein by reference. Such summary is qualified in its entirety by reference to
the Merger Agreement.
General
Pursuant to the Merger Agreement, Spangler will be merged with and into
County, with County being the surviving entity. Unless the Merger Agreement has
been terminated as provided below, the Merger will become effective upon the
close of business on the day selected by CNB and
23
Spangler and approved by the OCC. It is presently contemplated that the
Effective Time will be as soon as practicable following the fulfillment or
waiver of each of the conditions to the Merger. See "-Effective Time; Closing
Date," "-Conditions to Effecting the Merger", "-Termination" and "-Waiver and
Amendment."
Merger Consideration
Subject to the terms and conditions set forth in the Merger Agreement, each
share of Spangler Common Stock issued and outstanding immediately prior to the
Merger (except shares held by Spangler stockholders who have perfected
dissenters' appraisal rights) will be converted into the right to receive 95
shares of CNB Common Stock, subject to appropriate adjustment in the event of
any split, combination, stock dividend or similar event with respect to shares
of CNB Common Stock effected by CNB prior to the Effective Time.
Spangler has represented in the Merger Agreement that 2,500 shares of Spangler
Common Stock will be outstanding at the Effective Time. No fractional shares
will be issued by CNB, and CNB will pay cash for any fractional shares resulting
from the Merger in an amount equal to the product of the fraction of one share
of CNB Common Stock multiplied by the "Measurement Price," which is defined as
the trading price of one share of CNB Common Stock as measured by the average of
the bid and asked prices for the 20 trading days (i.e., days on which such stock
is actually traded) ended on the date that is ten business days prior to the
Merger.
Based solely on the closing price of the CNB Common Stock on the Nasdaq
National Market on July 13, 1999 of $30.00, the market value of the merger
consideration to be received by Spangler stockholders would be $2,850.00 per
share of Spangler Common Stock.
Background of the Merger
In December 1997, Spangler executed an Agreement and Plan of Merger with
Mainline Bancorp, Inc. ("Mainline") in which Spangler was proposed to be merged
(the "Mainline Merger") with and into a wholly owned subsidiary of Mainline and
each share of Spangler Common Stock would have been converted into 40 shares of
Mainline's common stock (the "Mainline Common Stock"). At a special meeting of
Spangler's stockholders held on May 5, 1998 to consider the Mainline Merger,
fewer than two-thirds of Spangler's stockholders voted in favor of it.
The Board of Directors of Spangler (the "Spangler Board") believed that the
Spangler stockholders who did not support the Mainline Merger were concerned
over the "merger of equals" approach inherent in the Mainline Merger, in which
there would have been a lower premium received by the Spangler stockholders as a
result of the proposed exchange ratio of 40 shares of Mainline Common Stock for
each share of Spangler Common Stock. The Spangler Board also believed that
there was concern on the part of some of Spangler's stockholders over the
limited trading volume of the Mainline Common Stock and the fact that such
limited trading volume might cause problems for those of the Spangler's
stockholders wishing to sell their shares of Mainline Common Stock.
Following the failure of Spangler's stockholders to approve the proposed
Mainline Merger, the Spangler Board continued to consider other possible merger
opportunities but did not engage in formal discussions with any other entity
until the fall of 1998 when the Spangler Board retained Danielson Associates
Inc. ("Danielson") to assist in identifying potential acquirors and merger
partners, assist in the processes of evaluating such partners and acquirors, and
negotiate the terms of any transaction that ensued. Danielson identified a
group of potential candidates and received preliminary bids from several,
including bids from Mainline and from CNB.
24
The negotiations that ensued between Danielson and members of the Spangler
Board and each of the bidders resulted in the determination by the Spangler
Board that the price being offered by CNB was superior to the bids submitted by
the other bidders. The negotiations with CNB culminated on April 27, 1999, in
the signing of the Merger Agreement.
Spangler Board's Reasons for the Merger
In its deliberations with respect to the proposed Merger, the Spangler Board,
with the assistance of Danielson, considered a variety of factors, including the
following factors:
(i) The financial terms of the Merger, including the value of the
consideration offered, its relationship to book value, the prices paid in
comparable transactions, relative earnings per share, historical dividend
payments and stockholders' equity of CNB and Spangler, and the ability to
continue to pay semi-annual dividends to Spangler's stockholders pending the
consummation of the Merger. The Spangler Board also considered the fact that
CNB Common Stock is more widely held than the Spangler Common Stock and more
actively traded than the Spangler Common Stock because of the larger number of
shares, lower per share trading price and listing on the Nasdaq National
Market;
(ii) The future prospects of Spangler and possible alternatives to the
proposed Merger, including the prospects of continuing as an independent
institution. The Spangler Board considered the timing of the offer and the
prospects for receiving a better financial offer from another institution. The
Spangler Board was concerned that Spangler's market area was not likely to
engender a great deal of interest by financial institutions trying to enter the
market area as evidenced by certain attempted sales of bank branches by
institutions desiring to withdraw from Spangler's market area;
(iii) The opinion of Danielson that the terms of the Merger as provided
in the Merger Agreement are fair, from a financial point of view, to Spangler's
stockholders;
(iv) Information with respect to the financial condition, results of
operations, business and prospects of Spangler and the current industry,
economic, and market conditions, as well as the risks associated with achieving
those prospects;
(v) The fact that the Merger is intended to qualify as a tax-free
reorganization to Spangler's stockholders;
(vi) The business and financial condition and earnings prospects of CNB, the
potential growth in CNB Common Stock, the competence, experience, and integrity
of CNB and its management; and
(vii) The likelihood of the proposed Merger being approved by
appropriate regulatory authorities.
Each of the above factors support, directly or indirectly, the determination
of the Spangler Board to approve and recommend the proposed Merger. The
Spangler Board did not quantify or attempt to assign relative weights to the
specific factors considered in reaching its determination. The Spangler Board
placed special emphasis, however, on the consideration payable in the proposed
Merger and the receipt of a favorable fairness opinion from its financial
advisor. See "--Opinion of Spangler's Financial Advisor."
25
Opinion of Spangler's Financial Advisor
Spangler retained Danielson to advise the Spangler Board as to its "fair" sale
value and the fairness to its stockholders of the financial terms of the offer
to acquire Spangler. Danielson is regularly engaged in the valuation of banks,
bank holding companies, and thrifts in the connection with mergers,
acquisitions, and other securities transactions and has knowledge of and
experience with Pennsylvania banking markets and banking organizations operating
in those markets. Danielson was selected by Spangler because of its knowledge
of, expertise with, and reputation in the financial services industry.
In such capacity, Danielson reviewed the Merger Agreement with respect to the
pricing and other terms and conditions of the Merger, but the decision as to
accepting the offer was ultimately made by the Spangler Board. Danielson
rendered its oral opinion to the Spangler Board, which it subsequently confirmed
in writing, that as of the date of such opinion, the financial terms of the CNB
offer were "fair" to Spangler and its stockholders. No limitations were imposed
by the Spangler Board upon Danielson with respect to the investigation made or
procedures followed by it in arriving at its opinion.
In arriving at its opinion, Danielson (a) reviewed certain business and
financial information relating to Spangler and CNB, including annual reports for
the fiscal year ended December 31, 1998 and call report data from 1990 to 1998
and quarterly reports for 1998; (b) discussed the past and current operations,
financial condition and prospects of Spangler with its senior executives; (c)
analyzed the pro forma impact of the Merger on CNB's earnings per share,
capitalization, and financial ratios; (d) reviewed the reported prices and
trading activity for the CNB Common Stock and compared it to similar bank
holding companies; (e) reviewed and compared the financial terms, to the extent
publicly available, with comparable transactions; (f) reviewed the Merger
Agreement and certain related documents; and (g) considered such other factors
as were deemed appropriate.
Danielson did not obtain any independent appraisal of assets or liabilities of
Spangler or CNB or its subsidiaries. Further, Danielson did not independently
verify the information provided by Spangler or CNB and assumed the accuracy and
completeness of all such information.
In arriving at its opinion, Danielson performed a variety of financial
analyses. Danielson believes that its analyses must be considered as a whole
and that consideration of portions of such analyses and the factors considered
therein, without considering all the factors and analyses, could create an
incomplete view of the analyses and the process underlying Danielson's opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgements and is not necessarily susceptible to partial analysis and summary
description.
In its analyses, Danielson made certain assumptions with respect to industry
performance, business and economic conditions, and other matters, many of which
were beyond Spangler's or CNB's control. Any estimates contained in Danielson's
analyses are not necessarily indicative of the future results or value, which
may be significantly more or less favorable than such estimates. Estimates of
the value of companies do not purport to be appraisals or necessarily reflect
the prices at which companies or their securities may actually be sold.
The following is a summary of selected analyses considered by Danielson in
connection with its opinion letter.
Pro Forma Merger Analyses. Danielson analyzed the changes in the amount of
earnings and book value represented by the receipt of about $8 million for all
of the outstanding shares of
26
Spangler Common Stock, which will be paid in CNB Common Stock. The analysis
evaluated, among other things, possible dilution in earnings and capital per
share for CNB Common Stock.
Comparable Companies. Danielson compared CNB's (a) stock price as of April
19, 1999 equal to 24.9 times earnings and 264% of book, (b) dividend yield based
on trailing four quarters as of December 31, 1998 and stock price as of April
19, 1999 of 2.33%, (c) capital as of December 31, 1998 of 10.25% of assets, (d)
nonperforming assets as of December 31, 1998 equal to .43% of total assets, (e)
return on average assets during the trailing four quarters ended December 31,
1998 of 1.21% and (f) return on average equity during the same period of
10.94%,with the medians for selected banks and bank holding companies that
Danielson deemed to be comparable to CNB. The selected institutions included
ACNB Corporation, Citizens & Northern Corporation, Citizens Financial Services,
Inc., Comm Bancorp, Inc., Commercial National Financial Corporation, First
Keystone Corporation, Franklin Financial Services Corporation, Hanover Bancorp,
Inc., Juniata Valley Financial Corporation, Penns Woods Bancorp Inc. and Sun
Bancorp, Inc. The comparable medians were (a) stock price equal to 15.4 times
earnings and 186% of book, (b) dividend yield of 2.78%, (c) capital of 11.14% of
assets, (d) .51% of assets nonperforming, (e) return on average assets of 1.46%
and (f) return on average equity of 12.58%. Danielson also compared other
income, expense, and balance sheet information of such companies with similar
information about CNB.
Comparable Transaction Analysis. Danielson compared the consideration to be
paid in the Merger to the latest twelve months earnings and equity capital of
Spangler with earnings and capital multiples paid in acquisitions of
Pennsylvania banks through the opinion date. Of these, the most applicable
recent transactions included HSBC Holding PLC's acquisition of First Commercial
Bank of Philadelphia; Harleysville National Corporation's purchase of Northern
Lehigh Bancorp, Inc.; ACNB Corporation's purchase of Farmers National Bancorp;
PSB Bancorp Inc.'s acquisition of First Bank of Philadelphia; Penns Woods
Bancorp Inc.'s acquisition of First National Bank of Spring Mills; BT Financial
Corporation's purchase of Peoples National Bank of Rural Valley; First Leesport
Bancorp Inc.'s acquisition of Merchants of Shenandoah Ban-Corp; and Mid Penn
Bancorp Inc.'s purchase of Miners Bank of Lykens. At the time Danielson made
its analysis, the consideration to be paid in the Merger was 176% of Spangler's
December 31, 1998 book value and 23.1 times Spangler's adjusted earnings for the
trailing four quarters as of December 31, 1998. This compares to the median
multiples of 219% of book value and 20.9 times earnings for the comparable
acquisitions.
Other Analysis. In addition to performing the analyses summarized above,
Danielson also considered the general market for bank mergers, the historical
financial performance of Spangler and County, the deposit market shares of both
banks, and the general economic conditions and prospects of those banks.
No company or transaction used in this composite analysis is identical to
Spangler or CNB. Accordingly, an analyses of the results of the foregoing is not
mathematical; rather it involves complex consideration and judgements concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading values of the company or
companies to which they are being compared.
The summary set forth above does not purport to be a complete description of
the analyses and procedures performed by Danielson in the course of arriving at
its opinion. In payment for its services as the financial advisor to Spangler,
Danielson is to be paid an estimated fee of $40,000, plus expenses.
The full text of the opinion of Danielson dated as of April 20, 1999, which
sets forth assumptions made and matters considered, is attached hereto as
Appendix B to this Prospectus/Proxy Statement.
27
Spangler's stockholders are urged to read this opinion in its entirety.
Danielson's opinion is directed only to the consideration to be received by
Spangler's stockholders in the Merger and does not constitute a recommendation
to any Spangler stockholder as to how such stockholder should vote at the
Meeting.
CNB Board's Reasons for the Merger
CNB's strategy for increasing long-term value for CNB stockholders has been to
build a banking organization primarily focused on the western Pennsylvania
banking market composed of Clearfield, Cambria, Centre, Elk, Jefferson and
McKean counties that continuously gains efficiency, spreads costs over a growing
asset base and provides innovative products and services over a growing customer
base.
By acquiring Spangler, CNB will expand its operations into Cambria County.
Following the Merger, CNB will operate 17 offices in western Pennsylvania. The
acquisition of Spangler is consistent with CNB's strategy of focusing its growth
primarily on this area of Pennsylvania.
The CNB Board believes that the Merger and the merger consideration is fair
to, and in the best interests of, CNB and its stockholders. Accordingly, the
CNB Board has unanimously approved the Merger Agreement.
In negotiating the terms of the Merger, the CNB Board considered a number of
factors including, without limitation, the following:
(a) The consideration to be paid to the Spangler stockholders in relation to
the market value, book value, earnings per share and dividend rates of the CNB
Common Stock and Spangler Common Stock.
(b) The CNB Board's review, based in part on a presentation by CNB
management with respect to such management's due diligence review of Spangler,
of the business, operations and financial condition of Spangler, the prospects
of the combined institution and the increased market presence, economies of
scale, cost savings opportunities and enhanced opportunities for growth made
possible by the Merger. The CNB Board took into account the likelihood that the
Merger would have an accretive effect in 1999 and subsequent years, and there
would be no dilution to the book-value per share of the CNB Common Stock.
(c) The short-term and long-term impact the Merger is anticipated to have on
CNB's consolidated results of operations, including anticipated cost savings
resulting from consolidation in certain areas.
(d) The impact of the Merger on depositors, employees, customers and
communities served by Spangler.
(e) The terms of the Merger Agreement and the other documents executed in
connection with the Merger.
(f) The effectiveness of the Merger as a method of implementing and
accelerating CNB's strategy for long-term growth and enhanced stockholder value.
This included: (i) the strong Spangler franchise with its loyal customer base,
(ii) an opportunity for additional acquisitions that could be negotiated by a
company with CNB's post-merger market capitalization, and (iii) opportunities to
leverage capacity in technology over a larger asset and customer base and to
realize other additional expense savings.
28
(g) The likelihood of the Merger being approved by the appropriate
regulatory authorities. See "- Regulatory Approval."
(h) Prior to voting to approve the Merger, the CNB Board considered the
possible negative effects of the Merger, including the business risks of
entering a new community and the increased competition associated therewith, the
costs and expenses of the Merger, including transaction and integration costs;
and the possible strains placed upon CNB's officers to manage effectively a new
banking location and the associated employees.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the CNB Board did not find it practicable to, and did
not quantify or otherwise attempt to, assign relative weights to the specific
factors considered in reaching its determination.
Recommendation of the Spangler Board
The Spangler Board has unanimously approved and adopted the Merger Agreement
and the transactions contemplated thereby and has determined that the Merger is
fair to, and in the best interests of, Spangler and its stockholders.
THE SPANGLER BOARD UNANIMOUSLY RECOMMENDS THAT SPANGLER STOCKHOLDERS VOTE
"FOR" THE PROPOSAL TO RATIFY AND CONFIRM THE MERGER AGREEMENT.
Effective Time; Closing Date
The Merger will occur only after the receipt of all regulatory approvals, the
approval of the Merger Agreement by the Spangler stockholders and the
satisfaction or waiver of all other conditions to the Merger. See "-Conditions
to Effecting the Merger". The closing will take place on a date mutually agreed
upon by CNB and Spangler. In the absence of such agreement, the closing will be
held on the first business day after the last to occur of: (i) the receipt of
all approvals and consents of government regulatory authorities as legally
required to consummate the Merger and the expiration of all statutory waiting
periods; and (ii) the ratification and confirmation of the Merger Agreement by
the Spangler stockholders.
Exchange of Certificates by Spangler Stockholders
After the mailing to Spangler stockholders of this Prospectus/Proxy Statement,
CNB will mail or cause to be mailed to the Spangler stockholders transmittal
materials for use in surrendering the stock certificates representing the shares
of Spangler Common Stock held by them (the "Spangler Certificates") and provide
instructions for the transmittal of the Spangler Certificates.
SPANGLER STOCKHOLDERS SHOULD NOT SEND IN THEIR SPANGLER CERTIFICATES UNTIL
THEY RECEIVE THE TRANSMITTAL MATERIALS FROM CNB.
Following the Merger, upon the delivery by a Spangler stockholder of all
necessary transmittal materials and the Spangler Certificate and satisfactory
proof of ownership of shares not represented by certificates, there will be
mailed to such stockholder a stock certificate or certificates representing
shares of CNB Common Stock (the "CNB Certificates") and a check for the amount
representing any fractional shares of CNB Common Stock. CNB Certificates may be
issued in a name other than the name in which the surrendered Spangler
Certificate is registered only if the Spangler Certificate is presented to CNB
accompanied by all documents required to evidence and effect a transfer to the
new name and by evidence that any applicable stock transfer taxes have been
paid.
29
No dividends or other distributions with respect to CNB Common Stock payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered Spangler Certificate until the holder of record
shall deliver such Spangler Certificate, along with the transmittal materials,
to CNB. Subject to the effect, if any, of applicable law, after the subsequent
delivery and exchange of a Spangler Certificate, the holder thereof will be
entitled to receive any such dividends or distributions, without interest
thereon, which theretofore became payable with respect to CNB Common Stock
represented by such Spangler Certificate. All dividends or other distributions
with respect to CNB Common Stock payable to the holders of record thereof on
or after the Effective Time which are payable to the holder of a Spangler
Certificate not theretofore delivered and exchanged for CNB Common Stock shall
be held by CNB in trust for the benefit of such holders.
Dividends
The Merger Agreement provides that the parties intend and expect the
stockholders of Spangler to continue to receive dividends in the ordinary
course; consequently, if in view of the scheduled Effective Time in relation to
the record dates of the dividends declared by Spangler and by CNB, the
stockholders of Spangler would otherwise be deprived of a quarterly dividend
from either Spangler or CNB, then upon the approval by CNB, which approval shall
not be unreasonably withheld, Spangler shall be entitled to declare and pay a
dividend to its stockholders in an amount based on its most recent prior
dividend paid and the amount of the CNB dividend that its stockholders were
foreclosed from receiving purely as a result of the timing of the Effective
Time.
Conduct of Spangler Business
Spangler has agreed in the Merger Agreement that until the Effective Time, and
except as specifically authorized in the Merger Agreement, it will conduct its
business only in the usual and ordinary course and in substantially the same
manner as previously conducted and will use all reasonable efforts to preserve
intact its business organization, to keep available the services of its officers
and employees, to maintain its rights and franchises and to preserve its
relationships with customers, suppliers and others having business with it.
In addition, Spangler has agreed that until the Effective Time it will not:
(i) enter into or become bound by any material contract of a type listed in
section 2.14 of the Merger Agreement; (ii) issue any shares of capital stock;
(iii) except for the cash dividends of $12.50 per share payable on each of
September 1, 1999 and December 1, 1999 to stockholders of record on July 9, 1999
and October 10, 1999, respectively, declare, set aside, or pay any dividend or
other distribution payable in cash, stock, or property with respect to shares of
its outstanding capital stock; (iv) make any change in its capital stock by
split, reverse split, reclassification, reorganization, subdivision or
otherwise; (v) acquire any shares of its capital stock by tender, redemption, or
otherwise; (vi) amend its Articles of Association or bylaws; (vii) merge or
consolidate with or into, or permit the merger into it of, any other
association, corporation, trust, or entity; (viii) change the character of its
business; (ix) grant any stock options, warrants, rights, or other securities
convertible into, or exercisable or exchangeable for, shares of its capital
stock; (x) incur any obligations, commitments, or liabilities, whether primarily
or by way of guaranty, in excess of its legal lending limit or having a maturity
of more than one year from the date of its creation, other than in the ordinary
course of business consistent with past practice; (xi) make or commit to make
any capital expenditures of more than $2,500 individually or $10,000 in the
aggregate; (xii) enter into any supply contracts, leases, or other agreements
that cannot be terminated without substantial penalty and/or notice of more than
30 days; (xiii) except as required by law, change any loan, investment, or
management policies or make any material alteration in the manner of keeping its
books, accounts, and records; (xiv) grant any salary increase (other than as
required by any existing contract) or enter into any new employment
30
or employee benefit contract, plan or arrangement or revise or otherwise modify
any existing employment or employee benefit contract, plan or arrangement; (xv)
take any action that would in any manner adversely affect the ability of any
party to the Merger Agreement to obtain the approvals of any governmental
authorities required for consummation of the transactions contemplated by the
Merger Agreement or otherwise interfere with, impede, delay or make more costly
the consummation of the transactions contemplated thereby; (xvi) authorize or
permit any officer, director, employee, investment banker, financial consultant,
attorney, accountant or other agent or representative of Spangler, directly or
indirectly, to (a) initiate contact with any person or entity in an effort to
solicit, initiate or encourage any "Takeover Proposal" (defined as any proposal
for a merger or other business combination involving Spangler or for the
acquisition of a substantial equity interest in Spangler, or for the acquisition
of a substantial portion of the assets of Spangler), (b) cooperate with, or
furnish or cause to be furnished any non-public information concerning the
assets, operations, business, properties, prospects, or condition (financial or
otherwise) of Spangler to any person or entity in connection with any Takeover
Proposal, (c) negotiate or discuss any Takeover Proposal with any person or
entity, or (d) enter into any agreement or agreement in principle as to any
Takeover Proposal; or (xvii) extend credit or accept any deposit or engage in
any similar transaction other than on substantially the same terms (including,
without limitation, interest rates and collateral) as those extended or accepted
in the ordinary course of its business.
Regulatory Approval
The Merger is subject to the prior approval of the OCC. CNB filed an
application for approval of the Merger with the OCC on May 27, 1999 and
anticipates obtaining approval during the third quarter of 1999. There can be
no assurance as to the timing of such approval or that the OCC will approve the
Merger.
The OCC, when considering a transaction such as the Merger, must take into
consideration the financial and managerial resources (including the competence,
experience and integrity of the officers, directors and principal stockholders),
and the future prospects of the existing and proposed institutions and the
convenience to and the needs of the communities to be served. In considering
financial resources and future prospects, the OCC will, among other things,
evaluate the adequacy of the capital levels of the parties to a proposed
transaction and of the resulting institutions.
The OCC is prohibited from approving a merger: (i) if it would result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the United
States, or (ii) if its effect in any section of the country would be to
substantially lessen competition or to tend to create a monopoly, or if it would
in any other respect result in a restraint of trade, unless the OCC finds that
the anti-competitive effects of the merger are clearly outweighed by the
probable effect of the transaction in meeting the convenience and needs of the
communities to be served. In addition, under the Community Reinvestment Act of
1977, as amended (the "CRA"), the OCC must take into account the record of
performance of the existing institutions in meeting the credit needs of the
entire community, including low- and moderate-income neighborhoods, served by
such institutions.
The OCC will furnish notice and a copy of the application for approval of the
Merger to the Federal Deposit Insurance Corporation (the "FDIC"), the United
States Department of Justice (the "DOJ") and the appropriate Federal Reserve
Bank. These agencies have thirty days to submit their views and recommendations
to the OCC. Furthermore, applicable federal law provides for the publication of
notice and public comment on applications filed with the OCC and authorizes such
agency to permit interested parties to intervene in the proceedings. If an
interested party is permitted to intervene, such intervention could delay the
regulatory approvals required for consummation of the Merger.
31
In addition, under federal law, a period of 30 days (or, with the consent of
the OCC and the DOJ, 15 days) must expire following approval by the OCC before
the Merger may be consummated, within which period the DOJ may file objections
to the Merger under the federal antitrust laws. The DOJ could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Merger. While CNB believes that the
likelihood of such action by the Department of Justice is remote in this case,
there can be no assurance that the Department of Justice will not initiate such
a proceeding.
Conditions to Effecting the Merger
CNB and County, as one party, and Spangler, as the other party, have made the
customary mutual representations and warranties in the Merger Agreement.
Neither party is obligated to effect the Merger if the representations and
warranties of the other were not correct in all material respects as of the date
of the Merger Agreement or are not correct in all material respects as of the
closing date, except as such representations and warranties may be affected by
transactions specifically contemplated or permitted by the Merger Agreement and
except for any such representations and warranties made as of a specific date
which were correct in all material respects as of such date, and except for any
changes occurring in the ordinary course of business, none of which individually
or in the aggregate is materially adverse to the other party. In addition,
neither party is obligated to effect the Merger if the other party has not
performed in all material respects all of its obligations and agreements and
complied with all of its covenants to be performed and complied with at or prior
to the closing date. The party that is not in default may waive the default of
the other party and proceed to effect the Merger.
Each party's obligation to effect the Merger is also subject to the
satisfaction of the following conditions: (i) all governmental approvals, orders
or permits that are required to consummate the Merger and the transactions
contemplated by the Merger Agreement shall have been obtained by September 27,
1999, subject to no conditions which in the reasonable judgment of CNB would
restrict CNB or County in their respective spheres of business activities,
provided that if CNB is continuing in good faith to seek regulatory approvals as
of that date, either party may request that the other agree to extend the term
of the Merger Agreement by three months, and such agreement shall not be
unreasonably withheld; (ii) any waiting periods imposed by any governmental
authority shall have expired; (iii) no court, arbitral tribunal or governmental
agency shall have enjoined, restrained or prohibited the transactions
contemplated by the Merger Agreement; (iv) the Merger Agreement shall have been
ratified and confirmed by the requisite vote of the Spangler stockholders; (v)
there shall not have occurred any material adverse change in the assets,
business, operations, employees, revenue, income, prospectus, condition,
liabilities or net worth of the other party since the date of the Merger
Agreement; and (vi) each party shall have received a legal opinion, dated as of
the closing date, from the other party's legal counsel with respect to that
party's legal standing and corporate powers and to the effect, among other
things, that its performance of the Merger Agreement has been duly authorized by
all requisite corporate and governmental action and that the Merger Agreement
constitutes a valid and binding obligation of that party.
In addition, the obligation of CNB and County to effect the Merger is
conditioned upon each of the following: (i) receipt of a comfort letter, dated
within five business days prior to the closing date, from Spangler's independent
certified public accountants, in customary form, as to Spangler's financial
statement matters; (ii) the other parties to Spangler's contracts give their
consent to the Merger, to the extent that the contracts may require such
consent; (iii) Spangler has not more than 2,500 shares of common stock, and no
other equity securities or rights to acquire equity securities, outstanding at
the Effective Time; (iv) the directors and officers of Spangler shall have
submitted their resignations, effective as of the Effective Time; (v) the
Measurement Price does not exceed $39.00, as appropriately adjusted for any CNB
stock splits, reverse stock splits, stock dividends,
32
recapitalizations or similar events; and (vi) the number of shares of Spangler
Common Stock that are voted against the Merger Agreement, plus the number of
shares of Spangler Common Stock as to which the record holders serve notice of
their dissent from the Merger Agreement, (without double-counting such shares)
does not exceed 10% of the Spangler Common Stock outstanding immediately prior
to the Merger.
In addition, the obligation of Spangler to effect the Merger is conditioned
upon (i) receipt of an opinion of its counsel, dated the closing date, that the
Merger will be treated for federal income tax purposes as a tax-free
reorganization with respect to the Spangler stockholders and (ii) the
Measurement Price not being less than $28.00, as appropriately adjusted for any
CNB stock splits, reverse stock splits, stock dividends, recapitalizations or
similar events.
Termination
The Merger Agreement may be terminated by any of the parties at any time prior
to the Effective Time, whether before or after approval by the stockholders of
Spangler, if (i) the stockholders of Spangler shall not have approved the Merger
Agreement by September 30, 1999, (ii) final regulatory approvals have not been
obtained by September 30, 1999, or (iii) the Merger shall not have occurred by
October 31, 1999, unless otherwise agreed in writing by the parties.
In addition, the Merger may be terminated at any time prior to the Effective
Time:
(i) by the mutual consent in writing of CNB and Spangler duly authorized by
Board action of each of them;
(ii) by CNB if (A) one or more of the conditions to its obligation to effect
the Merger have not been satisfied (through no fault of CNB or County) by
September 15, 1999 and such conditions are not waived by CNB or (B) there has
been a material breach on the part of Spangler of any representation, warranty
or agreement contained in the Merger Agreement which cannot be or has not been
cured within 30 days after written notice by CNB to Spangler of such breach
(provided that CNB or County is not then in material breach of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement);
(iii) by Spangler if (A) one or more of the conditions to its obligation to
effect the Merger have not been satisfied (through no fault of Spangler) by
September 15, 1999, and such conditions are not waived by Spangler or (B) there
has been a material breach on the part of CNB or County of any representation,
warranty or agreement contained in the Merger Agreement which cannot be or has
not been cured within 30 days after written notice by Spangler to CNB of such
breach (provided that Spangler is not then in material breach of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement);
(iv) by Spangler in the event that CNB or County enters into an agreement to
sell all or substantially all of its assets or stock or to merge with a third
party.
Waiver and Amendment
The Merger Agreement provides that CNB, County or Spangler may, in writing,
waive any condition to its obligation to consummate the transactions
contemplated by the Merger Agreement, except those conditions that are required
by applicable law, such as governmental approvals and approval of the Merger
Agreement by the requisite vote of the Spangler stockholders.
33
The Merger Agreement may be amended at any time by written agreement signed by
the party against whom enforcement of the amendment is sought; provided,
however, that after the Spangler stockholders have approved the Merger
Agreement, there can be no amendment which, in the judgment of CNB, County or
Spangler, would have a materially adverse effect on the rights of the Spangler
stockholders.
Expenses
The Merger Agreement provides that each party will bear and pay all costs and
expenses incurred by it or on its behalf in connection with the Merger Agreement
and the transactions contemplated by the Merger Agreement, including the fees
and expenses of its own financial or other consultants, investment bankers,
accountants and counsel; provided, however, that (i) if the Merger Agreement is
terminated by Spangler because of a material breach by CNB or County of any of
their representations, warranties or agreements in the Merger Agreement, or by
CNB because of a material breach by Spangler of any of its representations,
warranties or agreements in the Merger Agreement, the party terminating the
Merger Agreement will be entitled to reimbursement from the other party for the
costs and expenses actually and reasonably incurred by it, but not to exceed
$40,000, and (ii) in the event the Merger Agreement is not approved by the
stockholders of Spangler by the requisite vote, CNB and County will be entitled
to such reimbursement from Spangler, but not to exceed $75,000.
Accounting Treatment
CNB and Spangler undertake and agree in the Merger Agreement to use their best
efforts to cause the Merger to qualify for "pooling of interests" accounting
treatment. CNB and Spangler believe that the Merger will qualify as a pooling
of interests for accounting and financial reporting purposes. Under this method
of accounting, CNB will restate at the Effective Time its consolidated financial
statements to include the assets, liabilities, stockholders' equity and results
of operations of Spangler. It is anticipated that following the Merger the
fiscal year of CNB will remain the calendar year.
Interest of Certain Persons in the Merger
Dale E. Hill, President of Spangler, has a Severance Agreement with Spangler
which provides that he shall receive certain severance benefits in the event
that at any time following a "change of control" of Spangler he is discharged by
Spangler or its successor other than for "cause" or he resigns for "good
reason." The severance benefits include monthly payments equal to one-twelfth
of Mr. Hill's base annual salary on January 1 of the year in which the change of
control occurs and certain life, medical, health, accident and disability
insurance, both to be provided for a period of one year following his discharge;
however, no benefits are payable if Mr. Hill remains employed for a period of
one year following the change of control.
The Merger would constitute a "change of control" for purposes of the
Severance Agreement. The Severance Agreement provides that Mr. Hill would have
"good reason" to resign if, without his prior written consent, Spangler shall
have changed in any significant respect the authority, duties, compensation,
benefits or other terms or conditions of his employment or if he shall have
determined in good faith that he is unable to work harmoniously and effectively
with the new management of Spangler or that he is otherwise unable effectively
to carry out his duties and discharge his responsibilities to Spangler.
34
MANAGEMENT AND OPERATIONS OF CNB AFTER THE MERGER
Directors and Executive Officers
The directors and executive officers of CNB immediately prior to the Merger
will continue to be the directors and executive officers of CNB after the
Merger. No changes are expected to be made between the date of this
Prospectus/Proxy Statement and the Effective Time.
Operations After the Merger
As a result of the Merger, the corporate existence of Spangler will be merged
into and continue in County, and County will succeed to all of the business and
property of Spangler. After the Merger, County will continue to be focused on
providing a full range of banking activities and services for individual,
business, governmental and institutional customers in its North Central
Pennsylvania market area.
STOCK PRICES AND DIVIDENDS
There has never been an organized public trading market in the Spangler Common
Stock. There is very little trading and those trades that do occur from time to
time are typically handled in privately negotiated transactions. Spangler's
management is aware of only several trades that occurred in 1998 and to date in
1999. These trades were completed at prices ranging from $2,050 to $2,060 per
share.
The CNB Common Stock is traded and quoted on the Nasdaq National Market. The
following table sets forth, for the periods indicated, the high and low closing
sale prices per share of the CNB Common Stock on the Nasdaq National Market and
the cash dividends per shares paid by CNB and Spangler.
CNB Cash Dividend
Common Stock(1) Per Share
--------------- -----------------
High Low CNB Spangler(2)
---- --- --- -----------
1997
First Quarter $17.88 $17.75 $.17 $ -
Second Quarter 17.88 17.75 .17 17.00
Third Quarter 18.75 17.88 .17 -
Fourth Quarter 19.94 18.75 .17 17.00
1998
First Quarter $23.13 $19.94 $.18 $ -
Second Quarter 29.50 23.13 .18 18.00
Third Quarter 30.13 29.00 .18 -
Fourth Quarter 35.00 32.25 .18 25.00
1999
First Quarter $36.00 $33.25 $.20 $ -
Second Quarter 34.38 29.50 .20 25.00
Third Quarter (through July 13) 31.00 30.00 - -
___________________
(1) The CNB Common Stock began trading on the Nasdaq National Market on October
22, 1998. The prices shown for quarters prior to the fourth quarter of 1998
are the high and low
35
bid prices as reported by the National Quotation Bureau. Stock prices prior
to April 30, 1998 are restated to reflect a 2 for 1 stock split effective on
that date.
(2) Spangler has historically declared and paid dividends on a semi-annual
basis. In anticipation of the Merger, the Spangler Board intends to declare
and pay quarterly dividends.
For the third quarter of 1999, CNB has declared a cash dividend of $.20 per
share, payable September 17, 1999 to its stockholders of record on September 7,
1999. Consequently, it is expected that if the Merger is consummated on or
before September 7, 1999, the Spangler stockholders who exchange their shares
for CNB Common Stock will receive that dividend and that no further dividends
will be paid on the Spangler Common Stock.
The last reported sale price of the CNB Common Stock on July 13, 1999, was
$30.00. The last reported sale price of the CNB Common Stock on February
22, 1999, the date immediately prior to the public announcement of the Merger,
was $34.25.
At July 13, 1999, there were approximately 1,800 holders of record of the CNB
Common Stock and approximately 90 holders of record of the Spangler Common
Stock.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary description of federal income tax consequences of the
Merger and of certain other federal income tax aspects of CNB Common Stock to be
received by Spangler's stockholders pursuant to the Merger is included for
general information only and is based entirely upon the Internal Revenue Code of
1986, as amended (the "Code"), regulations now in effect or proposed thereunder,
current administrative rulings and practice and judicial authority, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences to Spangler's stockholders set forth herein.
The consummation of the Merger is subject to the condition, unless waived in
accordance with the terms of the Merger Agreement, that Spangler receive an
opinion of its counsel to the effect that the transactions contemplated by the
Merger Agreement will constitute a tax-free reorganization under Section 368(a)
of the Code and that no gain or loss will be recognized by any Spangler
stockholder receiving solely shares of CNB Common Stock in exchange for his or
her Spangler Common Stock. Such an opinion of counsel may be subject to
conditions stated therein and will also rely upon the facts set forth or
referred to therein, including facts stated by a responsible officer or officers
of Spangler and CNB. An opinion of counsel is not binding upon the Internal
Revenue Service or the courts.
As a tax-free reorganization, the Merger will result in the following federal
income tax consequences to Spangler's stockholders:
(i) Spangler's stockholders will recognize no gain or loss as a result of
the exchange of their shares of Spangler Common Stock for shares of CNB Common
Stock pursuant to the Merger.
(ii) The tax basis of the shares of CNB Common Stock received by each of
the Spangler stockholders in the Merger will equal the tax basis of their shares
of Spangler Common Stock exchanged in the Merger.
(iii) The holding period for the shares of CNB Common Stock received
by each of the Spangler stockholders in the Merger will include the holding
period for their shares of Spangler Common Stock exchanged in the Merger,
provided their shares of Spangler Common Stock were held as capital assets.
(iv) Where a Spangler stockholder dissents and receives cash in exchange
for Spangler Common Stock, such cash will be treated as having been received by
such
36
stockholder as a distribution in redemption of his or her Spangler Common Stock,
subject to the provisions and limitations of Section 302 of the Code.
The stockholders of Spangler who exercise their statutory dissenters rights
and thus receive cash in exchange for their Spangler Common Stock will be
treated as if they had sold their stock to Spangler in a taxable transaction.
Assuming the stock surrendered is a capital asset, the gain or loss recognized
by the dissenting stockholder will be recognized as capital gain or loss unless
it should be determined by the Internal Revenue Service that under the
principles of Sections 301 and 302 of the Code, the amount received is
"essentially equivalent" to a dividend.
Stockholders should contact their own tax advisors for a more detailed
explanation of the tax consequences of the proposed transaction as it may relate
to their particular circumstances under Federal law and under any state or local
tax laws that may apply to them.
RESALE OF CNB COMMON STOCK
Shares of CNB Common Stock issued to Spangler stockholders will be
transferable without restriction, except shares issued to any person who may be
considered an "Affiliate" of Spangler, as defined by the rules and regulations
of the Commission under the Securities Act. Pursuant to the Merger Agreement,
Spangler has delivered to CNB a written undertaking from each Affiliate of
Spangler to the effect that he or she will not sell or dispose of CNB Common
Stock acquired by him or her in connection with the Merger, other than in
accordance with the Securities Act, except under: (i) a separate registration
statement (which CNB has not agreed to provide), or (ii) Rule 145 promulgated
thereunder by the Commission or (iii) pursuant to another exemption from
registration. In addition, any Spangler stockholders who become Affiliates of
CNB will be subject to similar resale restrictions for as long as they remain
Affiliates of CNB.
DISSENTERS' APPRAISAL RIGHTS
Any stockholder of Spangler who votes against the proposal to ratify and
confirm the Merger Agreement, or who gives written notice at or prior to the
Meeting to the President of Spangler that he or she dissents from the Merger
Agreement, will be entitled to receive, in cash, the value of the Spangler
Common Stock held by him or her upon written request made to CNB at any time
before 30 days after the date of the Merger, accompanied by the surrender of his
or her Spangler Certificate. A Spangler stockholder who votes in favor of the
proposal to ratify and confirm the Merger Agreement will not be entitled to
receive the value of his or her shares; and a stockholder who votes against the
proposal, or who at or prior to the Meeting gives written notice of dissent to
the President of Spangler, nonetheless will not be entitled to receive the value
of his or her shares unless he or she provides CNB the requisite request for
payment, accompanied by his or her Spangler Certificate, within 29 days after
the date of the Merger. Stockholders who vote against the proposal or who
dissent from the Merger Agreement will be given written notice of the Merger
within seven business days after the date of the Merger.
All written notices of dissent from the Merger Agreement should be sent or
delivered to President, The First National Bank of Spangler, 1808 Bigler Avenue,
P.O. Box 579, Spangler, Pennsylvania 15775, or given to the presiding officer at
the Meeting, so as to be received before the vote on the Merger Agreement. All
written requests for payment should be sent or delivered to President, CNB
Financial Corporation, 1 South Second Street, Clearfield, Pennsylvania 16830, so
as to be received before 30 days after the date of the Merger.
37
Only a holder of record is entitled to request dissenters' appraisal rights
and payment for the shares registered in his or her name. A record owner of
shares may assert dissenters' appraisal rights as to fewer than all of the
shares recorded in such person's name only if such person votes against or
dissents from the Merger Agreement with respect to all shares beneficially owned
by any one person and notifies CNB in writing of the name and address of each
person on whose behalf the record owner asserts dissenters' appraisal rights.
The rights of a partial dissenter are determined as if the shares as to which
request for payment is made and the other shares held by such holder of record
are recorded in the names of different Spangler stockholders. A beneficial
owner of shares who is not the record owner may assert dissenters' appraisal
rights as to shares held on such person's behalf only if the beneficial owner
submits to CNB the record owner's written consent to the request for payment
before or at the same time the beneficial owner asserts dissenters' appraisal
rights.
A request for payment must reasonably inform CNB of the identity of the holder
of record of the Spangler Common Stock covered by the request and that such
holder of record requests payment for such shares. The request should be
executed by or for the Spangler stockholder of record, fully and correctly, as
such stockholder's name appears on the Spangler Certificate.
Valuation of Shares
The value of the shares of any dissenting stockholder will be ascertained, as
of the Effective Time, by an appraisal made by a committee of three persons,
composed of (i) one selected by the vote of the holders of the majority of the
stock, the owners of which are entitled to payment in cash; (ii)one selected by
the directors of County, and (iii) one selected by the two so selected. The
valuation agreed upon by any two of the three appraisers will govern. If the
value so fixed is not satisfactory to any dissenting stockholder who has
requested payment, that stockholder may, within five days after being notified
of the appraised value of his or her shares, appeal to the Comptroller of the
Currency, who will cause a reappraisal to be made which will be final and
binding as to the value of the shares of the appellant.
If, within 90 days from the date of consummation of the Merger, for any reason
one or more of the appraisers is not selected, or the appraisers fail to
determine the value of such shares, the Comptroller will upon written request of
any interested party cause an appraisal to be made which will be final and
binding on all parties. The expenses of the Comptroller in making the
reappraisal or the appraisal, as the case may be, will be paid by CNB. The
value of the shares ascertained will be promptly paid to the dissenting
stockholders by CNB. The shares of stock of CNB which would have been delivered
to such dissenting stockholders had they not requested payment will be sold by
CNB at an advertised public auction, and CNB will have the right to purchase any
of such shares at such public auction, if it is the highest bidder therefor, for
the purpose of reselling such shares within 30 days thereafter to such person or
persons and at such price not less than par as its Board of Directors by
resolution may determine. If the shares are sold at public auction at a price
greater than the amount paid to the dissenting stockholders, the excess in such
sale price will be paid to such dissenting stockholders.
Neither CNB nor County has any obligation to appeal the appraised value of the
Spangler shares to the Comptroller or to request that the Comptroller appraise
the Spangler shares in the event that one or more of the appraisers is not
selected or the appraisers fail to determine the value of the shares.
Accordingly, it is the obligation of the Spangler stockholders who request
payment for their shares to initiate any such appeal or request for an
appraisal, and any such stockholder who fails to appeal the appraisal within
five days after being notified of the appraised value of the shares may lose the
right to have the Comptroller reappraise the value of his or her shares.
38
No Spangler stockholder will be entitled to receive the value of his or her
shares if the Merger Agreement is not ratified and confirmed by the requisite
vote at the Meeting or if for any other reason the Merger is not consummated.
Even if the requisite vote is attained at the Meeting, CNB and County may
terminate the Merger Agreement and will not be required to consummate the Merger
if, among other things, the record holders of more than 10% of the Spangler
Common Stock outstanding immediately prior to the Merger have voted against the
proposal that the Merger Agreement be ratified and confirmed or at or prior to
the Meeting gave written notice of their dissent from the Merger Agreement.
A Spangler stockholder who has requested payment of the value of his or her
shares may withdraw such request by delivering to CNB a written withdrawal of
such request and approval of the Merger Agreement, except that any such attempt
to withdraw made more than 60 days after the consummation of the Merger will
require the written approval of CNB.
The forgoing is a summary of certain provisions of section 215a of the NBA and
is qualified in its entirety by reference to the full text of such provisions, a
copy of which is appended hereto as Appendix C.
The stockholders of CNB will not have dissenters' appraisal rights as a result
of the Merger because Spangler will be merged into County, and CNB is not a
participant in the Merger.
DESCRIPTION OF CNB COMMON STOCK
CNB is authorized to issue up to 10,000,000 shares of Common Stock, par value
$1.00 per share, of which 3,425,555 were outstanding at the date of this
Prospectus/Proxy Statement. All shares of Common Stock currently outstanding
are fully paid and non-assessable. The Common Stock is traded in the over-the-
counter market and is quoted in the Nasdaq National Market (Symbol: CCNE).
County serves as the transfer agent and registrar for the Common Stock.
The CNB Common Stock has no preemptive rights and no redemption, sinking fund
or conversion provisions. All shares have one vote on any matter submitted to a
vote of stockholders. The CNB Common Stock does not have cumulative voting
rights in the election of directors. Holders are entitled to receive dividends
when and as declared by the Board of Directors of CNB out of funds legally
available therefor. In the event that CNB is dissolved, the holders of CNB
Common Stock will share prorata in the assets remaining after payment of all
priority claims.
See "COMPARISON OF RIGHTS OF SPANGLER STOCKHOLDERS AND CNB STOCKHOLDERS -
Election of Directors," " - Amendment of Charter," and " - Statutory
Antitakeover Provisions."
COMPARISON OF RIGHTS OF SPANGLER STOCKHOLDERS
AND CNB STOCKHOLDERS
The rights of Spangler stockholders are governed by the NBA, its Articles of
Association and its bylaws, whereas the rights of CNB stockholders are governed
by the Pennsylvania Business Corporation Law (the "BCL"), its Articles of
Incorporation and its bylaws. Following the Merger, the rights of Spangler
stockholders who become CNB stockholders will be governed by the BCL and the
Articles of Incorporation and bylaws of CNB.
39
Certain important differences between the rights of Spangler stockholders and
those of CNB stockholders are summarized below. The term "charter" as used
herein means the Articles of Association of Spangler or the Articles of
Incorporation of CNB, as the case may be.
General
Holders of CNB Common Stock and Spangler Common Stock are entitled to one vote
for each share held on matters presented for stockholder action. Spangler
stockholders, by virtue of the NBA, are entitled to cumulative voting in the
election of directors, which means that a stockholder has a number of votes
equal to the number of shares held multiplied by the number of directors to be
elected, and such votes may all be cast for one nominee or distributed among the
nominees as the stockholder sees fit. CNB stockholders are not entitled to
cumulative voting in the election of directors. Stockholders of CNB and
Spangler may vote their shares either in person or by proxy.
Preemptive Rights
The authorized capital stock of Spangler consists of 2,500 shares of Common
Stock, all of which are issued and outstanding. Spangler's stockholders are
entitled to preemptive rights which would permit them to purchase a sufficient
number of shares of any subsequent issuance such that they would be permitted to
retain their pro rata ownership percentage.
Stockholders of CNB have no such preemptive rights.
Election of Directors
The Spangler charter provides that its Board of Directors consists of not less
than five nor more than twenty-five persons who are stockholders, with each
person to be elected each year and with the exact number of members to be
established from time to time by the Board of Directors. Spangler's stockholders
are entitled to exercise cumulative voting rights in all elections of directors.
The CNB charter provides that there shall be three classes of directors, with
the numbers in each class to be no less than three directors nor more than eight
directors. The directors serve staggered terms of three years, with one class
elected at each annual meeting of stockholders for a term of three years.
The CNB bylaws provide that (i) no person shall be eligible for election or
serve as a director who does not own and continue to own at least 350
unencumbered shares of CNB Common Stock, (ii) any director on August 30, 1983
who was less than 57 years of age on that date, and all future directors, shall
tender his or her resignation as a director on or before his or her 70/th/
year, (iii) any director on August 30, 1983 who was 57 years of age or older on
that date may continue as a director, if properly elected, until he or she
chooses to retire, (iv) no incumbent director shall be proposed for nomination
to the Board without the approval of 25% of the Board, and (v) no stockholder
of CNB, not a director, shall be proposed for the Board without approval of
two-thirds of the Board.
Amendment of Charter
The vote of a majority of the outstanding Spangler Common Stock is required to
amend any provision of the Spangler charter.
The BCL, on the other hand, only requires the affirmative vote of a majority
of the votes actually cast, at a meeting at which a quorum is present, in order
to amend the articles of incorporation, unless the articles require a greater
percentage or unless the provision to be amended requires a
40
specific number or percentage of votes for the taking of any action, in which
case such provision may not be canceled by a lesser number or percentage of
votes. The CNB charter does not require a specific vote to amend the charter.
However, Article 9 requires the affirmative vote of 75% of the outstanding
shares in order to effect the merger or consolidation of CNB into another
corporation. Also, the BCL does not require stockholder approval of certain
non-material amendments to the articles, such as changing the corporate name or
increasing the number of authorized shares to effectuate a stock dividend where
the corporation has only one class of shares outstanding.
Amendment of Bylaws
Spangler's bylaws can be amended by the Spangler Board.
Under Pennsylvania law, the board of directors may be given the power to
adopt or amend the bylaws, but the board of directors does not have the power to
adopt or amend bylaw provisions on certain specified subjects that are reserved
exclusively to the stockholders. In addition, stockholders have the right to
amend or repeal any bylaw adopted by the board of directors. The Board of
Directors of CNB has not been given the power to adopt or amend the bylaws.
Mergers and Other Fundamental Transactions
Under the NBA, a vote of two-thirds of the outstanding Spangler Common Stock
is required to approve a merger or other fundamental change transaction.
Under the BCL, however, fundamental corporate transactions (such as mergers,
sales of all or substantially all of the corporation's assets or dissolution of
the corporation) require approval of only a majority of the votes actually cast
by the stockholders at a meeting at which a quorum is present, unless the
articles of incorporation require a greater vote. As noted above, the CNB
charter requires the affirmative vote of 75% of the outstanding shares entitle
to vote in order to effect the merger or consolidation of CNB into another
corporation.
Dividends
Dividends on the Spangler Common Stock are entitled to be paid if, as and when
the Spangler Board elects to pay dividends from sources legally available
therefor.
Under Pennsylvania law, a corporation has the power, subject to restrictions
in its bylaws, to pay dividends or make other distributions to its stockholders
unless after giving effect thereto (i) the corporation would not be able to pay
its debts as they become due in the usual course of business or (ii) the
corporation's assets would be less than the sum of its total liabilities plus
the amount that would be needed upon the dissolution of the corporation to
satisfy the preferential rights, if any, of stockholders having superior
preferential rights to the stockholders receiving the distribution. The CNB
bylaws contain no limitations on such powers.
Dissenters' Appraisal Rights
The rights of stockholders to demand payment in cash by a corporation of the
fair value of their shares in the event of certain fundamental transactions,
such as mergers, sales of all or substantially all of the corporation's assets,
and dissolution, are called dissenters' appraisal rights.
Under the NBA, holders of shares of a national bank such as Spangler are
entitled to dissenters' appraisal rights in the event of certain fundamental
transactions such as mergers or the like, as explained in "DISSENTERS'
APPRAISAL RIGHTS."
41
The BCL does not provide dissenters' rights to holders of shares that are
listed on a national securities exchange or held of record by more than 2,000
stockholders.
CNB currently has approximately 1,800 stockholders of record and Spangler 90
stockholders of record. Consequently, the Merger itself will not result in a
material change in the dissenters' appraisal rights accorded the Spangler
stockholders.
Stockholder Action Without a Meeting
Spangler's charter does not address the ability or permissibility of
stockholders taking action without a meeting. Spangler's charter is, however,
permitted to be amended by stockholders owning a majority of the Spangler Common
Stock "in any manner not inconsistent with law."
Under the BCL, stockholders have the right to act without a meeting by less
than unanimous consent only if the articles of incorporation so provide. The
CNB charter does not include such a provision.
Meetings of Stockholders
Spangler's charter permits a meeting to be called by any three stockholders
for the purpose of amending the charter. Spangler's charter also contemplates
an annual meeting of stockholders for the purpose of electing directors.
The BCL provides that if the annual meeting for election of directors is not
called and held within six months after the designated date, any stockholder may
call the meeting at any time thereafter. Special meetings of stockholders may be
called by (i) the board of directors, (ii) stockholders entitled to cast at
least 20% of the votes entitled to be cast at the meeting, but only if the
stockholders are accorded that right in the articles of incorporation, and (iii)
such officers or other persons as may be provided in the bylaws. The CNB
charter does not permit the stockholders to call special meetings, and the
bylaws provide that special meetings may be called by the President or by the
Board of Directors.
Derivative Suits
Spangler's charter does not specify the basis upon which a stockholder's
derivative action may be maintained, and there appears to be no legal precedent,
of which Spangler is aware, that provides such basis.
Under Pennsylvania law, a stockholder may maintain a derivative suit, even if
the stockholder was not a stockholder at the time of the alleged wrongdoing, if
there is a strong prima facie case in favor of the claim asserted and if the
court determines in its discretion that serious injustice would result without
such suit.
Fiduciary Duty, Liability and Indemnification of Directors and Officers
Fiduciary Duty of Directors. Spangler's charter provides that its Board of
Directors are responsible for the general regulation of Spangler's business and
in that capacity are responsible for managing its affairs, regulate the
elections of the Board of Directors and make bylaws that are proper and not
inconsistent with law. Spangler's bylaws provide that all corporate powers are
vested in and exercised by the Board of Directors except as may be limited by
law.
42
The BCL provides that the board of directors has the ultimate responsibility
for managing the business and affairs of a corporation. In discharging this
function, directors owe fiduciary duties of care and loyalty to the corporations
for which they serve as directors. A director of a Pennsylvania business
corporation stands in a fiduciary relationship to the corporation and must
perform his or her duties as a director, in good faith, in a manner he or she
reasonably believes to be in the best interests of the corporation and with such
care, including reasonable inquiry, skill and diligence, as a person of ordinary
prudence would use under similar circumstances. In performing these duties, the
director is entitled to rely, in good faith, on information, opinions, reports
or statements, including financial statements and other financial data, in each
case prepared by any of the following: (i) one or more officers or employees
whom the director reasonably believes to be reliable and competent in the
matters presented; (ii) counsel, public accountants or other persons as to
matters which the director reasonably believes to be within the professional
competence of such persons; and (iii) a committee of the board upon which he or
she does not serve, duly designated in accordance with law, as to matters within
its designated authority, which committee the director reasonably believes to
merit confidence. A director will not be considered to be acting in good faith
if he or she has knowledge concerning the matter in question which would cause
his or her reliance to be unwarranted.
The BCL further provides that in discharging the duties of their respective
positions, the board of directors, committees of the board and individual
directors of a business corporation may, in considering the best interests of
the corporation, consider the effects of any action upon employees, upon
suppliers and customers of the corporation and upon communities in which offices
or other establishments of the corporation are located and all other pertinent
factors. Absent breach of fiduciary duty, lack of good faith or self-dealing,
actions taken as a director are presumed to be in the best interests of the
corporation.
The BCL also provides that a director of a Pennsylvania corporation owes a
duty only to the corporation, and in considering what is in the best interests
of the corporation may choose to subordinate the interests of stockholders to
the interests of employees, suppliers, customers or creditors of the corporation
or to the interests of the communities served by the corporation. Consequently,
the fiduciary duty provisions of the BCL provide significant discretion, and
protection from liability, to directors in exercising their fiduciary duties,
particularly in the context of a threatened change in control.
Limitation of Director Liability. Spangler's bylaws provide that its
directors are not personally liable for monetary damages for any action taken,
or the failure to take action, unless the director breaches or fails to perform
his duties of office as measured by the standards of care and justifiable
reliance provisions of Pennsylvania law, or if the breach or failure constitutes
self dealing, wilful misconduct or recklessness.
Pennsylvania law permits a corporation's charter, or a bylaw adopted by the
stockholders, to limit a director's exposure to monetary liability for breach of
duty. CNB's bylaws provide that a director shall have no personal liability for
monetary damages for any action taken, or any failure to take any action, as a
director. Such limitation does not apply where the director has breached or
failed to perform the duties of his or her office and the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness, nor does
it apply to the responsibility or liability of a director pursuant to any
criminal statute or the liability of a director for the payment of taxes.
Indemnification of Directors and Officers. Spangler's bylaws provide that its
directors, officers and employees shall be indemnified to the fullest extent
provided by law for any actual or threatened actions arising out of their
service to Spangler. For persons who are not directors, the extent of
43
their right of indemnification is to be determined by Spangler's Board of
Directors. All rights of indemnification survive service to Spangler or tenure
on its Board of Directors, as the case may be.
Pennsylvania law permits a corporation to indemnify its directors and officers
against expenses, judgments, fines and amounts paid in settlement incurred by
them in connection with any pending, threatened or completed third party action
or proceeding, and permits such indemnification against expenses incurred in
connection with any pending, threatened or completed derivative action, if the
director or officer has acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
or her conduct was unlawful. The BCL further provides that expenses incurred in
defending any action or proceeding may be paid by the corporation in advance of
the final disposition upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined that the
director or officer is not entitled to be indemnified by the corporation. These
provisions for indemnification and advancement of expenses are non-exclusive
with respect to any other rights, such as contractual rights or rights under a
bylaw or vote of stockholders or disinterested directors, to which a person
seeking indemnification or advancement of expenses may be entitled. Such
contractual or other rights may, for example, provide for indemnification
against judgments, fines and amounts paid in settlement incurred by the
indemnified person in connection with derivative actions. Pennsylvania law
permits such derivative action indemnification in any case except where the act
or failure to act giving rise to the claim for indemnification is determined by
a court to have constituted willful misconduct or recklessness.
The CNB bylaws require indemnification of directors and officers to the
fullest extent permitted by Pennsylvania law. At the present time, these
boundaries would be dictated by the BCL and related legislation, which prohibit
indemnification where the conduct is determined by a court to constitute willful
misconduct or recklessness. Subject to these statutory limitations, CNB bylaws
would require indemnification against both judgments and amounts paid in
settlement of derivative suits. These provisions would also provide
indemnification for negligence or gross negligence and for certain liabilities
incurred under the federal securities laws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or officers, CNB is aware that, in the opinion of
the Commission, such indemnification is against public policy as expressed in
that Act and is therefore unenforceable. Under certain circumstances, CNB might
be required to submit to a court the question of whether indemnification is
permissible before it could indemnify directors or officers for such
liabilities.
Pennsylvania law permits a corporation to purchase and maintain insurance on
behalf of any director or officer of the corporation against any liability
asserted against the director or officer and incurred in such capacity, whether
or not the corporation would have the power to indemnify the director or officer
against such liability. The directors and officers of CNB are currently covered
as insureds under directors and officers liability insurance maintained by CNB.
Such insurance provides an aggregate maximum of $6,000,000 of coverage for
directors and officers of CNB and its subsidiaries against claims made during
the policy period.
Statutory Antitakeover Provisions
Neither Spangler's charter nor the provisions of applicable law to which it is
subject contain provisions having an antitakeover purpose.
Pennsylvania corporations that have a class of stock registered under the
Exchange Act, such as CNB, are automatically subject to certain antitakeover
provisions of the BCL, unless the articles of
44
incorporation provide that those provisions shall not apply to the corporation.
CNB has not opted out of those antitakeover provisions.
The antitakeover provisions of the BCL are Sections 1715 and 2538 and
Subchapters 25E, 25F, 25G and 25H. Section 1715, in addition to providing that
the directors in discharging their duties need not regard the interests of the
stockholders as a dominant factor, expressly states that their fiduciary duty
does not require them to redeem any rights under or render inapplicable any
stockholder rights plan or certain of the antitakeover provisions of the BCL.
Section 2538 requires that fundamental corporate transactions, such as mergers
and share exchanges, be approved by a majority vote of the disinterested
stockholders. Subchapter 25E with certain exceptions entitles the stockholders
to be paid the fair value of their shares by anyone who acquires 20% or more of
the outstanding voting power of the corporation; Subchapter 25F imposes certain
financial requirements and restrictions on business combinations with interested
stockholders; Subchapter 25G, relating to so-called control share acquisitions,
with certain exceptions limits the voting rights of persons who have acquired
20% or more of the outstanding voting power of the corporation; and Subchapter
25H requires disgorgement of certain profits made by "controlling shareholders"
following their attempts to gain control of the corporation.
EXPERTS
The consolidated financial statements of CNB at December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998, incorporated
by reference in this Prospectus/Proxy Statement have been so incorporated in
reliance on the report of Ernst & Young LLP, independent auditors, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Spangler as of December 31, 1998 and 1997 and for
each of the two years in the period ended December 31, 1998, included in this
Prospectus/Proxy Statement have been so included in reliance on the report of
Stokes Kelly & Hinds, LLC, independent auditors, given on the authority of said
firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the CNB Common Stock to be issued pursuant to the Merger will
be passed upon for CNB by Klett Lieber Rooney & Schorling, a Professional
Corporation.
45
INDEX TO SPANGLER FINANCIAL INFORMATION
Page
Managements' Discussion and Analysis of Financial Condition
and Results of Operations................................... 47
Independent Auditor's Report................................. 59
Balance Sheets at December 31, 1998 and 1997................. 60
Statements of Income for the Years Ended
December 31, 1998 and 1997.................................. 61
Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1997 and 1998...................... 62
Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997.................................. 63
Notes to Financial Statements................................ 64
Balance Sheets at March 31, 1999 and December 31, 1998....... 72
Statements of Income for the three months ended
March 31, 1999 and 1998..................................... 73
Statements of Changes in Shareholders' Equity for the
three months ended March 31, 1999 and 1998.................. 74
Statements of Cash Flows for the three months ended
March 31, 1999 and 1998..................................... 75
Notes to Financial Statements March 31, 1999................. 76
46
THE FIRST NATIONAL BANK OF SPANGLER
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On the following pages of this Prospectus/Proxy Statement we present
management's discussion and analysis of the financial condition and results of
operations of Spangler. Management's discussion and analysis discusses the
significant changes in the results of operations, capital resources and
liquidity presented in its accompanying financial statements for Spangler.
Current performance does not guarantee, assure, or may not be indicative of
similar performance in the future.
The following discussion focuses on and highlights certain information
regarding Spangler. We recommend that you read this discussion in
conjunction with the financial statements and related notes appearing
elsewhere in this proxy statement/prospectus.
We caution you not to place undue reliance on forward-looking statements in this
section as they reflect management's analysis only as of this date. Spangler
undertakes no obligation to publicly revise or update these forward-looking
statements to reflect subsequent events or circumstances.
Summary of Results of Operations and Financial Condition
- --------------------------------------------------------
Spangler's assets as of March 31, 1999 were $32,972,000 reflecting a 4.34%
increase from the period ended March 31, 1998. Although there was a decrease in
net loans, increases in investments and federal funds sold resulted in a net
increase in assets of $1,372,000.
Net income for the three months ended March 31, 1999 decreased by $9,000 or
10.97% from the three month period ending March 31, 1998. A decrease in net
interest income of $9,000 combined with increases in non-interest expense and
income taxes was only partially offset by decreases in loans loss provisions and
increase in non-interest income.
At December 31, 1998, Spangler's total assets amounted to $32,065,000 as
compared to $30,912,000 at December 31, 1997. The $1,153,000 or 3.73% increase
was primarily due to an increase of $1,270,000 in federal funds sold.
Net earnings were $296,000 for the year ended December 31, 1998, as compared to
$393,000 for the year ended December 31, 1997. The $97,000 decrease in net
earnings resulted primarily from an increase in interest expense of $85,000 and
in other operating expenses of $89,000, offset by an increase in interest income
$29,000, and a decrease in the provision for income taxes of $50,000.
The Year 2000 Issue
- -------------------
Spangler is aware of the issues associated with the programming code in existing
computer systems as the year 2000 approaches. The year 2000 issue is the result
of computer programs being written using two digits rather than four digits to
define the applicable year. Computer programs that have time-sensitive coding
may recognize a date using "00" as the year 1900 rather than the year 2000.
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail.
Spangler has conducted a review of its computer systems to identify the systems
that could be affected by the year 2000 issue and has developed an
implementation plan to resolve the issue. Spangler is primarily dependent upon
systems that have been developed by third parties and, therefore, is dependent
upon vendor compliance. Spangler will have contingency plans in place for all
systems according to the regulatory schedule. These plans involve automated as
well as manual actions and may require additional staffing requirements.
Spangler believes that the year 2000 will not pose significant operational
problems for its computer operations.
Spangler could be adversely affected by year 2000 problems experienced by others
(including its customers, service providers, vendors, customers' vendors,
correspondent banks, government agencies, and the financial services industry in
general) over which it has no control. If, for example, one of Spangler's
customers failed to adequately prepare for the Year 2000, Spangler could be
adversely affected and, in turn, this could affect Spangler's ability to
47
collect outstanding loans and retain deposit balances. Consequently, if
Spangler or any of its service providers, correspondents, vendors or customers
experiences a disruption of business resulting from the year 2000, the
financial condition, results of operations and liquidity of Spangler could be
materially adversely affected.
THE FIRST NATIONAL BANK OF SPANGLER
Selected Financial Data
March 31, December 31,
(Dollars in thousands, --------------------- ---------------------
except per share data) 1999 1998 1998 1997
--------- --------- --------- ---------
(unaudited)
Income & Expense:
Interest income $ 549 $ 561 $ 2,275 $ 2,246
Interest expense 280 283 1,151 1,067
--------- --------- --------- ---------
Net interest income 269 278 1,124 1,179
Loan loss provision 4 9 32 31
--------- --------- --------- ---------
Net interest income after loan loss provision 265 269 1,092 1,148
Noninterest income 17 14 61 63
Noninterest expense 172 168 704 615
--------- --------- --------- ---------
Income before income taxes 110 115 449 596
Income taxes 37 33 153 203
--------- --------- --------- ---------
Net income $ 73 $ 82 $ 296 $ 393
========= ========= ========= =========
Per share:
Basic $ 29.11 $ 32.82 $ 118.56 $ 157.28
Cash dividends paid - - $ 43.00 $ 34.00
Weighted average number of common shares:
Basic 2,500 2,500 2,500 2,500
Book value $1,853.60 $1,790.40 $1,837.00 $1,759.39
Average Balance Sheet:
Total Assets $ 32,644 $ 31,266 $ 31,894 $ 31,018
Investments & money market investments 9,402 7,292 7,940 8,511
Loans (net of unearned income) 22,090 22,746 22,815 21,289
Deposits 27,767 26,552 27,113 26,488
Shareholders' equity 4,635 4,466 4,539 4,276
Balance Sheet at Period End:
Total assets $ 33,000 $ 31,628 $ 32,065 $ 30,912
Investments & money market investments 9,826 7,320 8,152 7,549
Loans (net of unearned income) 21,945 23,217 22,752 22,212
Deposits 28,094 26,871 27,268 26,287
Shareholders' equity 4,634 4,476 4,593 4,398
Selected Operating Ratios:
Return on average assets 0.89% 1.05% .93% 1.27%
Return on average shareholders' equity 6.30% 7.34% 6.52% 9.19%
Leverage (assets divided by shareholders' equity) 7.12X 7.06X 6.98X 7.03X
Average total loans as a percentage of average deposits 79.55% 85.67% 84.15% 80.37%
Interest income/average earning assets* 7.05% 7.52% 7.46% 7.60%
Interest expense/average deposits & borrowings 3.99% 4.26% 4.25% 4.03%
Net interest income/average earning assets* 3.48% 3.72% 3.60% 3.96%
* Tax equivalent basis
48
Balance Sheet Analysis
- -----------------------
The tables below presents the major asset and liability categories on an
average daily basis for the periods presented, along with interest income and
expense, and key rates and yields.
The March 31, 1999 federal funds sold balance of $2,900,000 was $2,105,000
higher than the March 31, 1998 balance of $795,000.
The December 31, 1998 federal funds sold balance of $2,280,000 was $1,270,000
higher than the December 31, 1997 balance of $1,010,000.
Distribution of assets, liabilities and shareholders equity, interest rates and
interest differential:
March 31,
-------------------------------------------------------------
(Dollars in thousands) 1999 1998
------------------------------ -----------------------------
Average Average Average Average
Assets Balance Rate Interest Balance Rate Interest
------- ---- -------- ------- ---- --------
Investment securities:
Taxable investments $ 5,894 5.90% $ 87 $ 6,444 6.46% $ 104
Nontaxable investments (1) 300 5.08 4 100 9.20 2
------- ---- ------ ------- ---- ------
Total investment securities 6,194 5.88 91 6,544 6.48 106
Loans (1)(2) 21,877 7.72 422 22,532 7.88 444
Other rate-sensitive assets 3,208 4.74 38 748 5.88 11
------- ---- ------ ------- ---- ------
Total earning assets 31,279 7.05 551 29,824 7.52 561
Non-interest earning assets 1,365 - - 1,442 - -
------- ---- ------ ------- ---- ------
Total assets $32,644 6.75% $ 551 $31,266 7.18% $ 561
======= ==== ====== ======= ==== ======
Liabilities and Shareholders' Equity
Deposits:
Demand $ 1,972 1.98% $ 10 $ 1,858 1.69% $ 8
Savings 6,129 2.76 42 6,267 2.99 47
Time 17,150 5.32 228 16,178 5.64 228
------- ---- ------ ------- ---- ------
Total deposits 25,251 4.44 280 24,303 4.66 283
Borrowings and other
interest bearing liabilities - - - - - -
Non-interest bearing deposits 2,516 - - 2,249 - -
Other liabilities 242 - - 248 - -
------- ---- ------ ------- ---- ------
Total liabilities 28,009 4.00 280 26,800 4.22 283
Shareholders' equity 4,635 - - 4,466 - -
------- ---- ------ ------- ---- ------
Total liabilities and
shareholders' equity $32,644 3.43% $ 280 $31,266 3.62% $ 283
======= ==== ====== ======= ==== ======
Average effective rate on
interest bearing liabilities
Interest income/earning assets $31,279 7.05% $ 551 $29,824 7.52% $ 561
Interest expense/earning assets $31,279 3.58 $ 280 $29,824 3.80 $ 283
---- ----
Effective interest differential 3.47% 3.72%
===== =====
49
Balance Sheet Analysis (continued)
- --------------------------------------
Year Ended December 31,
-------------------------------------------------------------
(Dollars in thousands) 1998 1997
------------------------------ -----------------------------
Average Average Average Average
Assets Balance Rate Interest Balance Rate Interest
------- ---- -------- ------- ---- --------
Assets
Investment securities:
Taxable investments $ 5,881 6.48% $ 381 $ 7,266 6.63% $ 482
Nontaxable investments (1) 62 8.06 5 100 9.69 9
------- ---- ------ ------- ---- ------
Total investment securities 5,943 6.50 386 7,366 6.67 491
Loans (1)(2) 22,602 7.89 1,784 21,071 8.04 1,695
Other rate-sensitive assets 1,997 5.36 107 1,145 5.41 62
------- ---- ------ ------- ---- ------
Total earning assets 30,542 7.46 2,277 29,582 7.60 2,248
Non-interest earning assets 1,352 - - 1,436 - -
------- ---- ------ ------- ---- ------
Total assets $31,894 7.14% $2,277 $31,018 7.25% $2,248
======= ==== ====== ======= ==== ======
Liabilities and Shareholders' Equity
Interest bearing deposits:
Demand $ 1,949 1.84% $ 36 $ 2,287 1.73% $ 39
Savings 6,200 2.97 184 7,150 3.01 216
Time 16,510 5.64 931 14,571 5.57 812
------- ---- ------ ------- ---- ------
Total interest bearing deposits 24,659 4.67 1,151 24,008 4.44 1,067
Borrowings and other
interest bearing liabilities - - - - - -
Non-interest bearing deposits 2,454 - - 2,480 - -
Other liabilities 242 - - 254 - -
------- ---- ------ ------- ---- ------
Total liabilities 27,355 4.21 1,151 26,742 3.99 1,067
Shareholders' equity 4,539 - - 4,276 - -
------- ---- ------ ------- ---- ------
Total liabilities and
shareholders' equity $31,894 3.61% $1,151 $31,018 3.44% $1,067
======= ==== ====== ======= ==== ======
Average effective rate on
interest bearing liabilities
Interest income/earning assets $30,542 7.46% $2,277 $29,582 7.60% $2,248
Interest expense/earning assets $30,542 3.77 $1,151 $29,582 3.61 $1,067
---- ----
Effective interest differential 3.69% 3.99%
==== ====
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
(2) Nonaccrual loans have been included in the appropriate average loan balance
category, but interest on nonaccrual loans has not been included for
purposes of determining interest income.
50
Investment Securities
- ----------------------
Total securities increased from $6,525,000 at March 31, 1998 to $6,926,000 at
March 31, 1999. This increase is due to an increase in tax free securities, and
FHLB and FNMA certificates, offset by a decrease in U.S. Treasury Securities.
Total securities of $5,872,000 decreased $667,000 from December 31, 1997 to
December 31, 1998. This decrease is a net result of a decrease in the
securities available for sale portfolio.
The maturity analysis of investment securities available for sale, including the
weighted average yield for each category as of March 31, 1999, is as follows:
Under 1 - 5 5 - 10 Over
1 year years years 10 Years Total
------- ------- ------ -------- ------
(Dollars in thousands)
U.S. Treasury securities
Carrying value $2,516 $1,830 $ - $ - $4,346
Weighted average yield 6.35% 6.37% 0.0% 0.0% 6.36%
Weighted average maturity 1 yrs. 0 mo.
Obligations of U.S. Government
corporations and agencies
Carrying value $ - $2,092 $ - $ - $2,092
Weighted average yield 0.0% 4.90% 0.0% 0.0% 4.90%
Weighted average maturity 2 yrs. 5 mo.
Obligations of states and
political subdivisions
Carrying value $ - $ 301 $ - $ - $ 301
Weighted average yield 0.0% 5.15% 0.0% 0.0% 5.15%
Weighted average maturity 2 yrs. 4 mo.
Mortgage-backed securities
Carrying value $ - $ - $ - $ 2 $ 2
Weighted average yield 0.0% 0.0% 0.0% 9.00% 9.00%
Weighted average maturity 17 yrs. 1 mo.
Equity securities
Carrying value $ - $ - $ 185 $ - $ 185
Weighted average yield 0.0% 0.0% 6.41% 0.0% 6.41%
Weighted average maturity N/A
Weighted average yield is computed by dividing the annualized interest income,
including the accretion of discounts and the amortization of premiums, by the
carrying value. Tax-exempt securities were adjusted to a tax-equivalent basis
and are based on the federal statutory tax rate of 34%.
(Dollars in thousands) March 31, 1999
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale Cost Gains (Losses) Value
------ ---------- ---------- ------
US Treasury securities $4,296 $50 $ - $4,346
US Government and Agency Securities 2,102 - (10) 2,092
Obligations of states and political
subdivisions 300 1 - 301
Mortgage backed securities 2 - - 2
Equity securities 185 - - 185
------ ---------- ---------- ------
Totals $6,885 $51 $(10) $6,926
====== ========== ========== ======
51
Investment Securities (continued)
- ---------------------------------
March 31, 1998
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale Cost Gains (Losses) Value
------ ---------- ---------- ------
U.S. Treasury Notes $6,192 $67 $ - $6,259
Obligations of states and political
subdivisions 100 1 - 101
Mortgage backed securities 6 - - 6
Equity securities 163 - - 163
------ --- ---------- ------
Totals $6,461 $68 $ - $6,529
====== === ========== ======
December 31, 1998
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale Cost Gains (Losses) Value
------ ---------- ---------- ------
US Treasury securities $4,595 $84 $ - $4,679
US Government and Agency Securities 702 4 - 706
Obligations of states and political
subdivisions 300 - - 300
Mortgage backed securities 2 - - 2
Equity securities 185 - - 185
------ --- ---------- ------
Totals $5,784 $88 $ - $5,872
====== === ========== ======
December 31, 1997
---------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Available for Sale Cost Gains (Losses) Value
------ ---------- ---------- ------
U.S. Treasury Notes $6,190 $80 $(1) $6,269
Obligations of states and political
subdivisions 100 1 - 101
Mortgage backed securities 6 - - 6
Equity securities 163 - - 163
------ --- ---------- ------
Totals $6,459 $81 $(1) $6,539
====== === ========== ======
Loans
- ------
Spangler grants commercial loans, residential mortgages, and consumer loans to
customers located primarily in Spangler, Pennsylvania and surrounding
communities. Spangler has a concentration of credit in Indiana and Cambria
Counties and exposure to credit loss can be adversely impacted by downturns in
local economic and employment conditions.
Net loans receivable at March 31, 1999, were $21,731,000, a decrease of
$1,268,000 from net loans of $22,999,000 at March 31, 1998. The decrease was
primarily attributable to a decrease in real estate loans of $678,000 and a
decrease in installment and commercial loans of $595,000.
Net loans receivable grew by $593,000 to $22,538,000 at December 31, 1998, from
$21,999,000 at December 31, 1997. This growth was primarily composed of an
increase in real estate loans of $984,000 and an increase in commercial and
industrial loans of $77,000, offset by a decrease in installment loans of
$522,000.
52
Loans (continued)
- -----------------
Major classifications of loans are summarized as follows:
March 31, December 31,
---------------- ----------------
(Dollars in thousands) 1999 1998 1998 1997
------- ------- ------- -------
Commercial and industrial $ 2,984 $ 3,273 $ 2,871 $ 2,794
Installment loans and other 3,079 3,385 3,129 3,650
Real estate 15,882 16,560 16,752 15,768
------- ------- ------- -------
Total loans $21,945 $23,218 $22,752 $22,212
Less:
Reserve for possible loan losses 214 219 214 213
------- ------- ------- -------
Loans, net $21,731 $22,999 $22,538 $21,999
======= ======= ======= =======
A loan is generally classified as nonaccrual when principal or interest has
consistently been in default for a period of 90 days, there has been a
deterioration in the financial condition of the borrower, or payment in full
of principal or interest is not expected. Delinquent loans past due 90 days or
more and still accruing interest are generally well-secured and expected
to be restored to a current status in the near future. The following table
details those loans that were placed on nonaccrual status, were accounted
for as troubled debt restructurings or were delinquent 90 days or more and
still accruing interest:
March 31, December 31,
---------------- ----------------
(Dollars in thousands) 1999 1998 1998 1997
------- ------- ------- -------
Nonaccrual loans $ 0 $ 4 $ 70 $ 18
Delinquent loans 43 7 80 1
------- ------- ------- -------
Total $ 43 $ 11 $ 150 $ 19
======= ======= ======= =======
Allowance for Possible Loan Losses
- ----------------------------------
A summary of the allowance for loan losses is as follows:
March 31, December 31,
---------------- ----------------
(Dollars in thousands) 1999 1998 1998 1997
------- ------- ------- -------
Average loans $22,017 $23,121 $22,735 $22,096
======= ======= ======= =======
Reserve, beginning of period 214 212 212 210
------- ------- ------- -------
Loans charged-off:
Commercial and industrial 0 0 30 0
Installment and other 5 3 5 17
Real estate 0 0 0 14
------- ------- ------- -------
Total loans charged-off 5 3 35 31
------- ------- ------- -------
Recoveries:
Commercial and industrial 0 0 0 0
Installment and other 0 1 5 2
Real estate 1 0 0 0
------- ------- ------- -------
Total recoveries 1 1 5 2
------- ------- ------- -------
53
Allowance for Possible Loan Losses (continued)
- ----------------------------------------------
Net loans charged-off 4 2 30 29
------- ------- ------- -------
Provision for loan losses 4 9 32 31
------- ------- ------- -------
Reserve, end of period $ 214 $ 219 $ 214 $ 212
======= ======= ======= =======
Ratio of net charge-offs to
average loans outstanding .02% .01% .13% .13%
======= ======= ======= =======
The provision for loan losses is based upon a credit review of the loan
portfolio, past loan loss experience, current economic conditions and other
pertinent factors which form a basis for determining the adequacy of the
allowance for possible loan losses. In the opinion of management, the aggregate
amount reserved is deemed to be adequate to absorb future loan losses.
Transactions in the reserve for possible loan losses account are summarized as
follows:
March 31, December 31,
------------ ------------
(Dollars in thousands) 1999 1998 1998 1997
----- ----- ----- -----
Beginning balance $ 214 $ 212 $ 212 $ 210
Provision charged to operations 4 9 32 31
Recovery of loans previously charged-off 1 1 5 2
----- ----- ----- -----
219 222 249 243
Loans charged-off 5 3 35 31
----- ----- ----- -----
Ending balance $ 214 $ 219 $ 214 $ 212
===== ===== ===== =====
The reserve for possible loan losses decreased $5,000 to $214,000 at March 31,
1999 from $219,000 at March 31, 1998. The reserve for possible loan losses as a
percent of total loans increased .04% from .92% at March 31, 1998 to .96% at
March 31, 1999.
The reserve for possible loan losses of $214,000 at December 31, 1998 was .94%
of loans as compared to .96% of loans at December 31, 1997.
Premises and Equipment
- ----------------------
Spangler's premises and equipment are summarized as follows:
March 31, December 31,
--------------------- --------------------
(Dollars in thousands) 1999 1998 1998 1997
---------- --------- --------- ---------
Land $ 42 $ 42 $ 42 $ 42
Bank premises 441 435 441 435
Furniture & Equipment 423 394 408 380
------- ----- ------- -----
906 871 891 857
Less accumulated depreciation (494) (432) (478) (416)
------- ----- ------- -----
Bank premises and equipment, net $ 412 $ 439 $ 413 $ 441
======= ===== ======= =====
54
Deposits
- --------
The following table is a distribution of average balances and average rates
paid on the deposit categories:
March 31, 1999 March 31, 1998
----------------- ------------------
(Dollars in thousands) Amount Rate Amount Rate
------- ----- ------- -----
Non-interest bearing $ 2,516 0.00% $ 2,249 0.00%
Interest bearing
checking accounts 1,972 1.98 1,858 1.69
Money market accounts 1,554 3.69 1,667 4.54
Savings 4,575 2.45 4,600 2.43
Time-under $100,000 15,336 5.36 14,145 5.63
Time-over $100,000 1,814 4.95 2,033 5.62
------- ----- ------- -----
Total $27,767 4.04% $26,552 4.25%
======= ===== ======= =====
December 31, 1998 December 31, 1997
----------------- ------------------
(Dollars in thousands) Amount Rate Amount Rate
------- ----- ------- -----
Non-interest bearing $ 2,454 0.00% $ 2,480 0.00%
Interest bearing
checking accounts 1,949 1.84 2,287 1.73
Money market accounts 1,605 4.37 1,939 4.43
Savings 4,595 2.48 5,211 2.49
Time-under $100,000 14,483 5.65 12,606 5.57
Time-over $100,000 2,027 5.62 1,965 5.57
------- ----- ------- -----
Total $27,113 4.25% $26,488 4.03%
======= ===== ======= =====
Total deposits increased by 4.55% to $28,094,000 at March 31, 1999 from
$26,871,000 at March 31, 1998. The increase was attributed to an increase in
all the deposit accounts, offset partially by a decrease in time deposits over
$600,000.
Total deposits increased by 3.74% to $27,268,000 at December 31, 1998, as
compared to $26,286,000 at December 31, 1997. This increase was principally due
to increases in non-interest bearing and time deposits of approximately
$1,360,000 and partially offset by an decrease in interest bearing checking,
money market and savings accounts.
Deposits are summarized as follows:
March 31, December 31,
---------------- ----------------
(Dollars in thousands) 1999 1998 1998 1997
------- ------- ------- -------
Non-interest bearing $ 2,680 $ 2,091 $ 2,358 $ 2,169
Interest bearing checking accounts 2,027 1,861 1,987 2,005
Money market accounts 1,962 1,660 1,526 1,741
Savings 4,722 4,563 4,531 4,706
Time, under $100,000 14,846 14,653 14,913 13,742
Time, over $100,000 1,857 2,043 1,953 1,923
------- ------- ------- -------
Total Deposits $28,094 $26,871 $27,268 $26,286
======= ======= ======= =======
Capital
- -------
The capital guidelines classify capital into two tiers, referred to as Tier I
and Tier II. Under risk-based capital requirements, total capital accounts
consist of Tier I capital which is generally common shareholders' equity less
goodwill and Tier II capital which is primarily a portion of the allowance for
loan losses and certain qualifying debt instruments. In determining risk-based
capital requirements, assets are assigned risk-weights of 0% to 100%, depending
primarily on the regulatory assigned levels of credit risk associated with such
assets. Off-balance sheet items are considered in the calculation of risk-
adjusted assets through conversion factors established by the regulators. The
framework for calculating risk-based capital requires banks to meet the
regulatory minimums of 4% Tier I and 8% total risk-based capital. In 1990
55
Capital (continued)
- -------------------
regulators added a leverage computation to the capital requirements, comparing
Tier I capital to total average assets less goodwill.
The following table sets forth the Spangler's actual regulatory capital adequacy
ratios:
March 31, December 31,
------------ ------------
1999 1998 1998 1997
----- ----- ---- -----
Tier I Capital Ratio 29.8% 28.3% 29.3% 28.4%
Total Capital Ratio 31.0 29.6 30.7 29.7
Leverage Ratio 14.1 14.2 14.2 14.1
Results of Operations
- ---------------------
Net income for the period ended March 31, 1999 was $73,000, which was 10.97%
below the period ended March 31, 1998. Basic earnings per share were $29.11 for
the period ended March 31, 1999, and $32.82 for the period ended March 31, 1998.
The decrease in net income was mainly caused by lower interest income.
Net income for the year ended December 31, 1998 was $296,000, or 2.46% below the
year ended December 31, 1997. Basic earnings per share for the years ended
December 31, 1998 and 1997 were $118.56 and $157.28, respectively. The decrease
in net income is primarily the result of higher interest expense on deposits
during 1998.
On January 1, 1998, Spangler adopted the Financial Accounting Standards Board
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." Comprehensive income is the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. Other comprehensive income consists of
net unrealized gains on investment securities available for sale. Subsequent to
the adoption date, all prior-period amounts are required to be restated to
conform to the provision of SFAS No. 130. Comprehensive income for the year
ended December 31, 1998 was $395,772, compared to $301,523 for year ended
December 31, 1997.
Net Interest Income
- --------------------
Net interest income is the major component of Spangler's income and represents
the amount by which interest and fees generated by earning assets exceeds the
total cost of funds used to support the earning assets.
Interest income for the three months ended March 31, 1999 was $549,000, a
decrease of $11,000 from the amount reported for the three months ended March
31, 1998. Interest income decreased as a result of a decrease in total loans
for the three months ended March 31, 1999 in comparison to the three months
ended March 31, 1998. Interest expense remained stable for the three months
ended March 31, 1999, in comparison to the three months ended March 31, 1998.
Net interest income decreased $9,000, or 3.24%, from $278,000 for the three
months ended March 31, 1998 to $269,000 for the three months ended March 31,
1999.
Interest income for the year ended December 31, 1998 was $2,275,000, an
increase of approximately $29,000 over the amount reported for the year ended
December 31, 1997. The increase in interest income was attributable to an
increase in total loans during 1998. Interest expense increased $85,000 from
$1,067,000 for 1997 to $1,151,000 in 1998. The increase was primarily due to
increases in interest-bearing deposits for 1998 as compared to 1997. Net
interest income at December 31, 1998 of $1,124,000 was 4.67% lower than the
December 31, 1997 net interest income of $1,179,000.
56
For analytical purposes, the following table reflects tax-equivalent net
interest income in recognition of the income tax savings on tax-exempt items
such as interest on municipal securities and tax-exempt loans. Adjustments are
made using a statutory federal tax rate of 34%.
Three Months Ended Year Ended
March 31, December 31,
------------------ ------------------
(Dollars in thousands) 1999 1998 1998 1997
------ ------ ------ ------
Interest income $ 549 $ 560 $2,275 $2,246
Interest expense 280 282 1,151 1,067
----- ----- ------ ------
Net interest income 269 278 1,124 1,179
Tax equivalent adjustment (3) (2) (4) (6)
----- ----- ------ ------
Net interest income
(fully taxable equivalent) $ 266 $ 276 $1,120 $1,173
====== ===== ====== ======
Three months ended
March 31, December 31,
------------------------- -------------------------
(Dollars in thousands) 1999 Over (under) 1998 1998 Over (under) 1997
------------------------- -------------------------
due to changes in due to changes in
------------------------- -------------------------
Net Net
Change Rate Volume Change Rate Volume
------ ------ ------ ------ ------ ------
Interest Income:
Investment securities (1) $ (15) $ (9) $ (6) $ (105) $ (10) $ (95)
Loans (1) (22) (9) (13) 89 (34) 123
Other Assets 27 (9) 36 45 (1) 46
----- ----- ----- ------ ------ ------
Total (10) (27) 17 29 (45) 74
----- ----- ----- ------ ------ ------
Interest Expense:
Savings deposits (3) (3) 0 (35) 0 (35)
Time deposits 0 (55) 55 119 11 108
Borrowings and other
interest-bearing liabilities - - - - - -
----- ----- ----- ------ ------ ------
Total (3) (58) 55 84 11 73
----- ----- ----- ------ ------ ------
Changes in net interest income $ (7) $ 31 $ (38) $ (55) $ (56) $ 1
===== ===== ===== ====== ====== ======
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
Provision for Loan Losses
- -------------------------
For the period ended March 31, 1999, the provision for loan losses was $4,000 as
compared to $9,000 for the period ended March 31, 1998. Net charge-offs were
$4,000 for the period ended March 31, 1999, and $2,000 for the period ended
March 31, 1998.
The provision for loan losses for the year ended December 31, 1998 was $32,000,
compared to $31,000 for the same period in 1997. Spangler experienced a $30,000
net charge-off of loans during the year ended December 31, 1998, compared to a
net charge-off of $29,000 during the same period in 1997.
57
Other Income
- ------------
Other income increased from $14,000 for the period ended March 31, 1998 to
$17,000 for the period ended March 31, 1999. The increase was mainly caused by
higher fees on deposit accounts.
Other income decreased 2.2% to $61,000 for the year ended December 31, 1998 from
$63,000 during the year ended December 31, 1997. The decrease was primarily due
to a decrease in other service charges and fees of $4,000. The decrease in
other income was offset partially by an increase in service charges and fees on
deposit accounts of $3,000 from year ended December 31, 1997 to 1998.
Other Operating Expenses
- ------------------------
Other operating expenses were $172,000 for the period ended March 31, 1999, as
compared to $168,000 for the period ended March 31, 1998. The increase was
mainly due to higher employee related expenses.
Other operating expenses of $703,955 for the year ended December 31, 1998, was
$89,000 higher than for the same period in 1997. This increase was the result
of higher salaries, wages and employee benefits and other expenses.
Income Taxes
- ------------
Income tax expense was $37,000 for the period ended March 31, 1999, as compared
to $33,000 for the period ended March 31, 1998.
Income tax expense totaled $153,000 and $203,000 for the years ended December
31, 1998 and 1997, respectively. These amounts represent effective tax rates of
34%.
58
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
The First National Bank of Spangler
Spangler, Pennsylvania
We have audited the accompanying balance sheets of The First National Bank of
Spangler as of December 31, 1998 and 1997, and the related statements of income,
changes in shareholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The First National Bank of
Spangler as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Stokes Kelly & Hinds, LLC
STOKES KELLY & HINDS, LLC
Pittsburgh, Pennsylvania
January 7, 1999
59
THE FIRST NATIONAL BANK OF SPANGLER
-----------------------------------
BALANCE SHEETS
--------------
December 31,
-------------------------
1998 1997
----------- -----------
ASSETS
Cash and due from banks on demand $ 712,055 $ 669,415
Federal funds sold 2,280,000 1,010,000
Securities available for sale 5,872,303 6,539,452
Loans 22,752,242 22,212,054
Unearned income (83) (745)
Reserve for possible loan losses (214,287) (212,601)
----------- -----------
Net loans 22,537,872 21,998,708
Premises and equipment, net 412,635 440,541
Accrued interest receivable 172,454 204,039
Other assets 77,352 49,999
----------- -----------
TOTAL ASSETS $32,064,671 $30,912,154
=========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 2,358,452 $ 2,169,461
Interest bearing 24,909,890 24,117,238
----------- -----------
Total deposits 27,268,342 26,286,699
Other liabilities 203,823 226,972
----------- -----------
Total liabilities 27,472,165 26,513,671
SHAREHOLDERS' EQUITY
Common stock, par value $20;
2,500 shares authorized,
issued and outstanding 50,000 50,000
Additional paid-in capital 300,000 300,000
Retained earnings 4,184,033 3,995,138
Accumulated other comprehensive income 58,473 53,345
----------- -----------
Total shareholders' equity 4,592,506 4,398,483
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $32,064,671 $30,912,154
=========== ===========
The accompanying notes are an integral part of these financial statements.
60
THE FIRST NATIONAL BANK OF SPANGLER
-----------------------------------
STATEMENTS OF INCOME
--------------------
Years Ended December 31,
------------------------
1998 1997
---------- ----------
INTEREST INCOME
Interest and fees on loans $1,784,401 $1,695,542
Interest and dividends on securities:
Taxable 380,870 481,573
Exempt from federal income taxes 3,600 6,400
Interest on federal funds sold 106,579 62,298
---------- ----------
Total interest income 2,275,450 2,245,813
INTEREST EXPENSE - DEPOSITS 1,151,576 1,066,592
---------- ----------
NET INTEREST INCOME 1,123,874 1,179,221
PROVISION FOR POSSIBLE LOAN LOSSES 32,000 31,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 1,091,874 1,148,221
OTHER OPERATING INCOME
Service charges on deposit accounts 38,069 35,157
Other service charges and fees 18,027 23,633
Other income 5,060 3,732
---------- ----------
Total other operating income 61,156 62,522
OTHER OPERATING EXPENSES
Salaries and employee benefits 229,511 213,917
Net occupancy expense 55,076 56,353
Furniture and equipment expense 53,586 49,403
Other expense 365,782 294,973
---------- ----------
Total other operating expense 703,955 614,646
---------- ----------
INCOME BEFORE INCOME TAXES 449,075 596,097
APPLICABLE INCOME TAX EXPENSE 152,680 202,891
---------- ----------
NET INCOME $ 296,395 $ 393,206
========== ==========
EARNINGS PER COMMON SHARE $ 118.56 $ 157.28
========== ==========
The accompanying notes are an integral part of these financial statements.
61
THE FIRST NATIONAL BANK OF SPANGLER
-----------------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Shareholders'
Stock Capital Earnings Income Equity
---------- ----------- ----------- ------------- --------------
Balance January 1, 1997 $50,000 $300,000 $3,686,932 $50,779 $4,087,711
Comprehensive income:
Net income - - 393,206 - 393,206
Other comprehensive
income net of tax:
Change in unrealized
gain on securities
available for sale,
net of deferred income
tax liability of $ 1,322 - - - 2,566 2,566
-------------
Total Comprehensive
Income 395,772
Dividends declared
($34 per share) - - (85,000) - (85,000)
---------- ----------- ---------- ------------- -------------
Balance December 31, 1997 50,000 300,000 3,995,138 53,345 4,398,483
Comprehensive income:
Net income - - 296,395 - 296,395
Other comprehensive
income net of tax:
Change in unrealized
gain on securities
available for sale,
net of deferred income
tax liability of $ 2,642 - - - 5,128 5,128
-------------
Total Comprehensive
Income 301,523
Dividends declared
($43 per share) - - (107,500) - (107,500)
---------- ----------- ---------- ------------- -------------
Balance at December 31, 1998 $50,000 $300,000 $4,184,033 $58,473 $4,592,506
========== =========== ========== ============= =============
The accompanying notes are an integral part of these financial statements.
62
THE FIRST NATIONAL BANK OF SPANGLER
-----------------------------------
STATEMENTS OF CASH FLOWS
------------------------
Years Ended December 31,
-------------------------
1998 1997
------------ ------------
OPERATING ACTIVITIES
Net income $ 296,395 $ 393,206
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 62,137 56,728
Net amortization of securities and loan fees 84,295 72,291
Provision for possible loan losses 32,000 31,000
Deferred income tax provision (benefit) (1,059) 3,713
(Increase) decrease in accrued interest receivable 31,585 (21,634)
(Increase) decrease in other assets 2,938 (5,457)
Increase in accrued interest payable 7,540 6,211
Decrease in income taxes payable (42,462) (3,950)
Increase (decrease) in other liabilities 11,773 (5,584)
----------- -----------
Net cash provided by operating activities 485,142 526,524
----------- -----------
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold (1,270,000) 1,375,000
Purchases of investment securities available for sale (1,023,860) (1,622,950)
Proceeds from maturities of securities available for sale 1,704,087 2,002,339
Net increase in loans (692,641) (1,410,789)
Purchases of premises and equipment (34,231) (33,760)
----------- -----------
Net cash provided by (used in) investing activities (1,316,645) 309,840
----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 981,643 (775,536)
Dividends paid (107,500) (85,000)
----------- -----------
Net cash provided by (used in) financing activities 874,143 (860,536)
----------- -----------
Net increase (decrease) in cash and cash equivalents 42,640 (24,172)
Cash and cash equivalents at beginning of year 669,415 693,587
----------- -----------
Cash and cash equivalents at end of year $ 712,055 $ 669,415
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,144,028 $ 1,060,381
=========== ===========
Income taxes $ 195,142 $ 203,127
=========== ===========
The accompanying notes are an integral part of these financial statements.
63
THE FIRST NATIONAL BANK OF SPANGLER
-----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General:
--------
The following summary of accounting and reporting policies is presented to aid
the reader in obtaining a better understanding of the financial statements and
related data of The First National Bank of Spangler (the "Bank") contained in
this report. Such policies conform to generally accepted accounting principles
("GAAP") and to general practice within the financial services industry.
In preparing financial statements in conformity with GAAP, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and income and expenses during the
reporting period. Actual results could differ from those estimates.
Certain items of the financial statements for the year ended December 31, 1997
have been reclassified to conform with the December 31, 1998 presentation. None
of these reclassifications affected net income.
Securities:
-----------
Debt securities that the Bank has the positive intent and ability to hold to
maturity are classified as securities held to maturity and are reported at
amortized cost. Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses included
in earnings. Debt and equity securities not classified as either held to
maturity securities or trading securities are classified as securities available
for sale and are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of shareholders'
equity.
Net gain or loss on the sale of securities is determined using the specific
identification method.
Loans:
------
Loans are stated at face value net of unearned income. The unearned income on
installment loans is taken into income in decreasing amounts over the term of
the loan. Interest on all other loans is recognized based on the principal
amount outstanding. When a loan becomes past due and doubt exists as to the
ultimate collection of principal and interest, the accrual of income is
discontinued and is only recognized at the time payment is received. The direct
fees and costs related to the origination of a loan are netted and amortized
over the life of the loan using the interest method.
Other Real Estate Owned:
------------------------
Real estate, other than bank premises, is recorded at the lower of cost or
market at the time of acquisition. Expenses related to holding the property,
net of rental income, are generally charged against earnings in the current
period.
64
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reserve for Possible Loan Losses:
---------------------------------
The reserve for possible loan losses represents management's estimate of an
amount adequate to provide for losses which may be incurred on loans currently
held. Management determines the adequacy of the reserve based on reviews of
individual credits, historical patterns of loan charge-offs and recoveries, the
relationship of the reserve for possible loan losses to outstanding loans,
industry experience, current economic trends, and other factors relevant to the
collectibility of the loans currently in the portfolio. The reserve is
increased by provisions charged to operating expense and reduced by net charge-
offs.
Premises and Equipment:
-----------------------
Premises and equipment are carried at cost less accumulated depreciation. For
financial statement reporting and income tax purposes, depreciation is computed
both on straight-line and accelerated methods over the estimated useful life of
the premises and equipment. Charges for maintenance and repairs are expensed as
incurred.
Income Taxes:
-------------
Certain income and expense items are accounted for in different years for
financial reporting purposes than for income tax purposes. Deferred taxes are
provided to recognize these temporary differences. The principal items involved
are discount accretion on securities, the provision for possible loan losses,
and depreciation. Income tax expense is not proportionate to earnings before
taxes, principally because income from obligations of states and political
subdivisions is nontaxable.
Comprehensive Income:
--------------------
As of January 1, 1998, the Bank adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", ("FAS 130") FAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Bank's net income or shareholders' equity. FAS 130 requires unrealized gains or
losses on the Bank's available-for-sale securities, which prior to adoption were
reported separately in shareholders' equity to be included in other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirement of FAS 130.
Earnings Per Share:
-------------------
Earnings per share have been calculated on the weighted average number of shares
outstanding of 2,500 shares in 1998 and 1997.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("FAS 128"). This
statement redefines the standards for computing earnings per share ("EPS")
previously found in Accounting Principles Board Opinion No. 15, "Earnings Per
Share." FAS 128 establishes new standards for computing and presenting EPS and
requires dual presentation of "basic" and "diluted" EPS on the face of the
income statement for all entities with complex capital structures. Under FAS
128, basic EPS is to be computed based upon income available to common
shareholders and the weighted average number of common shares outstanding for
the period. Diluted EPS is to reflect the potential dilution exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Bank. FAS 128 also requires the restatement
of all prior-period EPS data presented. The Bank currently maintains a simple
capital structure, thus there are no dilutive effects on earnings per share.
Cash and Cash Equivalents:
--------------------------
For purposes of reporting cash flows, the Bank has defined cash and cash
equivalents as those amounts included in the balance sheet caption "Cash and due
from banks on demand".
65
2. CASH AND DUE FROM BANKS ON DEMAND
Regulations of the Board of Governors of the Federal Reserve system impose
uniform reserve requirements on all depository institutions with transaction
accounts (checking accounts, NOW accounts, etc.) and non-personal time deposits
(deposits with original maturities of 14 days or more). Reserves are maintained
in the form of vault cash or a non-interest bearing balance held with the
Federal Reserve Bank. The Bank also maintains deposits with the Federal Reserve
Bank and other banks for various services such as check clearing. The Bank's
reserve requirement was $25,000 at December 31, 1998.
3. SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated market values of securities available for sale
are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
December 31, 1998
-----------------
U.S. Treasury securities $4,595,194 $84,363 $ - $4,679,557
U.S. Government and
Agency securities 701,818 4,088 - 705,906
Obligations of states and
political subdivisions 300,000 - - 300,000
Mortgage-backed securities 1,895 145 - 2,040
Equity securities 184,800 - - 184,800
---------- ------- ---------- ----------
$5,783,707 $88,596 $ - $5,872,303
========== ======= ========== ==========
December 31, 1997
-----------------
U.S. Treasury securities $6,189,849 $79,657 $758 $6,268,748
Obligations of states and
political subdivisions 100,000 1,469 - 101,469
Mortgage-backed securities 5,977 458 - 6,435
Equity securities 162,800 - - 162,800
---------- ------- ---------- ----------
$6,458,626 $81,584 $758 $6,539,452
========== ======= ========== ==========
66
The amortized cost and estimated market value of securities at December 31,
1998 by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
---------- ----------
Due within 1 year $2,398,852 $2,420,500
Due after one but within five years 3,198,160 3,264,963
Mortgage-backed securities 1,895 2,040
Equity securities 184,800 184,800
---------- ----------
$5,783,707 $5,872,303
========== ==========
Securities with amortized cost and market values, respectively, of $399,625 and
$417,375 at December 31, 1998, and $200,000 and $203,375 at December 31, 1997,
were pledged to secure public deposits and for other purposes required or
permitted by law.
There were no sales of securities in 1998 and 1997.
Equity securities consist of Federal Reserve Bank stock, in the amount of
$10,500 at December 31, 1998 and 1997, and Federal Home Loan Bank Stock, in the
amount of $174,300 at December 31, 1998 and $152,300 at December 31, 1997.
The changes in net unrealized holding gain on securities available for sale that
has been included in the separate component of shareholders' equity for the year
ended December 31, is as follows:
1998 1997
------------ -----------
Gross change in unrealized gain
on securities available for sale $ 7,770 $ 3,887
Less deferred taxes 2,642 1,321
----------- -----------
Net change in unrealized gain
on securities available for sale $ 5,128 $ 2,566
=========== ===========
4. LOANS
Loans are summarized as follows at:
December 31,
-------------------------
1998 1997
------------ -----------
Mortgages and judgments $16,752,445 $15,767,979
Installment loans 3,128,508 3,650,414
Time and demand loans 2,871,289 2,793,661
----------- -----------
$22,752,242 $22,212,054
=========== ===========
The Bank's loan portfolio is collateralized with assets located within Western
Pennsylvania. Although the Bank has a diversified portfolio, exposure to credit
loss can be adversely impacted by downturns in local economic and employment
conditions.
Loans transferred to other real estate owned in 1998 amounted to $31,873. No
loans were transferred to other real estate owned in 1997.
67
5. RESERVE FOR POSSIBLE LOAN LOSSES
Transactions in the reserve for possible loan losses are summarized as follows:
1998 1997
--------- ---------
Balance at January 1, $212,601 $210,360
Loans charged against reserve (35,322) (31,467)
Recoveries of previously charged-off loans 5,008 2,708
Provision charged to operating expense 32,000 31,000
-------- --------
Balance at December 31, $214,287 $212,601
======== ========
The Bank has adopted Statement of Financial Accounting Standards No. 118
"Accounting by Creditors for Impairment of a Loan -Income Recognition and
Disclosures" ("FAS 118") which addresses the disclosure of certain loans where
it is probable that the creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Additionally, FAS 118
requires the disclosure of how the creditor recognizes interest income related
to these impaired loans.
The Bank had no loans which met its criteria for consideration as impaired in
1998 and 1997.
6. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the statement of condition. The
contract or notional amounts of these instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments. The
Bank does not issue any other instruments with significant off-balance-sheet
risk.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend standby letters of
credit written is represented by the contract or notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. The
following table identifies the contract or notional amount of those instruments
at December 31, 1998:
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $353,393
Standby letters of credit $138,203
Unused lines of credit $170,345
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers.
7. BANK PREMISES AND EQUIPMENT
The depreciation provision charged to operating expense amounted to $62,137 in
1998 and $56,728 in 1997.
The components of premises and equipment at December 31, 1998 and 1997, are as
follows:
1998 1997
-------- --------
Premises $440,856 $434,747
Furniture and equipment 407,953 379,831
-------- --------
848,809 814,578
68
Less accumulated depreciation 478,024 415,887
-------- --------
370,785 398,691
Land 41,850 41,850
-------- --------
$412,635 $440,541
======== ========
8. DEPOSITS
Interest bearing deposits include certificates of deposit issued in
denominations of $100,000 or more which amount to $3,604,707 and $1,922,794 at
December 31, 1998 and 1997. Interest expense related to certificates of
$100,000 or greater was $171,757 and $109,430 for the years ended December 31,
1998 and 1997, respectively.
Interest bearing deposits at December 31, are further detailed as follows:
1998 1997
----------- -----------
Savings accounts $ 4,531,080 $ 4,711,188
NOW accounts 1,162,162 1,286,144
HIFI accounts 825,208 714,539
Time deposits 18,391,440 17,405,367
----------- -----------
$24,909,890 $24,117,238
=========== ===========
Included in interest bearing deposits at December 31, 1998 were time deposits
with the following approximate scheduled maturities:
1999 $13,663,000
2000 3,969,000
2001 360,000
2002 156,000
2003 243,000
-----------
$18,391,000
===========
9. OTHER OPERATING EXPENSES
Included in other operating expense in 1998 are expenses of approximately
$60,000 related to merger and acquisitions activity and Year 2000 readiness.
10. INCOME TAXES
The balance sheet includes net deferred tax liability of approximately $811 at
December 31, 1998 and a net deferred tax asset of approximately $711 at December
31, 1997, respectively. The components of the net deferred tax asset
(liability) at December 31, 1998 and 1997 are as follows:
1998 1997
--------- --------
Allowance for possible loan losses $ 59,438 $ 58,865
-------- --------
Total deferred tax assets 59,438 58,865
Securities accretion 5,675 6,235
Unrealized gain on securities available for sale 30,123 27,481
Depreciation 24,451 24,378
-------- --------
69
Total deferred tax liabilities 60,249 58,094
-------- --------
Net deferred tax asset (liability) at December 31, $ (811) $ 771
======== ========
Applicable income tax expense components:
Current $153,739 $199,178
Deferred (1,059) 3,713
-------- --------
Total income tax expense $152,680 $202,891
======== ========
11. RELATED PARTY TRANSACTIONS
Some of the Bank's directors, principal officers, principal shareholders, and
their related interests had transactions with the Bank in the ordinary course of
business during 1998. All loans and commitments to loans in such transactions
were made on substantially the same terms, including collateral and interest
rates, as those prevailing at the time for comparable transactions. In the
opinion of management, these transactions do not involve more than normal risk
of collectibility or present other unfavorable features. It is anticipated that
further such extensions of credit will be made in the future. The aggregate
amount of credit extended to these directors and principal officers was
approximately $492,512 and $537,293 at December 31, 1998 and 1997.
12. CAPITAL REQUIREMENTS AND DIVIDEND RESTRICTIONS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the tables
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined). Management believes, as of December 31, 1998, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the Bank's regulatory
agency categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Bank
must maintain minimum total risk-based, Tier I risk-based, Tier I leverage
ratios as set forth in the table below. There are no conditions or events since
that notification that management believes have changed those categories.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
----------------- -------------------------------------- ---------------------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ----- ---------- -------------------------- ---------- ---------------------------
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets) $4,748,320 30.7% $1,236,154 more than or equal to 8.0% $1,545,193 more than or equal to 10.0%
Tier I Capital
(to Risk Weighted Assets) $4,534,033 29.3% 618,077 more than or equal to 4.0% 927,116 more than or equal to 6.0%
Tier I Capital
(to Average Assets) $4,534,033 14.2% $1,275,777 more than or equal to 4.0% $1,594,721 more than or equal to 5.0%
70
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $4,536,413 29.7% $1,224,160 more than or equal to 8.0% $1,530,200 more than or equal to 10.0%
Tier I Capital
(to Risk Weighted Assets) $4,345,138 28.4% 612,080 more than or equal to 4.0% 918,120 more than or equal to 6.0%
Tier I Capital
(to Average Assets) $4,345,138 14.1% $1,229,176 more than or equal to 4.0% $1,536,470 more than or equal to 5.0%
The amount of funds available to all national banks is limited by restrictions
imposed by the Comptroller of the Currency. At December 31, 1998, dividends
were restricted not to exceed $895,254 These restrictions have not had, and are
not expected to have, a significant impact on the Bank's ability to meet its
cash obligations.
71
THE FIRST NATIONAL BANK OF SPANGLER
-----------------------------------
BALANCE SHEETS
--------------
March 31,
1999 December 31,
(Unaudited) 1998
------------ -------------
ASSETS
Cash and due from banks on demand $ 649,957 $ 712,055
Federal funds sold 2,900,000 2,280,000
Securities available for sale 6,925,696 5,872,303
Loans 21,944,831 22,752,242
Unearned income (25) (83)
Reserve for possible loan losses (213,578) (214,287)
----------- -----------
Net loans 21,731,228 22,537,872
Premises and equipment, net 411,877 412,635
Accrued interest receivable 184,582 172,454
Other assets 168,018 77,352
----------- -----------
TOTAL ASSETS $32,971,358 $32,064,671
=========== ===========
LIABILITIES
Deposits
Non-interest bearing $ 2,680,049 $ 2,358,452
Interest bearing 25,413,601 24,909,890
----------- -----------
Total deposits 28,093,650 27,268,342
Other liabilities 243,457 203,823
----------- -----------
Total liabilities 28,337,107 27,472,165
SHAREHOLDERS' EQUITY
Common stock, par value $20;
2,500 shares authorized,
issued and outstanding 50,000 50,000
Additional paid-in capital 300,000 300,000
Retained earnings 4,256,798 4,184,033
Accumulated other comprehensive income 27,453 58,473
----------- -----------
Total shareholders' equity 4,634,251 4,592,506
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $32,971,358 $32,064,671
=========== ===========
The accompanying notes are an integral part of these financial statements.
72
THE FIRST NATIONAL BANK OF SPANGLER
-----------------------------------
STATEMENTS OF INCOME (UNAUDITED)
-------------------------------
Three Months Ended March 31,
----------------------------
1999 1998
-------- --------
INTEREST INCOME
Interest and fees on loans $422,158 $444,120
Interest and dividends on securities:
Taxable 86,622 104,433
Exempt from federal income taxes 2,516 1,578
Interest on federal funds sold 37,620 10,511
-------- --------
Total interest income 548,916 560,642
INTEREST EXPENSE - DEPOSITS 280,143 282,353
-------- --------
NET INTEREST INCOME 268,773 278,289
PROVISION FOR POSSIBLE LOAN LOSSES 4,000 9,000
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 264,773 269,289
OTHER OPERATING INCOME
Service charges on deposit accounts 10,423 8,591
Other service charges and fees 4,458 2,588
Other income 2,876 2,795
-------- --------
Total other operating income 17,757 13,974
OTHER OPERATING EXPENSES
Salaries and employee benefits 64,634 51,437
Net occupancy expense 16,237 17,173
Furniture and equipment expense 14,380 14,082
Other expense 77,028 85,473
-------- --------
Total other operating expense 172,279 168,165
-------- --------
INCOME BEFORE INCOME TAXES 110,251 115,098
APPLICABLE INCOME TAX EXPENSE 37,486 33,050
-------- --------
NET INCOME $ 72,765 $ 82,048
======== ========
EARNINGS PER COMMON SHARE $29.11 $32.82
======== ========
The accompanying notes are an integral part of these financial statements.
73
THE FIRST NATIONAL BANK OF SPANGLER
-----------------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
---------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Shareholders'
Stock Capital Earnings Income Equity
---------- -------- ---------- -------------- --------------
Balance at December 31, 1997 $50,000 $300,000 $3,995,138 $ 53,345 $4,398,483
Comprehensive income:
Net income - - 82,048 - 82,048
Other comprehensive
income net of tax:
Change in unrealized
gain on securities
available for sale,
net of deferred income
tax asset of $ 2,102 - - - (4,080) (4,080)
----------
Total comprehensive
income 77,968
------- -------- ---------- -------- ----------
Balance at March 31, 1998 $50,000 $300,000 $4,077,186 $ 49,265 $4,476,451
======= ======== ========== ======== ==========
Balance at December 31, 1998 $50,000 $300,000 $4,184,033 $ 58,473 $4,592,506
Comprehensive income:
Net income - - 72,765 - 72,765
Other comprehensive
income net of tax:
Change in unrealized
gain on securities
available for sale,
net of deferred income
tax asset of $15,980 - - - (31,020) (31,020)
----------
Total comprehensive
income 41,745
------- -------- ---------- -------- ----------
Balance at March 31, 1999 $50,000 $300,000 $4,256,798 $ 27,453 $4,634,251
======= ======== ========== ======== ==========
The accompanying notes are an integral part of these financial statements.
74
THE FIRST NATIONAL BANK OF SPANGLER
-----------------------------------
STATEMENTS OF CASH FLOWS (UNAUDITED)
------------------------------------
Three Months Ended March 31,
----------------------------
1999 1998
------------ ------------
OPERATING ACTIVITIES
Net income $ 72,765 $ 82,048
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 16,125 15,750
Net amortization of securities and loan fees 21,152 18,373
Provision for possible loan losses 4,000 9,000
(Increase) decrease in accrued interest receivable (12,128) (52,067)
(Increase) decrease in other assets (90,666) (61,521)
Increase in other liabilities 39,634 54,450
----------- -----------
Net cash provided by operating activities 50,882 66,033
INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold (620,000) 215,000
Purchases of investment securities available for sale (1,084,407) -
Proceeds from maturities of securities available for sale - 12,340
Net (increase) decrease in loans 781,486 (1,028,918)
Purchases of premises and equipment (15,367) (13,994)
----------- -----------
Net cash used in investing activities (938,288) (815,572)
FINANCING ACTIVITIES
Net increase in deposits 825,308 583,919
----------- -----------
Net cash provided by financing activities 825,308 583,919
----------- -----------
Net decrease in cash and cash equivalents (62,098) (165,620)
Cash and cash equivalents at beginning of year 712,055 669,415
----------- -----------
Cash and cash equivalents at end of year $ 649,957 $ 503,795
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 256,883 $ 245,783
=========== ===========
Income taxes $ - $ 44,342
=========== ===========
The accompanying notes are an integral part of these financial statements.
75
THE FIRST NATIONAL BANK OF SPANGLER
-----------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
MARCH 31, 1999
--------------
1. MANAGEMENT REPRESENTATION
-------------------------
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. However, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the annual financial
statements of The First National Bank of Spangler for the year ending December
31, 1998, including the notes thereto. In the opinion of management, the
unaudited interim financial statements include all adjustments (consisting of
only normal recurring adjustments) necessary for a fair statement of financial
position as of March 31, 1999 and the results of statements of cash flows and
changes in shareholders' equity for the three month periods ended March 31, 1999
and 1998. The results of the three months ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire year.
2. ALLOWANCE FOR LOAN LOSSES
-------------------------
Description of changes:
(Dollars in thousands) 1999 1998
----- -----
Allowance balance January 1 $ 214 $ 212
Additions:
Provision charged to operating expenses 4 9
Recoveries on previously charged off loans 1 1
Deductions:
Loans charged off (5) (3)
----- -----
Allowance balance March 31 $ 214 $ 219
===== =====
76
APPENDIX A
AGREEMENT AND PLAN OF MERGER
Between
CNB Financial Corporation
(a Pennsylvania corporation)
and
County National Bank
(a national banking association)
and
The First National Bank of Spangler
(a national banking association)
Dated as of April 27, 1999
A-1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered into as
of April 27, 1999 by and among CNB Financial Corporation ("CNB"), a Pennsylvania
corporation having its principal place of business in Clearfield, Pennsylvania,
County National Bank ("County"), a national banking association having its
principal place of business in Clearfield, Pennsylvania and a wholly-owned
subsidiary of CNB, and The First National Bank of Spangler ("Spangler"), a
national banking association having its principal place of business in Spangler,
Pennsylvania.
WHEREAS, the parties hereto deem it desirable for Spangler to be acquired
by CNB through the merger of Spangler with and into County pursuant to the
applicable laws of the United States in accordance with the provisions of this
Agreement (the "Merger"); and
WHEREAS, the parties hereto desire to enter into this Agreement for the
purpose of setting forth representations, warranties, agreements, covenants,
conditions and other provisions with respect to the Merger;
NOW, THEREFORE, in consideration of the mutual agreements, covenants, and
other provisions herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:
ARTICLE ONE
Plan of Merger
(S) 1.1 The Merger of Spangler into County. Subject to the approval of
this Agreement by the shareholders of Spangler, and subject to the other terms
and conditions contained herein, at the Effective Time of the Merger (as
described in Section 1.9 hereof), Spangler shall be merged with and into County,
which shall be the resulting or surviving association (the "Surviving
Association"). At the Effective Time of the Merger, the outstanding shares of
common stock of Spangler, $20.00 par value per share ("Spangler Common Stock"),
shall be converted into the right to receive shares of common stock of CNB,
$1.00 par value per share ("CNB Common Stock"), as described in Section 1.3
hereof. The Articles of Association and Bylaws of County as in effect
immediately prior to the Effective Time of the Merger shall be the Articles of
Association and Bylaws of the Surviving Association with no amendment being made
as a result of the Merger. From and after the Effective Time of the Merger, the
separate existence of Spangler shall cease; Spangler shall be merged into
County; County, without further action, shall possess all the rights,
privileges, powers, and franchises of a public as well as of a private nature,
and be subject to all the restrictions, disabilities, and duties of Spangler;
all and singular the rights, privileges, powers, and franchises of Spangler and
all property, real, personal, and mixed, and all debts due to Spangler on
whatever account, for stock subscriptions as well as for all other choses in
action or belonging to Spangler, shall be vested in County as effectually as
they were vested in Spangler; all property, rights, privileges, powers, and
franchises and all and every other interest shall be thereafter as effectually
the property of County as they were of Spangler; the title to any real estate
vested by deed or otherwise in County or Spangler shall not revert or be in any
way impaired, but all rights of creditors and all liens upon any property of
Spangler shall be preserved unimpaired; and all debts, liabilities, and duties
of Spangler shall attach to County and
A-2
may be enforced against it to the same extent as if said debts, liabilities,
and duties had been incurred or contracted by County.
(S) 1.2 After the Merger.
(S) 1.2 (a) From and after the Effective Time of the Merger, the Board
of Directors and officers of County, as the Surviving Association in connection
with the Merger, shall consist of those persons holding said offices immediately
prior to the Effective Time of the Merger. Except for the employees named on
Schedule 2.14 who have employment contracts with Spangler, Spangler shall
- -------------
terminate the employment of all of its employees, effective as of the Effective
Time of the Merger. County intends to interview the terminated employees of
Spangler for possible employment following the Merger, but neither CNB nor
County shall be required to offer employment to any such persons. All parties
acknowledge and agree that the employees of Spangler shall be treated with
courtesy and, to the extent practicable, fairness in effecting terminations and
transitions, as the case may be.
(b) At any time, or from time to time, after the Effective Time of the
Merger, the officers of County may, in the name of Spangler, execute all such
deeds, assignments, and other instruments and take or cause to be taken, in the
name of Spangler, all such further or other action as County may deem necessary
or desirable in order to vest, perfect, or confirm County's title to and
possession of all of Spangler's property, rights, privileges, powers, and
franchises and otherwise to carry out the purposes of this Agreement.
(S) 1.3 Conversion of Spangler Common Stock. At the Effective Time of
the Merger, by virtue of the Merger and without the necessity of any action on
the part of County, Spangler, or the shareholders of Spangler, all of the
outstanding shares of Spangler Common Stock shall be converted into the right to
receive shares of CNB Common Stock as follows:
(S) 1.3 (a) Conversion of Shares.
(i) The Spangler Common Stock shall be converted or cancelled as
follows:
(A) Subject to the provisions of Subparagraph (B) of this Section
1.3(a)(i), each share of Spangler Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger (other than shares of
Spangler Common Stock, if any, then owned by CNB, Spangler or County) shall, at
the Effective Time of the Merger, by reason of the Merger and without any action
on the part of the holder thereof, be converted into and become a right to
receive, subject to adjustment as provided in Section 1.3(a)(ii), 95 fully paid
and non-assessable shares of CNB Common Stock ("Exchange Ratio"), for a total
issuance of CNB Common Stock not to exceed 237,500 shares.
(B) Each share of Spangler Common Stock owned prior to the Merger
by CNB, County or Spangler at the Effective Time of the Merger shall be
cancelled, and no cash, stock or other property shall be delivered in exchange
therefor.
(ii) If CNB shall, at any time before the Effective Time of the Merger,
(A) pay a dividend in shares of CNB Common Stock, (B) combine the outstanding
shares of CNB Common Stock into a smaller number of shares, (C) subdivide the
outstanding shares of CNB Common Stock, or (D) reclassify the shares of CNB
Common Stock, then, in any such event, the Exchange Ratio shall be adjusted by
multiplying such Exchange Ratio by a fraction, the numerator of which is the
number of shares of CNB Common Stock outstanding immediately after the happening
of such event and the
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denominator of which is the number of shares of CNB Common Stock outstanding
immediately prior to the happening of such event.
(S) 1.3(b) Dissenting Shareholders of Spangler. Any shareholder of
Spangler who shall have delivered a written notice of his or her dissent from
this Agreement or shall have voted against the Merger, and shall have requested
in writing the value of such shares, all in accordance with the requirements of
the National Bank Act (12 USCA (S)215a), shall not be entitled to receive any
shares of CNB Common Stock pursuant to paragraph (a) of this Section 1.3, nor to
vote such shares for any purpose, to receive any dividends or other
distributions payable to holders thereof, nor to exercise any other right with
respect to such shares.
(S) 1.4 Exchange of Certificates.
(S) 1.4(a) After the Effective Time of the Merger, holders of
certificates evidencing outstanding shares of Spangler Common Stock, upon
surrender of such certificates to CNB, or to its duly authorized Exchange Agent,
shall be entitled to receive certificates evidencing the number of whole shares
of CNB Common Stock into which such shares of Spangler Common Stock shall have
been converted, as provided in Section 1.3(a) hereof. As soon as practicable
after the Effective Time of the Merger, CNB or its Exchange Agent shall send to
each Spangler shareholder of record whose stock shall have been converted into
CNB Common Stock a notice and transmittal form advising such shareholder of the
effectiveness of the Merger and the procedure for surrender of outstanding
certificates formerly evidencing Spangler Common Stock in exchange for new
certificates evidencing CNB Common Stock. The certificate or certificates so
surrendered shall be duly endorsed if CNB so requires. Upon surrender, each
certificate evidencing Spangler Common Stock shall be cancelled.
(S) 1.4(b) Until surrendered as provided in Section 1.4(a) hereof, each
outstanding certificate which prior to the Effective Time of the Merger
represented Spangler Common Stock (other than shares which have been cancelled
or as to which dissenters rights have been asserted) will be deemed for all
corporate purposes to evidence ownership of the number of whole shares of CNB
Common Stock into which the shares of Spangler Common Stock formerly represented
thereby were converted in the Merger. Until such outstanding certificates
formerly representing Spangler Common Stock are so surrendered, no dividend
payable to holders of record of CNB Common Stock shall be paid to any holder of
such outstanding certificates. However, upon surrender of such outstanding
certificates by such holder, there shall be paid to such holder, without
interest, the amount of: (i) any cash dividends, which had a record date
occurring on or subsequent to the Effective Time of the Merger, theretofore paid
with respect to such whole shares of CNB Common Stock; and (ii) any cash payable
to such holder in lieu of fractional shares pursuant to Section 1.5 hereof. At
the close of business on the last business day immediately preceding the Closing
(as defined in Section 1.8 hereof), the stock transfer books of Spangler shall
be closed, and no transfer of shares of Spangler Common Stock shall thereafter
be made.
(S) 1.4(c) If any certificate for CNB Common Stock or any check
representing cash is to be issued in a name other than that in which a
certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the certificate surrendered in exchange
shall be properly endorsed and otherwise in proper form for transfer. The
person requesting any such transfer shall affix any requisite stock transfer tax
stamps to the certificate surrendered, or pay to CNB or its agent any transfer
or other taxes required by reason of the issuance of a new certificate for
shares of CNB Common Stock in any name other than that of the registered holder
of the certificate
A-4
surrendered, or otherwise establish to the satisfaction of CNB that such tax
has been paid or is not payable.
(S) 1.5 No Fractional Shares. Notwithstanding any term or provision
hereof, no fractional shares of CNB Common Stock, and no certificate or scrip
therefor or other evidence of ownership thereof, will be issued in exchange for
any shares of Spangler Common Stock; no dividend or distribution with respect to
CNB Common Stock shall be payable on or with respect to any fractional share
interest; and no such fractional share interest shall entitle the owner thereof
to vote or to any other rights of a shareholder of CNB. In lieu of such
fractional share interest, any holder of Spangler Common Stock who would
otherwise be entitled to receive, as a result of the Merger, a fractional share
of CNB Common Stock will, upon surrender of his certificate or certificates
representing Spangler Common Stock outstanding immediately prior to the
Effective Time of the Merger, be paid the cash value of such fractional share
interest, which shall be equal to the product of the fraction of one share of
CNB Common Stock multiplied by the Measurement Price. For the purposes of
determining any such fractional share interests, all shares of Spangler Common
Stock owned by a Spangler shareholder shall be combined so as to calculate the
maximum number of whole shares of CNB Common Stock issuable to such Spangler
shareholder.
(S) 1.6 Spangler Shareholders Meeting.
Spangler shall call a meeting of its shareholders in accordance with
the provisions of applicable law for the purpose of considering and voting on
this Agreement and the Merger. Such meeting shall be held as soon as
practicable. The board of directors of Spangler shall use its best efforts to
solicit the requisite vote for approval of this Agreement and the Merger by the
shareholders of Spangler and shall recommend to such shareholders that they
approve the Merger and this Agreement.
(S) 1.7 Cooperation; Regulatory Approvals.
Subject to the terms and conditions of this Agreement, the parties hereto
shall cooperate, as coordinated by the respective Chief Executive Officer of and
counsel to each party, in the preparation and submission, as promptly as
reasonably practicable, of such filings, applications, petitions, and other
documents and materials as any of them may reasonably deem necessary or
desirable with or to the Securities and Exchange Commission (the "SEC"), the
Office of the Comptroller of the Currency ("OCC"), the Board of Governors of the
Federal Reserve System (the "FRB"), the regulatory authorities of the
Commonwealth of Pennsylvania, the shareholders of Spangler and any other persons
for the purpose of obtaining all approvals or consents necessary to consummate
the transactions contemplated by this Agreement. 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 to 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. All such materials shall be reasonably acceptable to all parties
prior to the filings with any regulatory authorities or the disclosures to
shareholders or to any third person, except to the extent that a party is
legally required to proceed prior to obtaining the approvals of the other
parties.
(S) 1.8 Closing. Not later than 30 days following satisfaction (or
waiver, if permitted hereunder) of the closing conditions set forth in Article
Five hereof, and subject to the other terms and conditions of this Agreement,
the closing for the consummation of the Merger and other transactions
contemplated hereby shall take place at the office of CNB, 1 South Second
Street, Clearfield, PA
A-5
16830, at 11:00 a.m., local time, or at such other time or place as the parties
hereto may mutually agree upon in writing (the "Closing"). At the Closing, (i)
Spangler shall be furnished with a certificate signed by CNB and County as to
the fulfillment of the conditions contained in Section 5.3 hereof, (ii) CNB and
County shall be furnished with a certificate of Spangler as to the fulfillment
of the conditions contained in Section 5.4, (iii) the various deliveries of
documents provided for in Sections 5.3 and 5.4 shall occur, and (iv) the
parties shall execute all instruments and documents in such form as required by
and in accordance with the relevant provisions of applicable federal and state
law in order to consummate the Merger and other transactions contemplated
hereby. The date on which the Closing is completed shall be referred to herein
as the "Closing Date."
(S) 1.9 The Effective Time of the Merger. Unless otherwise mutually
agreed upon in writing by the parties, the parties shall cause the Effective
Time of the Merger to occur on the first business day following the last to
occur of (i) the date that is thirty (30) days (or such lesser waiting period as
may be designated by the OCC) after the date of the order of the OCC approving
the Merger pursuant to the National Bank Act, (ii) the effective date (including
expiration of any applicable waiting period) of the order of any other federal
or state regulatory agency approving the Merger, if such approval is required,
or the expiration of any required waiting period after the filing of any require
notice to any federal or state regulatory agency required for consummation of
the Merger, and (iii) the date on which the shareholders of Spangler approve
this Agreement. The parties shall use their best efforts to have the Effective
Time of the Merger occur not later than July 19, 1999.
(S) 1.10 Certain Undertakings.
(S) 1.10(a) Undertakings of Spangler. Spangler undertakes and
agrees:
(i) To adopt this Agreement through action of its board of
directors and to join with CNB and County in executing and delivering the
same.
(ii) To prepare or cause to be prepared, as soon as practicable
after the date of this Agreement, a proxy statement (the "Proxy
Statement"), a notice of meeting, and a form of proxy to be used in
connection with the Spangler Shareholders' Meeting, to share the Proxy
Statement (including preliminary drafts thereof) with CNB and County, and
to cooperate with them in finalizing and distributing such proxy material
in furtherance of the purposes set forth in Section 1.6 hereof.
(iii) To use its best efforts and to take any and all necessary
or appropriate actions (including the payment of all required filing fees,
other than filing fees required to be paid by CNB or County), and to cause
its officers, directors, employees, agents, and representatives to use
their best efforts and to take all steps in good faith within their power,
to cause to be fulfilled those of the conditions precedent to the Merger
which are dependent upon its actions, including but not limited to (A)
requesting the delivery of appropriate opinions and letters from its
counsel and (B) obtaining any consents, approvals, or waivers required to
be obtained from other parties to loan agreements or other contracts
material to its business.
(iv) To join with CNB and County, upon the fulfillment of the
conditions precedent to Spangler's obligations to consummate the Merger, in
executing and delivering such documents and making such filings as shall
cause the consummation of the Merger.
A-6
(v) To mail to its depositors, at least 30 days in advance of the
anticipated Closing Date, such notice-of-change documents as shall be
supplied by County in order that their deposit accounts will be subject to
the terms and conditions of County deposit accounts as of the Closing Date,
all in accordance with Regulation DD of the OCC.
(vi) To keep CNB advised of all material developments relevant to
the consummation of the Merger, to give prompt written notice to CNB upon
becoming aware of any impending or threatened occurrence of any event that
would cause or constitute a breach of any of the representations and
warranties of Spangler contained or referred to in this Agreement, and to
use its best efforts to prevent or promptly to remedy the same.
(vii) To maintain, and to cause its officers, directors,
employees, agents, and representatives to maintain, in accordance with the
provisions of Section 4.2(b) hereof, the confidentiality of all
confidential information, abstracts and derivatives thereof, furnished to
it by CNB or County concerning their business, assets, and financial
condition;
and not to use, and to cause its officers, directors, employees, agents,
and representatives not to use, such information except in furtherance of
the transactions contemplated by this Agreement; and to return, and to
cause its officers, directors, employees, agents, and representatives to
return, if this Agreement is terminated, all documents and copies of
confidential information, abstracts and derivatives thereof, received from
CNB or County.
(viii) To furnish CNB with all information concerning Spangler
reasonably required for (A) inclusion in the Registration Statement on Form
S-4 to be filed by CNB with the SEC for the purpose of registering the
shares of CNB Common Stock to be issued in the Merger (the "S-4
Registration Statement") and (B) any application made by CNB or County to
any governmental or regulatory body in connection with the transactions
contemplated by this Agreement. Danielson Associates, Inc. ("Danielson")
has delivered to Spangler an opinion to the effect that in its opinion the
consideration to be received by the holders of Spangler Common Stock in the
Merger is fair to such holders, from a financial point of view. In the
event that the SEC requests disclosure of whether an update of such opinion
was obtained, or the fact that no such updated opinion was obtained,
Spangler shall use its best efforts to furnish CNB with a currently-dated
opinion of Danielson, to the same effect as its opinion described in the
next preceding sentence, for inclusion in the S-4 Registration Statement.
(S) 1.10(b) Undertakings of CNB and County. Each of CNB and County
undertakes and agrees:
(i) To adopt through action of its board of directors this
Agreement and to join with Spangler in executing and delivering the same.
(ii) To prepare or cause to be prepared, as soon as practicable
after the date of this Agreement, a draft of the S-4 Registration
Statement, to share such draft with Spangler, and to use its best efforts
to cause the S-4 Registration Statement to become effective as soon as
practicable.
(iii) To use its best efforts and to take all steps in good
faith within its power, and to cause its officers, directors, employees,
agents, and representatives to use
A-7
their best efforts and to take all steps in good faith within their power,
to cause to be fulfilled those of the conditions precedent to its
obligations to consummate the Merger which are dependent upon its actions,
including but not limited to requesting the delivery of appropriate
opinions and letters from its counsel.
(iv) To join with Spangler, upon the fulfillment of the
conditions precedent to their obligations to consummate the Merger, in
executing and delivering such documents and making such filings as shall
cause the consummation of the Merger.
(v) To keep Spangler advised of all material developments
relevant to the consummation of the Merger, to give prompt written notice
to Spangler upon becoming aware of any impending or threatened occurrence
of any event that would cause or constitute a breach of any of their
representations and warranties contained or referred to in this Agreement,
and to use its best efforts to prevent or promptly to remedy the same.
(vi) To maintain, and to cause its officers, directors,
employees, agents, and representatives to maintain, in accordance with the
provisions of Section 4.2(b) hereof, the confidentiality of all
confidential information, abstracts and derivatives thereof, furnished to
it by Spangler concerning its business, assets, and financial condition;
and not to use, and to cause its officers, directors, employees, agents,
and representatives not to use, such information except in furtherance of
the transactions contemplated by this Agreement; and to return, and to
cause its officers, directors, employees, agents, and representatives to
return, if this Agreement is terminated, all documents and copies of
confidential information, abstracts and derivatives thereof, received from
Spangler.
(vii) To furnish all information about its business and condition
necessary for Spangler to prepare the Proxy Statement.
ARTICLE TWO
Representations and Warranties of Spangler
Spangler represents and warrants to CNB and County as follows:
(S) 2.1 Organization and Standing. Spangler is a national banking
association duly incorporated, validly existing, and in good standing under the
National Bank Act. Spangler has all necessary corporate power and authority to
own or lease its properties and assets and to conduct its business as it is now
being conducted, and is duly qualified to do business and is in good standing in
every jurisdiction in which the nature of the business conducted by it or the
character or location of the properties owned or leased by it makes such
qualification necessary, except to the extent that any failure to so qualify
would not, in the aggregate, have a Material Adverse Effect on its business,
financial condition, or results of operations. Set forth in Schedule 2.1(a)
---------------
hereto is a list of the jurisdictions in which Spangler is qualified to do
business. The deposit accounts of Spangler are insured by the Federal Deposit
Insurance Corporation (the "FDIC") to the full extent permitted under applicable
law and the rules and regulations of the FDIC. The Articles of Association and
Bylaws of Spangler and all amendments thereto to the date hereof (true, correct,
and complete copies of which have been previously delivered to CNB and are
attached hereto as Exhibit 2.1(b)) are in full force and effect as of the date
---------------
of this Agreement. Spangler has taken such action and executed and filed such
A-8
documents and notices as may be necessary to enable it to exercise the powers
conferred on national banking associations.
(S) 2.2 Authority. The execution and delivery of this Agreement by
Spangler, and consummation of the transactions contemplated hereby, have been
approved by its board of directors and by all necessary action on the part of
Spangler and duly and validly authorized, subject only to adoption and approval
of this Agreement by the shareholders of Spangler. When this Agreement is
approved by such shareholders, it shall constitute a valid and binding
obligation of Spangler, enforceable in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other similar laws affecting creditors' rights generally and except that the
availability of equitable remedies (including, without limitation, specific
performance) is within the discretion of the appropriate court. No
authorization, consent or approval by any public body or authority or any other
party is necessary to the performance by Spangler of its obligations set forth
herein, except that the approval of the OCC is necessary to consummate the
transactions contemplated by this Agreement. The board of directors of Spangler
has authorized its officers to take all action necessary to consummate the
transactions contemplated by this Agreement and has directed that any action
requiring shareholder approval be submitted to the shareholders of Spangler for
approval.
(S) 2.3 Absence of Conflicts. The execution, delivery, and performance
of this Agreement by Spangler and the consummation of the transactions
contemplated hereby will not constitute a breach, violation, or default, or
create a lien, charge, or encumbrance of any nature whatsoever, or give any
rights of acceleration to any person, under the Articles of Association or
Bylaws of Spangler or under any law, rule, regulation, judgment, decree, order,
governmental permit, license, agreement, indenture or instrument of Spangler or
to which Spangler or its assets are subject.
(S) 2.4 Capitalization and Ownership.
(S) 2.4(a) The authorized capital stock of Spangler consists solely of
2,500 shares of Common Stock, par value $20 per share, all of which, as of the
date of this Agreement, are issued and outstanding, fully paid and
nonassessable, and have not been issued in violation of the preemptive rights of
any person. As of the date hereof, no shares are held by it as treasury stock.
As of the Effective Time of the Merger, there will be no more than 2,500 shares
of Common Stock issued and outstanding. Spangler does not own directly or
indirectly, beneficially or of record, more than five percent (5%) of the
outstanding stock of any other entity and does not otherwise "control" any
"company" or "bank" (as those terms are defined in the Act). As soon as
practicable after the execution of this Agreement, Spangler shall furnish CNB a
listing of all owners of record of Spangler Common Stock showing the number of
shares owned by each shareholder and each shareholder's state of residence.
(S) 2.4(b) As of the date of this Agreement, Spangler does not have
outstanding, and as of the Closing Date and thereafter will not have
outstanding, any securities convertible into, or exercisable or exchangeable
for, Spangler Common Stock or any options, rights (preemptive or otherwise), or
warrants to purchase or to subscribe for any shares of Spangler Common Stock or
any other securities of Spangler. As of the date of this Agreement there are,
and as of the Closing Date and thereafter there will be, no outstanding
agreements, arrangements, commitments, or understandings of any kind - to which
Spangler or, to the knowledge of management of Spangler, any "associate" or
"affiliate" of Spangler (as those terms are defined in the rules and regulations
promulgated under the Securities Act of 1933, as amended (the "Securities
Act")), is a party - affecting
A-9
or relating to the voting, issuance, purchase, redemption, repurchase, or
transfer of Spangler Common Stock, or any other securities of Spangler.
(S) 2.5 Reports and Financial Statements.
(S) 2.5(a) Spangler has furnished CNB with true and complete copies of
Spangler's audited balance sheets as of December 31, 1998, 1997, and 1996 and
the related statements of income, changes in shareholders' equity, and cash
flows for the years then ended, including any schedules thereto, and will
furnish CNB with true and complete copies of the Spangler Interim Financial
Statements.
(S) 2.5(b) Except to the extent stated therein, the financial
statements and schedules included in the documents referred to in paragraph (a)
of this Section 2.5 or hereafter filed by Spangler with the appropriate
regulatory authorities prior to the Effective Time of the Merger, and the
Spangler Interim Financial Statements and any other such financial statements
provided by Spangler up to the Effective Time of the Merger, (i) were prepared,
and will be prepared, in accordance with GAAP, applied on a consistent basis
with all prior periods, and (ii) fairly present, and will fairly present, the
financial position of Spangler and the results of operations and changes in
financial position for Spangler at the dates and for the periods referred to
therein in conformity with GAAP applied on a consistent basis throughout the
periods involved, subject, in the case of the Spangler Interim Financial
Statements, to normal year-end audit adjustments. All material liabilities of
Spangler, actual or contingent, which in accordance with GAAP, consistently
applied, were required to be reflected or reserved against the balance sheet or
deducted from gross revenues in an income statement for the periods covered in
the financial statements are disclosed therein.
(S) 2.6 Tax Matters. Except as set forth in Schedule 2.6:
------------
(S) 2.6(a) Spangler has (or, in the case of returns becoming due after
the date hereof and at or before the Effective Time of the Merger, will have,
prior to the Effective Time of the Merger) duly filed with the appropriate
governmental agencies all federal, state, local, and foreign tax returns,
reports, and declarations of estimated tax with respect to income, sales, and
all other applicable taxes, and all other tax returns and reports, the filing of
which is required by applicable law (without regard to extensions of time
permitted by law, regulation, or otherwise) at or before the Effective Time of
the Merger (the "Spangler Tax Returns") (including, without limitation, income,
profit, franchise, sales, use, real property, personal property, ad valorem,
excise, employment, social security, and wage withholding taxes of every kind,
character, or description imposed by any governmental or quasi-governmental
authority). All of the Spangler Tax Returns are (or, in the case of returns
becoming due after the date hereof and at or before the Effective Time of the
Merger, will be) accurate and complete in all material respects.
(S) 2.6(b) Spangler has collected and withheld all taxes which it is or
has been required to collect or withhold and has timely submitted all such
collected and withheld amounts to the appropriate authorities. Spangler is in
compliance with the back-up withholding and information reporting requirements
under the Internal Revenue Code of 1986, as amended (the "Code"), and the rules
and regulations of the Internal Revenue Service ("IRS") thereunder.
(S) 2.6(c) All federal, state, local, and foreign taxes due and payable
pursuant to the Spangler Tax Returns or pursuant to any installments of
estimated taxes, all other taxes, assessments, deficiencies, levies, imposts,
duties, license fees, registration fees, withholding, or other similar
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governmental charges, and any penalties, or interest, or additions to tax
imposed thereon or in connection therewith due or claimed to be due by any
taxing authority, have been accrued, adequately reserved against, or paid.
(S) 2.6(d) The accrual for taxes currently payable contained in the
Spangler Financial Statements are adequate to cover the payment of its
liabilities for federal, state, local, and any foreign taxes (including
installments of estimated taxes) and all other taxes, assessments, deficiencies,
levies, imposts, duties, license fees, registration fees, or other similar
governmental charges (including without limitation income, profits, gross
receipts, franchise, value added, payroll, sales, employment, use, property,
withholding, excise, and occupancy taxes, and any penalties, interest, or
additions to tax imposed thereon or in connection therewith (collectively
"Spangler Taxes")) due or claimed to be due by any taxing authority in
connection with any of the Spangler Tax Returns for all periods up to and
including December 31, 1998. As of the date of this Agreement, Spangler had no
net operating loss carry forward (for federal or state income tax purposes).
The reserves for taxes in all of the subsequent financial statements of Spangler
will be adequate to cover its liabilities for taxes for all periods up to and
including the dates of such financial statements.
(S) 2.6(e) Spangler has not received any notice of deficiency or
assessment or proposed deficiency or assessment by the IRS or any other taxing
authority in connection with the Spangler Tax Returns. All federal income tax
returns of Spangler have been examined by the IRS or closed without audit (or
the statute of limitations with respect to such returns has expired and no
waiver extending the statute of limitations has been requested or granted) for
all taxable years prior to and including the taxable year ended December 31,
1993. There is no action, suit, proceeding, audit, examination, investigation,
or claim pending, or to the knowledge of Spangler, threatened, in respect of any
Spangler Taxes for which Spangler is or may become liable if such action, suit,
proceeding, audit, examination, investigation, or claim were to be resolved, in
whole or in part, adversely to Spangler.
(S) 2.6(f) Spangler has not waived any law or regulation fixing, or
consented to the extension of, any period of time with respect to the assessment
or collection of any Spangler Taxes, and no power of attorney granted by
Spangler with respect to any tax matters is currently in force.
(S) 2.6(g) Spangler has not made an election under Section 341(f) of
the Code.
(S) 2.6(h) Spangler has provided, and until the Effective Time of the
Merger will continue to provide, to CNB complete and correct copies of its
income tax returns and all material correspondence and documents, if any, in its
possession relating directly or indirectly to Spangler Taxes for each taxable
year of Spangler for all years as to which the applicable statute of limitations
has not run on the date hereof. For this purpose, "correspondence and
documents" include amended tax returns, claims for refund, notices from taxing
authorities of proposed changes or adjustments to taxes or tax returns, consents
to assessment or collection of taxes, acceptances of proposed adjustments,
closing agreements, rulings and determination letters and requests therefor, and
all other written communications to or from taxing authorities relating to any
material tax liability of Spangler.
(S) 2.7 Insurance. Schedule 2.7 hereto lists all insurance policies
------------
presently carried by Spangler and currently in force with respect to its
business and properties, including without limitation title insurance policies
on real property owned (exclusive of foreclosed property). The existing
insurance carried by Spangler is and will continue to be with reputable insurers
and, in respect of the nature of the risks insured against and the amount of
coverage provided, not less than that customarily carried
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by parties similarly situated who own properties and engage in businesses
substantially similar to that of Spangler, and such insurance is and will
continue to be sufficient for compliance by Spangler with all material
requirements of law and agreements to which Spangler is a party. Except as
noted in Schedule 2.7, Spangler is not in default in the payment of any
------------
premium, currently has outstanding no claim with respect to such insurance
coverage, nor has received notification of, or has knowledge of, the existence
of any grounds for the cancellation or proposed cancellation of any such
policies or bonds.
(S) 2.8 Legal Proceedings. Except as set forth in Schedule 2.8 hereto,
------------
there are no judicial or administrative proceedings of any kind or nature now
pending or, to the knowledge of Spangler, threatened against Spangler before any
court or arbitral tribunal or before or by any governmental department, agency,
or instrumentality in any manner involving Spangler or any of its properties or
capital stock or the transactions contemplated by this Agreement. Except as set
forth in Schedule 2.8, (i) there is, to the best of Spangler's knowledge, no
------------
basis for any action, suit, investigation, or proceeding against it before any
court or arbitral tribunal or before or by any governmental department, agency,
or instrumentality, which, if determined adversely to it would have a Material
Adverse Effect on its assets, business, employees, revenue, income, prospects,
condition (financial or otherwise), liabilities, net worth, or results of
operations, (ii) to Spangler's knowledge, there are no actions, suits, or
proceedings pending or threatened by or against any officer, director, agent, or
employee of Spangler in connection with the business, properties, affairs, or
prospects of Spangler. Spangler is not in default with respect to any judgment,
order, writ, injunction, decree, award or, to Spangler's knowledge, rule or
regulation of any court, arbitrator or governmental department, agency or
instrumentality.
(S) 2.9 Compliance with Law. Other than as set forth in Schedule 2.9
------------
hereto, to the knowledge of Spangler, (i) it is in compliance with the back-up
withholding requirements of section 3406 of the Code and the Treasury
Regulations promulgated thereunder; (ii) it is in compliance with the reporting
and other requirements of the Bank Secrecy Act (including the Currency and
Foreign Transaction Reporting Act), and the regulations promulgated thereunder
by the Department of the Treasury; (iii) it is in compliance with the provisions
of all other applicable federal, state, and local statutes, and all rules,
regulations, or orders of, or understandings or agreements with, governmental
agencies having jurisdiction over it; and (iv) it is not subject to and has not
been threatened with any fine, penalty, liability, or legal disability which may
have a Material Adverse Effect upon its assets, business, operations, revenue,
income, prospects, condition (financial or otherwise), liabilities, net worth,
or results of operations as the result of the failure to comply with any
requirement of any governmental body or agency having jurisdiction over it, the
conduct of its business, the use of its assets and properties, or any premises
occupied by it. Spangler has filed, and until the Effective Time of the Merger
will continue to file, all reports required to be filed with any regulatory
agency on or prior to the date such reports were due, and all such reports, as
finally amended, complied and will comply in all material respects with
applicable requirements of law and, as of their respective dates or the dates as
amended, did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent stated therein, all financial
statements and schedules included and to be included in such reports were and
will be prepared in accordance with GAAP or such other regulatory accounting
requirements as were applicable thereto, applied on a consistent basis with
prior periods, and fairly presented and will fairly present the information
purported to be shown therein.
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(S) 2.10 Brokers; Expenses. Except for Danielson Associates, Inc., no
agent, broker, finder, investment banker, person or firm acting on behalf or
under authority of Spangler is or will be entitled to any broker's or finder's
fee or any other commission or similar fee incurred directly or indirectly by or
on behalf of Spangler in connection with the transactions contemplated by this
Agreement. All costs and expenses in connection with this Agreement and the
transactions contemplated hereby which have been or will be paid or incurred by
Spangler have been and will be actually and reasonably incurred by it. Such
costs and expenses, including the fee of Danielson Associates, Inc., are
included on Schedule 2.26.
-------------
(S) 2.11 Governmental Authorizations. Spangler has all licenses, permits,
approvals, and other authorizations from all federal, state, and local
authorities as are necessary for the conduct of its business and operations
which, if not obtained, would have a Material Adverse Effect on Spangler's
financial condition or results of operations, and all such licenses, franchises,
permits, approvals, and other authorizations are in full force and effect and
are not subject to any condition, qualification, or limitation. Spangler has
not received any notification from any agency, department, or instrumentality of
federal, state, or local government or the staff thereof asserting noncompliance
with any of the laws, rules, regulations, or orders that such governmental
authority enforces or threatening to revoke any license, franchise, permit, or
governmental authorization.
(S) 2.12 Supervisory Matters. Spangler has provided, and will continue to
provide, to CNB for inspection originals or complete and correct copies of (i)
all examination reports by the OCC, the Federal Reserve Bank, or the Federal
Deposit Insurance Corporation forwarded to Spangler during the period commencing
January 1, 1996 through the Effective Time of the Merger, (ii) any
correspondence between Spangler or any of its representatives and such
authorities relating to such examination reports during such period, and (iii)
any written agreements, arrangements, orders, directives, decrees, commitments
or understandings between or among Spangler and any such authorities entered
into as a result of matters raised in such examination reports or correspondence
or previously entered into and remaining, in whole or in part, in full force and
effect. Spangler has not been advised by any regulatory agency that it is
contemplating issuing or requesting (or considering the appropriateness of
issuing or requesting) any written agreement, memorandum of understanding,
order, decree, directive, extraordinary supervisory letter, commitment letter,
or similar document or taking (or considering the appropriateness of taking) any
corrective action. The last examination of Spangler by the staff of any state
or federal regulatory agency prior to the date of this Agreement was performed
as of March 31, 1998. If Spangler was notified of any deficiencies as a result
of such examination or any prior examinations, each such deficiency has been
corrected to the satisfaction of the appropriate agency, and if any changes in
operating methods or organization were required by reason of such examination or
such other examinations, such changes have been made. Spangler's reserve for
loan losses has been calculated in accordance with GAAP applied on a consistent
basis and in accordance with all applicable rules and regulations. The reserves
for loan losses set forth in the Spangler Financial Statements are adequate in
all respects to provide for all losses, net of recoveries relating to loans
previously charged off, on loans outstanding as of the dates thereof. The loan
portfolios of Spangler as of such dates in excess of such reserves are, to the
best knowledge and belief of Spangler, collectible. Further, Spangler has not
been notified in writing that such reserves violated any minimum requirements or
that its independent auditors believe such reserves to be inadequate or
inconsistent with historical loan loss experience.
(S) 2.13 Rights and Licenses. Set forth in Schedule 2.13 hereto is a list
-------------
and description of all trademarks, trademark rights, trade names, and licenses
owned and/or used by Spangler. To the knowledge of Spangler, it is not subject
to any material disability to conduct its business as currently
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conducted or liability by reason of its failure to own or possess the rights to
use any other trademark, trademark right, trade name, trade name right, or
license. Spangler has full right and authority to own and use all the
trademarks, trade names, and licenses listed in Schedule 2.13. It has not been
-------------
held liable for, and no actions, suits or proceedings are pending or, to its
knowledge, threatened against it, alleging that it is liable for infringement
of any trademark, trademark right, trade name, trade name right, or license
owned and/or used by any other person or entity.
(S) 2.14 Material Contracts. Except as set forth in Schedule 2.14 hereto,
-------------
Spangler is not a party to or bound by any (i) employment or consulting
contract; (ii) bonus, stock option, deferred compensation or profit sharing,
pension, or retirement plan or arrangements; (iii) material lease or license
with respect to any property, real or personal, whether as landlord, tenant,
licensor, or licensee, which cannot be terminated without substantial penalty
and on notice of not more than 30 days; (iv) contract or commitment for capital
expenditures in excess of $5,000 for any one project or $25,000 in the
aggregate; (v) material contract or commitment, whether or not made in the
ordinary course of business, for the purchase of materials or supplies or for
the performance of services over a period of more than 60 days from the date of
this Agreement and which cannot be terminated without substantial penalty and on
notice of not more than 30 days; (vi) agreement or instrument or charter or
other restriction which materially and adversely affects or in the future may
materially or adversely affect the business, operations, prospects, properties,
assets or financial condition of Spangler; (vii) contract or option to purchase
or sell any real or personal property otherwise than in the ordinary course of
business which cannot be terminated without substantial penalty and on notice of
not more than 30 days; or(vii) material contract, other than the foregoing, not
made in the ordinary course of business, which cannot be terminated without
substantial penalty and on notice of not more than 30 days. Spangler has in all
material respects performed all obligations required to be performed by it to
date and is not in default under, and no event has occurred which with the lapse
of time or action by a third party could result in default under, any
outstanding indenture, mortgage, contract, lease or other agreement to which it
is a party or by which it is bound, or under the provisions of its Articles of
Association or Bylaws.
(S) 2.15 Employment Matters.
(S) 2.15(a) Schedule 2.15(a) hereto contains a correct and complete list
----------------
showing the employees of Spangler as of the date hereof and indicating their
respective titles or positions, base salaries and dates of hire.
(S) 2.15(b) There are no collective bargaining or other labor union
contracts applicable to employees of Spangler and no material work stoppage or
material labor dispute against Spangler is pending or threatened.
(S) 2.15(c) Spangler has not received any written notice of any unfair
labor practice and no such complaints are pending before the National Labor
Relations Board or any other agency having jurisdiction thereof. Except as
specified on Schedule 2.15(c), there is no actual or threatened labor or
----------------
employment litigation, audit, inquiry, claim, complaint, dispute or proceeding,
whether by any public or governmental agency or entity or by a private
individual or group, before the EEOC or the Pennsylvania Human Relations
Commission or otherwise.
(S) 2.16 Properties. Spangler has good, clear, and marketable title to
all of its assets and properties, including all real, personal and intangible
properties owned by it, and such properties and assets are subject to no liens,
mortgages, security interest, encumbrances, or charges of any kind
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except (a) as noted in the Financial Statements described in Section 2.5, (b)
with regard to statutory liens not yet delinquent, and (c) with regard to minor
defects and irregularities in title and encumbrances which do not materially
impair the value or use thereof for the purposes for which such assets and
properties were and are intended. Real properties which are owned and leased
are set forth in Schedule 2.16 hereof.
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(S) 2.17 Employee Benefit Plans or Arrangements.
(S) 2.17(a) Spangler has disclosed on Schedule 2.17 (and will deliver or
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make available to CNB copies of the legal documents, including all amendments,
modifications and supplements, or written summaries where no such documents
exist for) all pension, retirement, profit sharing, deferred compensation, stock
option, stock purchase, stock bonus, employee stock ownership, severance pay,
vacation, bonus, or other incentive plans and all other employee benefit
programs, arrangements, or agreements, and fringe benefit plans, including,
without limitation, all "Employee Pension Benefit Plans" (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended, and the
regulations promulgated thereunder ("ERISA")) and all "Employee Welfare Benefit
Plans" (as defined in Section 3(1) of ERISA), currently or at any time within
the most recent six years adopted, maintained by, sponsored in whole or in part
by or contributed to by Spangler (or any of its Affiliates, as defined herein)
for the benefit of its employees (and their spouses or dependents), retirees,
directors, independent contractors or other beneficiaries (collectively the
"Spangler Benefit Plans"). Except as explicitly disclosed on Schedule 2.17, no
-------------
Spangler Benefit Plan which is an Employee Pension Benefit Plan (and referred to
herein as a "Spangler ERISA Plan") (i) is or has been a multi-employer plan
within the meaning of Section 3(37) of ERISA; (ii) is or has been subject to the
provisions of Title IV of ERISA and/or the minimum funding requirements of
Section 412 of the Code or Section 302 of ERISA;(iii) which is intended to meet
the qualification requirements of Section 401, et seq. of the Internal Revenue
Code of 1986, as amended, has failed to meet such requirements in form or
operation; and (iv) has at any time engaged, nor have any of the fiduciaries,
disqualified persons or parties in interest (as such terms are defined under
ERISA and the Code) at any time engaged, either in any prohibited transactions
under Section 4975 of the Code or Section 406 of ERISA with respect to such
Plans or in a breach of fiduciary duty under ERISA with respect to such Plans.
(S) 2.17(b) Except as disclosed on Schedule 2.17, all Spangler Benefit
-------------
Plans are in compliance in all material respects with the applicable terms of
ERISA and any other applicable statutes, rules or regulations, including without
limitation requirements for filing annual returns (Form 5500), continuation
coverage under the Consolidated Omnibus Budget Reconciliation Act of 1986
(COBRA) and compliance with the Health Insurance Portability and Accountability
Act of 1996 (HIPAA). All contributions to or payments under all Spangler
Benefit Plans (including employee withholdings) (i) have at all times been made
in a timely manner as required pursuant to such Plans, any collective bargaining
or other agreements and the provisions of ERISA and regulations thereunder or
(ii) where contributions or payments under such Plans are not yet due, adequate
provision for reserves to meet such obligations have been made. Except as
disclosed on Schedule 2.17, there are no pending or threatened suits, actions,
-------------
claims (other than routine claims for benefits), audits, examinations, inquiries
or other similar types of proceedings relating to the Spangler Benefit Plans by
any third party, governmental agency or regulatory authority nor any filings by
or on behalf of Spangler (or any of its Affiliates) for a ruling, advisory
opinion, exemption or similar request for relief with respect to the Spangler
Benefit Plans.
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(S) 2.17(c) With the exception of the change of control agreement with Dale
E. Hill, a copy of which is included on Schedule 2.17, neither the execution of
-------------
this Agreement nor the consummation of the transactions contemplated hereunder
will: (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute (such as those defined in Section
280G of the Code or otherwise)) becoming due to any director, officer or
employee of Spangler, from Spangler under any Spangler Benefit Plan; (ii)
increase any benefits otherwise payable under any Spangler Benefit Plan; or
(iii) result in any acceleration of the time of payment or vesting of any such
benefit. Except with respect to obligations under COBRA or as disclosed on
Schedule 2.17, no Spangler Benefit Plan provides for post-employment health or
- -------------
welfare benefits or payments.
(S) 2.17(d) For purposes of this Section 2.17, the term "Affiliate" means
any person who is, or at the relevant times was, under common control (within
the meaning of Section 4001(a)(14) or (b)(1) of ERISA and its regulations
thereunder or Section 414(b), (c), (m), or (o) of the Code) with Spangler or its
successor.
(S) 2.18 Absence of Certain Changes or Events. Since December 31, 1998,
Spangler has not, except as set forth in Schedule 2.18 hereto, (i) incurred any
-------------
material liability, except in the ordinary course of business, consistent with
its past practice; (ii) suffered any material adverse change in its business,
operations, assets, or financial condition; (iii) made any material change in
its mode of management or operation or method of accounting; or (iv) failed to
operate its business in all material respects in the ordinary course consistent
with its past practice.
(S) 2.19 Books of Account; Corporate Records. The Books of Account of
Spangler are maintained in substantial compliance with all applicable legal and
accounting requirements. The minutes of meetings maintained by Spangler contain
complete and accurate records in all material respects of all corporate actions
of its shareholders and Board of Directors and all committees thereof.
(S) 2.20 Proxy Statement and S-4 Registration Statement. When the S-4
Registration Statement or any post-effective amendment thereto shall become
effective, and when the Proxy Statement to be distributed to Spangler's
shareholders shall first be mailed to such shareholders (the "Mailing Date"),
and at all times subsequent to such effective date or Mailing Date up to the
meeting date of such shareholders, the information provided by Spangler with
respect to Spangler and the Spangler Shareholders' Meeting set forth in the S-4
Registration Statement and in the Proxy Statement and in all amendments and
supplements thereto: (a) will comply in all material respects with the
provisions of the Securities Act, and the Rules and Regulations of the SEC
thereunder, to the extent applicable to such information and to Spangler, and
with any and all applicable federal and state laws, and (b) will not contain any
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
(S) 2.21 Securities Laws. Spangler has not filed, nor is Spangler
required to file, any report, registration, or statement under any federal or
state securities laws. All sales of securities issued by Spangler have been
made in compliance with the applicable provisions of federal and state
securities laws.
(S) 2.22 Ownership of CNB Common Stock. Except as disclosed on Schedule
--------
2.22, no shares of CNB Common Stock are beneficially owned (as defined in Rule
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13d-3 under the Exchange Act) by Spangler or any officer or director of
Spangler.
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(S) 2.23 Representations and Warranties True on and as of Mailing Date and
Closing Date. All the representations and warranties of Spangler contained in
this Agreement will be materially true on and as of the Mailing Date and the
Closing Date, except to the extent affected (i) by the transactions contemplated
hereby, (ii) by the operations of Spangler as permitted by the provisions of
Section 4.1 hereof, (iii) by transactions to which CNB's written consent is
obtained, and (iv) by circumstances disclosed to CNB occurring subsequent to the
date hereof which in the aggregate do not have a Material Adverse Effect on
Spangler.
(S) 2.24 Related Party Transactions. Except as disclosed on Schedule 2.24
-------------
hereto, Spangler is not a party to any transaction (including any loan or credit
accommodation) with any Affiliate of Spangler. The transactions disclosed on
Schedule 2.24 (a) were made in the ordinary course of business, (b) were made on
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substantially the same terms as those prevailing at the time for comparable
transaction and (c) did not involve more than the normal risk of collectability
or present other unfavorable features.
(S) 2.25 Environmental Matters. Neither Spangler nor any properties owned
or operated by Spangler has been or is in violation of or liable for, or to the
knowledge of Spangler after due inquiry threatened by in any material respect,
the breach of any Environmental Law.
(S) 2.26 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2.26, Spangler has no material liabilities of any nature, known or
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unknown, fixed or contingent, which are not reflected on the Spangler Financial
Statements or on the Spangler Interim Financial Statements.
ARTICLE THREE
Representations and Warranties of CNB and County
CNB and County represent and warrant to Spangler, as follows:
(S) 3.1 Organization and Standing. CNB is a corporation duly
incorporated, validly existing, and in good standing under the laws of the
Commonwealth of Pennsylvania. County is a national banking association, duly
incorporated, validly existing, and in good standing under the National Bank Act
of the United States. Each has all necessary corporate power and authority to
own or lease its properties and to conduct its business as it is now being
conducted, is duly qualified to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties owned or leased by it makes such
qualification necessary, except to the extent that any failure to so qualify
would not, in the aggregate, have a Material Adverse Effect on the business,
financial condition, or results of operations of CNB and County, taken as a
whole. The deposit accounts of County are insured by the FDIC to the full extent
permitted under applicable law and the rules and regulations of the FDIC. The
Articles of Incorporation or Association and Bylaws of CNB and County and all
amendments thereto to the date hereof (true, correct, and complete copies of
which are attached hereto as Exhibit 3.1) are in full force and effect as of the
-----------
date of this Agreement. County has taken such action and executed and filed
such documents and notices as may be necessary to enable it to exercise the
powers conferred on national banking associations.
(S) 3.2 Authority. The execution and delivery of this Agreement, and
consummation of the transactions contemplated hereby, have been approved by
their respective boards of directors and duly and validly authorized by all
necessary action, and this Agreement constitutes a valid and binding obligation
of CNB and County, enforceable in accordance with its terms, except as limited
by
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applicable bankruptcy, insolvency, reorganization, moratorium, or other
similar laws affecting creditors' rights generally and except that the
availability of equitable remedies (including, without limitation, specific
performance) is within the discretion of the appropriate court. No
authorization, consent or approval by any public body or authority or any other
party is necessary to the performance by CNB or County of its obligations set
forth herein, except that the approval of the OCC is necessary to consummate the
transactions contemplated by this Agreement. The respective boards of directors
of CNB and County have authorized its officers to take all action necessary to
consummate the transactions contemplated by this Agreement. The consummation of
the transactions contemplated by this Agreement will not require the approval of
the shareholders of CNB.
(S) 3.3 Absence of Conflicts. The execution, delivery, and performance
of this Agreement by CNB and County and the consummation of the transactions
contemplated hereby will not constitute a breach, violation, or default, or
create a lien, charge, or encumbrance of any nature whatsoever, or give any
rights of acceleration to any person, under the Articles of Incorporation or
Association or Bylaws of CNB or County or under any law, rule, regulation,
judgment, decree, order, governmental permit, license, agreement, indenture or
instrument of CNB or County or to which CNB or County or the assets of either of
them are subject.
(S) 3.4 Capitalization and Ownership.
(S) 3.4(a) The authorized capital stock of CNB consists solely of
10,000,000 shares of Common Stock, par value $1.00 per share, of which, as of
the date of this Agreement, 3,425,555 shares are issued and outstanding. All
such shares are, and the shares to be issued in connection with the Merger will
be, validly issued and outstanding, fully paid, and nonassessable, and have not
been issued in violation of the preemptive rights of any person. The authorized
capital stock of County consists solely of 576,000 shares of common stock, par
value $3.90625 per share, of which, as of the date of this Agreement, 576,000
shares are issued and outstanding, each of which is (i) fully paid and
nonassessable (except to the extent that capital stock of a national banking
association is assessable under the national banking laws), (ii) owned by CNB,
and (iii) issued without violation of the preemptive rights of any person. All
of the outstanding shares of common stock of County are owned beneficially and
of record by CNB and are free and clear of any security interest, lien, claim,
charge, restriction, or encumbrance. Other than as set forth in this paragraph,
CNB does not own directly or indirectly, beneficially or of record, more than
five percent (5%) of the outstanding stock of any other corporation and does not
otherwise "control" any "company" or "bank" (as those terms are defined in the
Act). The only owner of record of 5% or more of the outstanding shares of CNB
Common Stock is County, serving as trustee for the beneficial interests of
unaffiliated third parties.
(S) 3.4(b) As of the date of this Agreement, there are no outstanding
securities convertible into, or exercisable or exchangeable for, CNB Common
Stock or the common stock of County or any outstanding options, rights
(preemptive or otherwise), or warrants to purchase or to subscribe for any
shares of CNB Common Stock or the common stock of County or any other securities
of CNB or County. As of the date of this Agreement there are no outstanding
agreements, arrangements, commitments, or understandings of any kind to which
CNB or County or, to the knowledge of management of CNB, any "associate" or
"affiliate" of CNB or County (as those terms are defined in the rules and
regulations promulgated under the Securities Act) is a party -- affecting or
relating to the voting, issuance, purchase, redemption, repurchase, or transfer
of CNB Common Stock, or any other securities of CNB, or any shares of the
capital stock of County.
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(S) 3.5 Reports and Financial Statements.
(S) 3.5(a) CNB has furnished Spangler with true and complete copies of
CNB's Annual Reports on Form 10-K (including exhibits) filed with the SEC for
each of the fiscal years ended December 31, 1996, December 31, 1997 and December
31, 1998, as the same may have been amended, and will furnish Spangler with true
and complete CNB Financial Statements for the quarters ending after December 31,
1998.
(S) 3.5(b) All of the documents, as finally amended, referred to in
paragraph (a) of this Section 3.5 and all such documents hereafter filed by CNB
or County with the appropriate regulatory authorities prior to the Effective
Time of the Merger, as finally amended, complied and will comply in all material
respects with applicable requirements of law and, as of their respective dates
or the dates as amended, did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were or will be made, not misleading. Except to the extent stated
therein, the CNB Financial Statements and other schedules included in the
documents referred to in paragraph (a) of this Section 3.5 or to be included in
such documents hereafter filed by CNB or County with the appropriate regulatory
authorities prior to the Effective Time of the Merger, and any other such
financial statements provided by CNB or County to Spangler prior to the
Effective Time of the Merger, (i) were prepared, and will be prepared, in
accordance with GAAP, applied on a consistent basis with all prior periods, and
(ii) fairly present, and will fairly present, the financial position of CNB and
County and the consolidated results of operations and changes in financial
position for CNB and County at the dates and for the periods referred to therein
in conformity with GAAP applied on a consistent basis throughout the periods
involved, subject, in the case of interim financial statements, to normal year-
end audit adjustments. All material liabilities of CNB and County, actual or
contingent, which, in accordance with GAAP, consistently applied, were required
to be reflected or reserved against in the consolidated balance sheet, or
footnoted to such consolidated balance sheet, or deducted from gross revenues in
a consolidated income statement for the periods covered in the CNB Financial
Statements are properly reflected therein.
(S) 3.6 Tax Matters. Except as set forth in Schedule 3.6:
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(S) 3.6(a) CNB has, or, in the case of returns becoming due after the
date hereof and at or before the Effective Time of the Merger, will have, prior
to the Effective Time of the Merger, duly filed with the appropriate
governmental agencies all federal, state, local, and foreign tax returns,
reports, and declarations of estimated tax with respect to income, sales, and
all other applicable taxes, and all other tax returns and reports, the filing of
which is required by applicable law (taking into account extensions of time
permitted by law, regulation, or otherwise) at or before the Effective Time of
the Merger (the "CNB Tax Returns") (including, without limitation, income,
profit, franchise, sales, use, real property, ad valorem, excise, personal
property, employment, social security, and wage withholding taxes of every kind,
character, or description imposed by any governmental or quasi-governmental
authority). All of the CNB Tax Returns are (or, in the case of returns becoming
due after the date hereof and at or before the Effective Time of the Merger,
will be) accurate and complete in all material respects.
(S) 3.6(b) CNB and County have collected and withheld all taxes that
they are or have been required to collect or withhold and have timely submitted
all such collected and withheld amounts to the appropriate authorities. CNB and
County are in compliance with the back-up withholding and
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information reporting requirements under the Code and the rules and regulations
of the IRS thereunder.
(S) 3.6(c) All federal, state, local, and foreign taxes due and payable
pursuant to the CNB Tax Returns or pursuant to any installments of estimated
taxes, and all other taxes, assessments, deficiencies, levies, imposts, duties,
license fees, registration fees, withholding, or other similar governmental
charges, and any penalties, interest, or additions to tax imposed thereon or in
connection therewith, due or claimed to be due by any taxing authority, have
been accrued or paid.
(S) 3.6(d) The accrual for taxes currently payable contained in the CNB
Financial Statements are adequate to cover the payment of its liabilities for
federal, state, local, and foreign taxes (including installments of estimated
taxes and all other taxes, assessments, deficiencies, levies, imposts, duties,
license fees, registration fees, withholding, or other similar governmental
charges, and any penalties, interest, or additions to tax imposed thereon or in
connection therewith (collectively "CNB Taxes")) due or claimed to be due by any
taxing authority in connection with any of the CNB Tax Returns. The reserves
for taxes in subsequent financial statements of CNB prior to the Effective Time
of the Merger will be adequate to cover its respective liabilities for taxes for
all periods up to and including the dates of such financial statements.
(S) 3.6(e) Neither CNB nor County has received any notice of deficiency
or assessment or proposed deficiency or assessment by the IRS or any other
taxing authority in connection with the CNB Tax Returns. All federal income tax
returns of CNB have been examined by the IRS, or closed without audit by the
applicable statute, for all taxable years prior to and including the taxable
year ended December 31, 1997. There is no action, suit, proceeding, audit,
examination, investigation, or claim pending, or to the knowledge of CNB,
threatened, in respect of any taxes for which CNB or County is or may be liable
if such action, suit, proceeding, audit, examination, investigation, or claim
were to be resolved, in whole or in part, adversely to CNB or County.
(S) 3.6(f) Neither CNB nor County has waived any law or regulation
fixing, or consented to the extension of, any period of time with respect to
assessment or collection of any Taxes, and no power of attorney granted by CNB
or County with respect to any tax matters is currently in force.
(S) 3.6(g) Neither CNB nor County has made an election under Section
341(f) of the Code.
(S) 3.6(h) CNB has provided, and until the Effective Time of the Merger
will continue to provide, to Spangler complete and correct copies of its income
tax returns and all material correspondence and documents, if any, in its
possession relating directly or indirectly to CNB Taxes for each taxable year of
CNB for all years to which the applicable statute of limitations has not run on
the date hereof. For this purpose, "correspondence and documents" include
amended tax returns, claims for refund, notices from taxing authorities of
proposed changes or adjustments to taxes or tax returns, consents to assessment
or collection of taxes, acceptances of proposed adjustments, closing agreements,
rulings and determination letters and requests therefor, and all other written
communications to or from taxing authorities relating to any material tax
liability of CNB.
(S) 3.7 Insurance. Schedule 3.7 hereto lists all insurance policies
------------
presently carried by CNB and County or currently in force with respect to their
business and properties, including any title insurance policies on real property
owned (exclusive of foreclosed property). The existing insurance is with
reputable insurers and, in respect of the nature of the risks insured against
and the amount of
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coverage provided, not less than that customarily carried by parties similarly
situated who own properties and engage in businesses substantially similar to
that of CNB and County, and such insurance is sufficient for compliance by them
with all material requirements of law and agreements to which either of them is
a party. Neither CNB nor County is in default in the payment of any premium,
currently has outstanding any claim with respect to such insurance coverage, or
has received notification of, or has knowledge of, the existence of any grounds
for the cancellation or proposed cancellation of any such policies or bonds.
(S) 3.8 Legal Proceedings. Except as set forth in Schedule 3.8, hereto,
------------
there are no judicial or administrative proceedings of any kind or nature
pending or, to the knowledge of CNB or County, threatened against CNB or County
or any of their properties or capital stock or the transactions contemplated by
this Agreement. To their knowledge: (i) there is no actual or threatened
action, suit, investigation, or proceeding against either of them before any
court or arbitral tribunal or before or by any governmental department, agency,
or instrumentality, which, if determined adversely to CNB or County, would have
a Material Adverse Effect on their consolidated assets, business, employees,
revenue, income, prospects, condition (financial or otherwise), liabilities, net
worth, or results of operations, (ii) there is no actual or threatened action,
suit, investigation or proceeding against any officer, director, agent, or
employee of CNB or County in connection with the business, properties or affairs
of CNB or County and (iii) neither CNB nor County is in default with respect to
any judgment, order, writ, injunction, decree, award, rule, or regulation of any
court, arbitrator, or governmental department, agency, or instrumentality.
(S) 3.9 Compliance with Law. Other than as set forth in Schedule 3.9
------------
hereto, to their knowledge: (i) CNB and County are, in all material respects, in
compliance with the provisions of all other applicable federal and state
statutes, and all rules, regulations, or orders of, or understandings or
agreements with, governmental agencies having jurisdiction over the business,
properties, operations or employees of CNB or County, and (ii) neither CNB nor
County is currently subject to any material fine, penalty, liability, or legal
disability as the result of its failure to comply with any applicable
requirement of any governmental body or agency. CNB and County have filed, and
until the Effective Time of the Merger will continue to file, all reports
required to be filed by it or them with any regulatory agency on or prior to the
date such reports were due, and all such reports, as finally amended, complied
and will comply in all material respects with applicable requirements of law
and, as of their respective dates or the dates as amended, did not and will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were or will be made, not
misleading. Except to the extent stated therein, all financial statements and
schedules included in such reports were and will be prepared in accordance with
GAAP or such other regulatory accounting requirements as were applicable
thereto, applied on a consistent basis with prior periods, and fairly presented
and will fairly present the information purported to be shown therein.
(S) 3.10 Governmental Authorizations. CNB and County have all licenses,
permits, approvals, and other authorizations from all federal, state, and local
authorities as are necessary for the conduct of their business and operations,
and all such licenses, franchises, permits, approvals, and other authorizations
are in full force and effect and are not subject to any condition,
qualification, or limitation. Neither CNB nor County has received any
notification from any agency, department, or instrumentality of federal, state,
or local government asserting noncompliance with any of the laws, rules,
regulations or orders that such governmental authority enforces, or threatening
to revoke any license, franchise, permit, or governmental authorization.
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(S) 3.11 Supervisory Matters. CNB and County have provided, and will
continue to provide, to Spangler for inspection originals or complete and
correct copies of (i) all examination reports by the OCC or the Federal Reserve
Bank forwarded to CNB or County during the period commencing January 1, 1996
through the Effective time of the Merger, (ii) any correspondence between CNB or
County or any of its representatives and such authorities relating to such
examination reports during such period and (iii) any written agreements,
arrangements, orders, directives, decrees, commitments, or understandings
between CNB or County and any federal or state banking authorities entered into
as a result of matters raised in such examination reports or correspondence or
previously entered into and remaining, in whole or in part, in full force and
effect. Neither CNB nor County has been advised by any regulatory agency that
it is contemplating issuing or requesting (or considering the appropriateness of
issuing or requesting) any written agreement, memorandum of understanding,
order, decree, directive, extraordinary supervisory letter, commitment letter,
or similar document or taking (or considering the appropriateness of taking) any
corrective action. The reserve for loan losses of County has been calculated in
accordance with GAAP applied on a consistent basis, as the same are applied to
comparable banking institutions, and in accordance with all applicable rules and
regulations. The last series of examinations by the staff of any state or
federal regulatory agency prior to the date of this Agreement were performed in
March and December of 1997 and March and November of 1998. County has not been
notified of any deficiencies as a result of such examinations or any prior
examinations. To the knowledge of CNB and County, the reserves for loan losses
set forth in County's Financial Statements are adequate in all respects to
provide for all losses, net of recoveries relating to loans previously charged
off, on loans outstanding as of the dates thereof. Neither CNB nor County has
been notified in writing that such reserves violated any minimum requirements or
that its independent auditors believe such reserves to be inadequate or
inconsistent with historical loan loss experience.
(S) 3.12 Rights and Licenses. Except for the logo "CNB," there are no
trademarks, trademark rights, trade names, or licenses owned and/or used by CNB
or County. To their knowledge, neither is subject to any material disability to
conduct its business as currently conducted or liability by reason of its
failure to own or possess the rights to use any other trademark, trademark
right, trade name, trade name right, or license. CNB and County have full right
and authority to own and use the logo "CNB." Neither has been held liable for,
and no actions, suits, or proceedings are pending or, to their knowledge,
threatened alleging that either is liable for, infringement of any trademark,
trademark right, trade name, trade name right, or license owned and/or used by
any other person or entity.
(S) 3.13 Properties. Each of CNB and County has good and marketable title
to all of its assets and properties, including all real, personal, and
intangible properties, and such properties and assets are subject to no liens,
mortgages, security interests, encumbrances, or charges of any kind except (a)
as noted in the Financial Statements described in Section 3.5, (b) statutory
liens not yet delinquent, and (c) minor defects and irregularities in title and
encumbrances that do not materially impair the value or use thereof for the
purposes for which they are held.
(S) 3.14 Absence of Certain Changes or Events. Except as set forth in
Schedule 3.14 hereto, since December 31, 1998, neither CNB nor County has:(i)
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incurred any material liability, except in the ordinary course of business,
consistent with its past practice; (ii) suffered any material adverse change in
its business, operations, assets, or condition (financial or other); (iii) made
any material change in its mode of management or operation or method of
accounting; or (iv) failed to operate its business in all material respects in
the ordinary course consistent with its past practice.
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(S) 3.15 S-4 Registration Statement. When the S-4 Registration Statement
or any post-effective amendment thereto shall become effective, on the Mailing
Date and at all times subsequent to such effective date or Mailing Date up to
the meeting date of Spangler's shareholders to consider and vote upon the
transactions contemplated by this Agreement, the information with respect to CNB
and County set forth in the S-4 Registration Statement and in all amendments and
supplements thereto: (a) will comply in all material respects with the
provisions of the Securities Act and the Rules and Regulations of the SEC
thereunder; and (b) will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading.
(S) 3.16 Securities Laws. CNB has filed all reports and statements,
together with any amendments required to be made thereto required to be filed
under the Exchange Act, all of which as of their respective dates were in
compliance with the rules and regulations of the SEC in all material respects.
All sales of securities issued by CNB have been in compliance with the
applicable federal and state sales of securities laws.
(S) 3.17 Representations and Warranties true on and as of Mailing Date and
Closing Date. All the representations and warranties of CNB and County contained
in this Agreement will be materially true on and as of the Mailing Date and the
Closing Date, except to the extent affected (i) by the transactions contemplated
hereby, and (ii) by circumstances disclosed to Spangler occurring subsequent to
the date hereof.
(S) 3.18 Books of Account; Corporate Records. The Books of Account of CNB
and County are maintained in substantial compliance with all applicable legal
and accounting requirements. The minutes of meetings maintained by CNB and
County contain complete and accurate records in all material respects of all
corporate actions of its shareholders and Board of Directors and all committees
thereof.
(S) 3.19 Ownership of Spangler Common Stock. No shares of Spangler Common
Stock are beneficially owned (as defined in Rule 13d-3 under the Exchange Act)
by CNB or County or any officer or director of CNB or County.
(S) 3.20 Related Party Transactions. Except as disclosed in Note 12 to
the consolidated financial statements included in CNB's Annual Report to its
shareholders for the year 1998 (the "Annual Report") and in CNB's Proxy
Statement for the annual meeting of shareholders for the year 1999 (the "Proxy
Statement"), neither CNB nor County is a party to any transaction (including any
loan or credit accommodation) with any Affiliate of CNB or County. The
disclosed transactions (a) were made in the ordinary course of business, (b)
were made on substantially the same terms as those prevailing at the time for
comparable transactions and (c) do not involve more than the normal risk of
collectability or present other unfavorable features.
(S) 3.21 Environmental Matters. Neither CNB nor County nor any property
owned or operated by CNB or County has been or is in violation of or liable for,
or to the knowledge of CNB or County after due inquiry threatened by in any
material respect, the breach of any Environmental Law.
(S) 3.22 Brokers. No agent, broker, finder, investment banker, person or
firm acting on behalf or under authority of CNB or County is or will be entitled
to any broker's or finder's fee or any other commission or similar fee incurred
directly or indirectly by or on behalf of CNB or County in connection with the
transactions contemplated by this Agreement.
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(S) 3.23 Employee Benefit Plans or Arrangements.
(S) 3.23(a) CNB and County have disclosed in the Proxy Statement and in
Note 11 to the consolidated financial statements included in the Annual Report
(and will deliver or make available to Spangler copies of the legal documents,
including all amendments, modifications and supplements, or written summaries
where no such documents exist for) all pension, retirement, profit sharing,
deferred compensation, stock option, stock purchase, stock bonus, employee stock
ownership, severance pay, vacation, bonus, or other incentive plans and all
other employee benefit programs, arrangements, or agreements, and fringe benefit
plans, including, without limitation, all "Employee Pension Benefit Plans" (as
defined in Section 3(2) of ERISA and all "Employee Welfare Benefit Plans" (as
defined in Section 3(1) of ERISA), currently or at any time within the most
recent six years adopted, maintained by, sponsored in whole or in part by or
contributed to by CNB or County (or any of its Affiliates, as defined herein)
for the benefit of its employees (and their spouses or dependents), retirees,
directors, independent contractors or other beneficiaries (collectively the "CNB
Benefit Plans"). Except as explicitly disclosed on Schedule 3.23, no CNB
-------------
Benefit Plan which is an Employee Pension Benefit Plan (and referred to herein
as a "CNB ERISA Plan") (i) is or has been a multi-employer plan within the
meaning of Section 3(37) of ERISA; (ii) is or has been subject to the provisions
of Title IV of ERISA and/or the minimum funding requirements of Section 412 of
the Code or Section 302 of ERISA; (iii) which is intended to meet the
qualification requirements of Section 401, et seq. of the Internal Revenue Code
of 1986, as amended, has failed to meet such requirements in form or operation;
and (iv) has at any time engaged, nor have any of the fiduciaries, disqualified
persons or parties in interest (as such terms are defined under ERISA and the
Code) at any time engaged, either in any prohibited transactions under Section
4975 of the Code or Section 406 of ERISA with respect to such Plans or in a
breach of fiduciary duty under ERISA with respect to such Plans.
(S) 3.23(b) Except as disclosed on Schedule 3.23, all CNB Benefit Plans
-------------
are in compliance in all material respects with the applicable terms of ERISA
and any other applicable statutes, rules or regulations, including without
limitation requirements for filing annual returns (Form 5500), continuation
coverage under the Consolidated Omnibus Budget Reconciliation Act of 1986
(COBRA) and compliance with the Health Insurance Portability and Accountability
Act of 1996 (HIPAA). All contributions to or payments under all CNB Benefit
Plans (including employee withholdings) (i) have at all times been made in a
timely manner as required pursuant to such Plans, any collective bargaining or
other agreements and the provisions of ERISA and regulations thereunder or (ii)
where contributions or payments under such Plans are not yet due, adequate
provision for reserves to meet such obligations have been made. Except as
disclosed on Schedule 3.23, there are no pending or threatened suits, actions,
-------------
claims (other than routine claims for benefits), audits, examinations, inquiries
or other similar types of proceedings relating to the CNB Benefit Plans by any
third party, governmental agency or regulatory authority nor any filings by or
on behalf of CNB or County (or any of its Affiliates) for a ruling, advisory
opinion, exemption or similar request for relief with respect to the CNB Benefit
Plans.
(S) 3.23(c) Neither the execution of this Agreement nor the consummation
of the transactions contemplated hereunder will: (i) result in any payment
(including, without limitation, severance, unemployment compensation or golden
parachute (such as those defined in Section 280G of the Code or otherwise))
becoming due to any director, officer or employee of CNB or County, from CNB or
County under any CNB Benefit Plan; (ii) increase any benefits otherwise payable
under any CNB Benefit Plan; or (iii) result in any acceleration of the time of
payment or vesting of any such benefit. Except with respect to obligations under
COBRA or as disclosed on Schedule 3.23, no CNB Benefit Plan provides for post-
-------------
employment health or welfare benefits or payments.
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(S) 3.23(d) For purposes of this Section 3.23, the term "Affiliate" means
any person who is, or at the relevant times was, under common control (within
the meaning of Section 4001(a)(14) or (b)(1) of ERISA and its regulations
thereunder or Section 414(b), (c), (m), or (o) of the Code) with CNB or its
successor.
ARTICLE FOUR
Covenants and Agreements
(S) 4.1 Pre-Merger Conduct of Business by Spangler. Spangler covenants
and agrees that from the date hereof until the Effective Time of the Merger,
unless CNB shall otherwise specifically agree in writing or as otherwise
specifically authorized herein:
(S) 4.1(a) The business of Spangler shall be conducted only in the
usual, regular, and ordinary course and in substantially the same manner as
heretofore conducted, and, to the extent consistent with such business, Spangler
shall use all reasonable efforts to preserve intact its business organization,
to keep available the services of its officers and employees, to maintain its
rights and franchises, and to preserve its relationships with customers,
suppliers, and others having business with it. Without limiting the generality
of the foregoing, Spangler shall not enter into or become bound by any contract,
plan, commitment, or instrument described in Section 2.14 hereof or enter into
any transaction (whether or not described in Section 2.14 hereof) involving the
expenditure, commitment, or lending of money or credit in excess of its legal
lending limit.
(S) 4.1(b) Spangler shall not (i) issue any shares of capital stock,
except for shares to be issued prior to the Effective Time of the Merger in
connection with the exercise of options or warrants outstanding on the date
hereof and disclosed to CNB pursuant to Section 2.4(b) hereof; (ii) except for
the cash dividends of $12.50 per share payable on each of September 1, 1999 and
December 1, 1999 to shareholders of record on July 9, 1999 and October 10, 1999,
respectively, declare, set aside, or pay any dividend or other distribution
payable in cash, stock, or property with respect to shares of its outstanding
capital stock; (iii) make any change in its capital stock by split, reverse
split, reclassification, reorganization, subdivision or otherwise; (iv) acquire
any shares of its capital stock by tender, redemption, or otherwise; (v) amend
its Articles of Association or Bylaws; (vi) merge or consolidate with or into,
or permit the merger into it of, any other association, corporation, trust, or
entity; or (vii) change the character of its business. Notwithstanding the
foregoing, the parties intend and expect the shareholders of Spangler to
continue to receive dividends in the ordinary course. Consequently, if in view
of the scheduled Effective Time of the Merger in relation to the record dates of
the dividends declared by Spangler and by CNB, the shareholders of Spangler
would otherwise be deprived of a quarterly dividend from either Spangler or CNB,
then upon the approval by CNB, which approval shall not be unreasonably
withheld, Spangler shall be entitled to declare and pay a dividend to its
shareholders in an amount based on its most recent prior dividend paid and the
amount of the CNB dividend that its shareholders were foreclosed from receiving
purely as a result of the timing of the Effective Time of the Merger.
(S) 4.1(c) Spangler shall not grant any stock options, warrants,
rights, or other securities convertible into, or exercisable or exchangeable
for, shares of its capital stock.
(S) 4.1(d) Spangler shall not incur any obligations, commitments, or
liabilities, whether primarily or by way of guaranty, in excess of its legal
lending limit or having a maturity of more than
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one year from the date of its creation, other than in the ordinary course of
business consistent with past practice.
(S) 4.1(e) Spangler shall not make or commit to make any capital
expenditures of more than $2,500 individually or $10,000 in the aggregate.
(S) 4.1(f) Spangler shall not enter into any supply contracts, leases,
or other agreements that cannot be terminated without substantial penalty and/or
notice of more than 30 days.
(S) 4.1(g) Except as required by law, Spangler shall not change any
loan, investment, or management policies or make any material alteration in the
manner of keeping its books, accounts, and records.
(S) 4.1(h) Spangler shall not grant any salary increase (other than as
required by any existing contract) or enter into any new employment or employee
benefit contract, plan or arrangement or revise or otherwise modify any existing
employment or employee benefit contract, plan or arrangement.
(S) 4.1(j) Spangler shall not take any action that would in any manner
adversely affect the ability of any party hereto to obtain the approvals of any
governmental authorities required for consummation of the transactions
contemplated hereby or otherwise interfere with, impede, delay, or make more
costly the consummation of the transactions contemplated hereby.
(S) 4.1(k) Spangler shall not authorize or permit any officer,
director, employee, investment banker, financial consultant, attorney,
accountant, or other agent or representative of Spangler, directly or
indirectly, to initiate contact with any person or entity in an effort to
solicit, initiate, or encourage any "Takeover Proposal" (as such term is defined
below). In addition, Spangler shall not authorize or permit any officer,
director, employee, investment banker, financial consultant, attorney,
accountant, or other agent or representative of Spangler, directly or
indirectly, (i) to cooperate with, or furnish or cause to be furnished any non-
public information concerning the assets, operations, business, properties,
prospects, or condition (financial or otherwise) of Spangler to any person or
entity in connection with any Takeover Proposal; (ii) to negotiate or discuss
any Takeover Proposal with any person or entity; or (iii) to enter into any
agreement or agreement in principle as to any Takeover Proposal. Spangler shall
promptly give notice to CNB upon becoming aware of any Takeover Proposal. As
used in this Agreement, "Takeover Proposal" shall mean any proposal, other than
as contemplated by this Agreement, for a merger or other business combination
involving Spangler or for the acquisition of a substantial equity interest in
Spangler, or for the acquisition of a substantial portion of the assets of
Spangler.
(S) 4.1(l) Spangler shall not take or fail to take any action which
action or failure would cause any of the representations or warranties made by
Spangler in this Agreement to be or become untrue. Spangler shall promptly
notify CNB in writing of the existence or happening of any fact, event, or
occurrence that alters, will alter, or may be expected to alter, in an important
or potentially important respect, the accuracy or completeness of any
representation or warranty by Spangler contained in this Agreement.
(S) 4.1(m) Spangler shall not extend credit or accept any deposit or
engage in any similar transaction other than on substantially the same terms
(including, without limitation, interest rates and collateral) as those extended
or accepted in the ordinary course of its business.
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(S) 4.2 Access and Information.
(S) 4.2(a) Access. The parties hereto shall afford to each other and
to each of their respective accountants, counsel, and other representatives,
full access during normal business hours and for reasonable periods throughout
the period prior to the Effective Time of the Merger to all of their respective
properties, books, contracts, commitments, and records (including but not
limited to tax returns) and, during such period, shall furnish promptly to each
other or their representatives (i) a copy of each report, schedule, piece of
correspondence, and other document delivered to, filed with, or received by any
of them pursuant to the requirements of federal or state laws in connection with
this Agreement; (ii) written notice of any event or development: (A) which, had
it been known on the date of this Agreement, would have been required to be
disclosed under this Agreement, (B) which would cause any of their
representations and warranties contained herein to be inaccurate or incomplete
or otherwise misleading, or (C) which materially relates to the satisfaction of
the conditions set forth in Article Five of this Agreement; and (iii) all other
information concerning their assets, operations, business, employees, revenue,
income, prospects, condition (financial or otherwise), liabilities, net worth,
or results of operations as they or their representatives may reasonably
request. Any inspection or investigation performed pursuant to this Section
4.2(a) shall be conducted in a manner so as not to interfere unreasonably with
the operation of the business of the entity being inspected or investigated and
shall not affect or limit in any way any of their respective representations and
warranties hereunder.
(S) 4.2(b) Confidential Information. Any and all commercial,
financial, technical, or other information regarding any of the parties hereto
or their respective businesses, properties, and personnel, or those of their
respective joint ventures, officers, directors, control persons, or affiliates
("Confidential Information") which is derived or results from one party's access
to the properties, books, contracts, commitments, and records of another party
pursuant to the provisions of this Agreement, whether obtained before or after
the execution of this Agreement, shall be held in strict confidence; and the
party gaining access to such Confidential Information shall exercise the same
degree of care with respect thereto that any such party uses to preserve and
safeguard its own confidential proprietary information, but in no event less
than a reasonable standard of care. Such Confidential Information shall not
directly or indirectly be divulged, disclosed, or communicated to any other
person or entity or used for any purposes other than those expressly
contemplated by this Agreement, except as otherwise required by judicial or
regulatory authorities having jurisdiction in respect thereof. In the event the
transactions contemplated by this Agreement are not consummated for any reason,
all copies of all documents and other recorded material comprising such
Confidential Information shall immediately be returned and shall not thereafter
be used for any purpose by the acquiring party or any subsidiary or affiliate
thereof, and the confidentiality of such Confidential Information shall be
maintained, except to the extent that such Confidential Information can be shown
to be or to have been (i) otherwise known to the acquiring party, (ii) already
in the public domain, (iii) released without restriction by the proprietor of
the Confidential Information to another person, or (iv) received by the
acquiring party on a non-confidential basis from another person lawfully
possessing and lawfully entitled to disclose such information. This latter
undertaking with respect to nondisclosure of Confidential Information is of the
essence and will survive any termination of this Agreement or the transactions
contemplated hereby.
(S) 4.3 Proxy Statement. Spangler shall timely mail the Proxy Statement
(including the prospectus of CNB forming part of the S-4 Registration Statement
and which prospectus and the Proxy Statement are referred to herein as the
"Proxy Statement - Prospectus") to its shareholders who are entitled to vote at
the Spangler Shareholders' Meeting. Spangler shall publish such notice or
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notices of the Spangler Shareholders' Meeting as may be required, and at the
times and in the form and manner required, by applicable provisions of state and
federal statutes, regulations, rules, and orders and by its Articles of
Association, and the Spangler Shareholders' Meeting shall be held and conducted
in compliance with any and all applicable state and federal laws and in
compliance with its Articles of Association and Bylaws.
(S) 4.4 Furnishing of Information.
(S) 4.4(a) Spangler shall promptly furnish CNB with such information
relating to Spangler as is required under applicable federal law for inclusion
in the S-4 Registration Statement, including the Proxy Statement - Prospectus,
and CNB shall include such information therein.
(S) 4.4(b) The parties shall promptly furnish each other with (i) such
information as is required under applicable laws for inclusion in any filing
with state or federal authorities necessary to obtain approval for, or to given
notice of, the Merger or any other transaction contemplated hereby for authority
to consummate the transactions contemplated hereby and (ii) copies of all
quarterly and annual financial reports filed with state or federal regulatory
authorities, as well as any examination or similar reports received from such
persons, and any correspondence related thereto, to the extent permitted by
applicable law. Until the Effective Time of the Merger, the parties shall
provide to each other, on or before the twentieth day of each calendar month,
monthly financial statements for the preceding calendar month, including a
balance sheet and income statement.
(S) 4.4(c) The parties shall provide to each other copies of all
applications, documents, correspondence, or oral (to the extent material) or
written comments that each of them or any of their affiliates files with, sends
to, or receives from any state or federal authorities, or the staff or agents of
any of them, relating to this Agreement and the transactions contemplated
hereby, including any applications filed for the purpose of obtaining any
required regulatory approvals. Copies of all such applications, documents,
correspondence, or comments shall be provided by each party to the other's
counsel. In the case of such applications, documents, correspondence, and
comments to be filed with a regulatory authority, copies are to be provided to
such counsel for review and comment at least three (3) business days prior to
filing; and in the case of correspondence or comments (written or oral) received
from a regulatory authority, copies (or, with respect to oral comments, a
written summary thereof) are to be provided to such counsel as promptly as
possible after receipt thereof.
(S) 4.5 Filing for All Regulatory Approvals. Subject to the provisions
of Section 4.4 hereof, for the purpose of obtaining regulatory approval of the
Merger, the parties shall prepare and file all necessary documents with
applicable federal and state authorities and shall each diligently pursue the
regulatory approval process by taking such actions as may be required to effect
the Merger and all other transactions contemplated by this Agreement.
Notwithstanding the foregoing, nothing herein shall require any party to take
any action, accept any conditions, or make any concession which it reasonably
determines will have a Material Adverse Effect on its assets, business,
operations, employees, revenues, income, prospects, condition (financial or
otherwise), net worth, or results of operations, except for such party's
obligations under this Agreement.
(S) 4.6 No Control of Spangler by CNB. Notwithstanding any other
provision hereof, until the Effective Time of the Merger, the management of
Spangler and the authority to establish and implement its business policies
shall continue to reside solely in its officers and board of directors, subject
to the obligations of Spangler provided for herein, and the election of its
directors shall be solely the prerogative of its shareholders.
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(S) 4.7 Shares Held by Insiders. Schedule 4.14 hereto sets forth all
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shares of Spangler Common Stock beneficially owned by its officers and
directors.
(S) 4.8 Agreements to Use Best Efforts. Subject to the terms and
conditions set forth in this Agreement, each party agrees to use its best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper, or advisable to consummate and make
effective, as promptly as practicable, the transactions contemplated by this
Agreement and to cooperate with the other parties in connection with the
foregoing, including using its best efforts (A) to obtain all necessary
consents, shareholder and other approvals, and authorizations as are required to
be obtained under applicable state and federal statutes and regulations, (B) to
defend all lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby, (C) to lift or rescind any
injunction or restraining order or any other order or condition adversely
affecting the ability of the parties to consummate the transactions contemplated
by this Agreement, (D) to effect all necessary filings with state and federal
regulatory agencies, and (E) to cause the Merger to be a tax-free transaction to
the shareholders of Spangler. In the event of the imposition of a condition to
any approval by any state or federal regulatory authority necessary for the
valid consummation of the transactions contemplated by this Agreement which CNB
deems to be materially burdensome, CNB may, in its sole discretion, take such
action as it may deem appropriate for the purpose of obtaining the removal or
modification of such condition; provided, however, that nothing in this Section
4.8 shall require CNB to institute any litigation in connection therewith, to
continue any actions subsequent to any termination of this Agreement, or to
assume any obligation that it deems not to be in its best interest if the
removal or modification of such condition is specifically premised on CNB so
doing.
(S) 4.9 Press Releases and Public Information. Subject to compliance
with their respective legal obligations, the parties will advise and confer with
each other and otherwise cooperate in good faith prior to releasing any
statement to the press or otherwise making public any information concerning any
of the transactions contemplated herein.
(S) 4.10 Updating of the Schedules. The parties shall, from time to time,
prepare and deliver to each other such supplements to the Schedules attached
hereto as may be necessary or appropriate to ensure the accuracy and
completeness of the information required to be disclosed in such Schedules at
all times prior to the Effective Time of the Merger, provided that the
furnishing of any such supplement to such Schedules shall not modify, limit, or
otherwise affect any representations or warranties contained herein or any right
of a party to terminate this Agreement.
(S) 4.11 S-4 Registration Statement. Prior to the filing of the S-4
Registration Statement, CNB shall have received the following:
(S) 4.11(a) Certificates of Spangler signed on behalf of Spangler by its
President or any Senior Vice President and its Treasurer or Secretary dated the
filing date, in form and substance satisfactory to CNB, stating that:
(i) Spangler has complied in all material respects with the
agreements contained herein on its part to be performed on or prior to such
date; and
(ii) Except to the extent affected by the transactions
contemplated hereby, by the operations of Spangler, as permitted by the
provisions of Section 4.1 hereof, by transactions to which the written
consent of CNB is obtained prior to the
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filing date, and by circumstances referred to in such certificate
occurring subsequent to the date hereof that in the aggregate are not,
taken as a whole, materially adverse to Spangler, the representations and
warranties of Spangler contained herein are true and correct in all
respects at and as of the date of such certificate, with the same effect
as though such representations and warranties had been made at and as of
such date.
(S) 4.11(b) Certificates of Spangler signed on behalf of Spangler by its
President or any Senior Vice President and its Treasurer or Secretary dated the
filing date, in form and substance satisfactory to CNB, stating that to the best
of its knowledge the information concerning Spangler included in the S-4
Registration Statement does not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements made,
in light of the circumstances in which they are made, not misleading.
(S) 4.11(c) Such other letters, opinions, or certificates relating to
Spangler and the transactions contemplated by this Agreement as CNB or its
counsel may reasonably request.
(S) 4.12 Accounting Treatment. Each of CNB and Spangler undertakes and
agrees to use its best efforts to cause the Merger to qualify for pooling of
interests accounting treatment.
(S) 4.13 Agreement of Affiliates. Spangler shall deliver to CNB, as soon
as practicable after the date of this Agreement, a letter identifying each
person or entity who Spangler reasonably believes is an "affiliate" of Spangler
for purposes of Rule 145 under the Securities Act. Spangler shall use its best
efforts to cause each person who is identified as an "affiliate" in such letter
to deliver to CNB not later than the date on which the Merger is approved by the
OCC, a written agreement providing that such person will not sell, pledge,
transfer, or otherwise dispose of the shares of Spangler Common Stock held by
such person except as permitted by this Agreement and will not sell, pledge,
transfer, or otherwise dispose of the shares of CNB Common Stock to be received
by such person upon consummation of the Merger except in compliance with
applicable provisions of the Securities Act and the rules and regulations
thereunder and, in no event, until such time as consolidated financial results
covering at least thirty (30) days of operations of CNB, County and Spangler
after the Merger have been published within the meaning of Section 201.01 of the
SEC's Codification of Financial Reporting Policies. If the Merger will qualify
for pooling of interests accounting treatment, shares of CNB Common Stock issued
to affiliates of Spangler in exchange for Spangler Common Stock shall not be
transferable in any event until such time as consolidated financial results
covering at least thirty (30) days of operations of CNB, County and Spangler
after the Merger have been published within the meaning of Section 201.01 of the
SEC's Codification of Financial Reporting Policies, regardless of whether each
such affiliate has provided the written agreement referred to in this Section
4.13. CNB shall not be required to maintain the effectiveness of the S-4
Registration Statement under the Securities Act for the purposes of resale of
CNB Common Stock by such affiliates.
(S) 4.14 Agreement of Officers and Directors. Schedule 4.14 hereto is a
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list of the officers and directors of Spangler and the number of shares of
Spangler Common Stock that each owns beneficially. As soon as practicable after
the date of this Agreement, Spangler shall deliver to CNB the written agreement
of each such officer or director to vote in favor of this Agreement the listed
shares which he or she has the power to vote and to use his or her best efforts
to have the remaining listed shares voted in favor of this Agreement.
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ARTICLE FIVE
Conditions Precedent to Obligation to Close
(S) 5.1 Definition of "Measurement Price." As used in this Article
Five, the term "Measurement Price" means the trading price of one share of CNB
Common Stock as measured by the average of the bid and asked prices for the
twenty (20) trading days (i.e., days on which such stock is actually traded)
ended on the date that is ten (10) business days prior to the Closing Date.
(S) 5.2 Conditions to Each Party's Obligation to Close. Subject also to
Sections 5.3 and 5.4 hereof, the obligation of each party under this Agreement
to consummate the transactions contemplated hereby is subject to the
satisfaction of the following conditions precedent, unless any one or more of
such conditions, to the extent legally permitted, shall be waived in writing by
such party on or before the Closing Date:
(S) 5.2(a) Government Approvals. Any and all orders, permits,
approvals, or qualifications from all appropriate state and federal governmental
authorities required for the lawful consummation of the Merger, including the
SEC, the OCC, and the FRB, and the transactions contemplated by this Agreement
and the Merger shall have been obtained within five months following the date of
this Agreement, subject to no conditions which in the reasonable judgment of CNB
would restrict it or County after consummation of the Merger in their respective
spheres of operation and business activities subsequent to the Effective Time of
the Merger; provided, however, that if CNB is continuing in good faith to seek
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regulatory approvals at the end of such five-month period, any party may request
that the others agree to extend the term of this Agreement by three months,
approval of which request shall not be unreasonably withheld by the others. Any
waiting period required prior to the consummation of such transactions pursuant
to any applicable laws or regulations shall have elapsed, and no court, arbitral
tribunal, or governmental agency shall have enjoined, restrained or prohibited
the transactions contemplated by this Agreement, which injunction, restraint, or
prohibition shall not have been removed.
(S) 5.2(b) Shareholder Approval. This Agreement shall have been
approved by the shareholders of Spangler by at least the vote of such
shareholders required for such approval pursuant to the Articles of Association
and Bylaws of Spangler and all applicable laws and regulations.
(S) 5.3 Conditions to Spangler's Obligation to Close. The obligations of
Spangler under this Agreement to consummate the transactions contemplated hereby
are subject to the satisfaction of the following additional conditions, on or
prior to the Closing Date, unless any one or more of such conditions, to the
extent legally permitted, are waived in writing by Spangler on or before the
Closing Date:
(S) 5.3(a) Accuracy of Representations and Warranties. The
representations and warranties of CNB and County herein contained shall have
been true and correct in all material respects when made, and, in addition,
shall be true and correct in all material respects on and as of the Closing
Date, with the same force and effect as though made on and as of the Closing
Date, except as affected by transactions specifically contemplated or permitted
hereby and except for any such representations and warranties made as of a
specific date, which shall be true and correct in all material respects as of
such date, and except for any changes occurring in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse to CNB and County taken as a whole.
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(S) 5.3(b) Performance of Covenants and Agreements. CNB and County
shall have performed in all material respects all obligations and agreements and
complied with all covenants contained in this Agreement to be performed and
complied with by them on or prior to the Closing Date.
(S) 5.3(c) No Material Change. Between the date of this Agreement and
the Closing Date, there shall not have occurred any material adverse change in
the assets, business, operations, employees, revenue, income, prospects,
condition (financial or otherwise), liabilities, net worth, or results of
operations of CNB and County taken as a whole from that which is represented or
warranted in this Agreement.
(S) 5.3(d) Opinion of Counsel. CNB shall have delivered to Spangler an
opinion or opinions of counsel, dated as of the Closing Date, in form and
substance satisfactory to Spangler and its counsel, to the effect that:
(i) CNB is a corporation organized, existing, and in good
standing under the laws of the Commonwealth of Pennsylvania and is duly
registered as a bank holding company under the Bank Holding Company Act;
County is a national banking association existing and in good standing
under the laws of the United States; and each of CNB and County has full
corporate power to own and operate its business and properties and to carry
on its business as currently conducted. County's Certificate of Authority,
granted by the OCC on April 26, 1984, has not been rescinded or modified
and remains in full force and effect.
(ii) Execution, delivery, and performance of this Agreement by
CNB and County and consummation of the transactions contemplated hereby do
not and will not conflict with, or result in the breach of, or constitute a
default under, any of the provisions of the Articles of Incorporation or
Association or Bylaws of CNB or County or, to such counsel's knowledge,
after due inquiry, any material agreement to which CNB or County is a party
or by which it or any of its properties may be bound.
(iii) CNB and County have full corporate power and authority to
make, execute, deliver, and perform this Agreement, and this Agreement has
been duly authorized and approved by all necessary corporate action of CNB
and County and constitutes a valid and binding obligation of CNB and
County. The shares of CNB Common Stock to be issued and delivered in
accordance with this Agreement will, when issued and delivered in
accordance with Section 1.4 of this Agreement, be legally issued, fully
paid and non-assessable.
(iv) All filings and registrations with, and notifications to,
all federal and state authorities required on the part of CNB and County
for the consummation of the Merger have been made, all approvals and
authorizations of all federal and state authorities required with respect
to CNB and County for consummation of the Merger are in full force and
effect, and all applicable waiting periods have passed.
(S) 5.3(e) Updated Schedules. CNB and County shall have delivered to
Spangler such supplements as may be necessary or appropriate to ensure the
accuracy and completeness as of the Closing Date of the information disclosed in
the Schedules provided by CNB and County pursuant hereto.
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(S) 5.3(f) Tax Treatment. Spangler shall have obtained an opinion of
its counsel, dated the Closing Date, that the Merger shall be treated for
federal income tax purposes as a tax-free reorganization with respect to its
Shareholders.
(S) 5.3(g) Measurement Price. The Measurement Price shall be not less
than $28.00, as appropriately adjusted for any CNB stock splits, reverse stock
splits, stock dividends, recapitalizations or similar events from and after the
date of this Agreement through the Closing Date.
(S) 5.3(h) Securities Laws. The S-4 Registration Statement shall have
been declared effective by the SEC and registration or an exemption from
registration shall have been validly effected and maintained with respect to the
state securities laws of each state in which a holder of the Spangler Common
Stock resides. No order suspending the sale of the shares of CNB Common Stock
in any jurisdiction shall have been issued, and no proceedings for that purpose
shall have been instituted or shall be, to CNB's knowledge, contemplated.
(S) 5.3(i) No Material Change. Between the date of this Agreement and
the Closing Date, there shall not have occurred any material adverse change in
the assets (including loan portfolio), business, operations, employees, revenue,
income, prospects, condition (financial or otherwise), liabilities, net worth,
or results of operations of CNB and County, taken as a whole, from that which is
represented or warranted in this Agreement.
(S) 5.4 Conditions to CNB's and County's Obligation to Close. The
obligations of CNB and County under this Agreement to consummate the
transactions contemplated hereby are subject to the satisfaction of the
following additional conditions, on or prior to the Closing Date, unless any one
or more of such conditions, to the extent legally permitted, shall be waived in
writing by CNB and County on or before the Closing Date.
(S) 5.4(a) Accuracy of Representations and Warranties. The
representations and warranties of Spangler herein contained shall have been true
and correct in all material respects when made, and, in addition, shall be true
and correct in all material respects on and as of the Closing Date, with the
same force and effect as though made on and as of the Closing Date, except as
affected by transactions specifically contemplated or permitted hereby and
except for any such representations and warranties made as of a specific date,
which shall be true and correct in all material respects as of such date, and
except for any changes occurring in the ordinary course of business, none of
which individually or in the aggregate has been materially adverse to Spangler.
(S) 5.4(b) Performance of Covenants and Agreements. Spangler shall
have performed in all material respects all obligations and agreements and
complied with all covenants contained in this Agreement to be performed and
complied with by Spangler on or prior to the Closing Date.
(S) 5.4(c) Consent of Other Persons. To the extent that any lease,
contract, or agreement to which Spangler is a party or by which it is bound or
to which any of its properties is subject shall require the consent of any other
person or entity to the transactions contemplated hereby, such consent shall
have been obtained by the Closing Date, unless CNB specifically agrees that such
consent need not be obtained by the Closing Date; provided, however, that
Spangler shall not make, as a condition for the obtaining of any such consent,
any agreements, representations, warranties, or undertakings that are not
specifically approved by CNB. CNB shall furnish such information and shall take
such other actions as Spangler may reasonably request in order to obtain any
consent of any third party required by this Section 5.4(c).
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(S) 5.4(d) Securities Laws. The S-4 Registration Statement shall have
been declared effective by the SEC and registration or an exemption from
registration shall have been validly effected and maintained with respect to the
state securities laws of each state in which a holder of the Spangler Common
Stock resides. No order suspending the sale of the shares of CNB Common Stock
in any jurisdiction shall have been issued, and no proceedings for that purpose
shall have been instituted or shall be, to CNB's knowledge, contemplated.
(S) 5.4(e) No Material Change. Between the date of this Agreement and
the Closing Date, there shall not have occurred any material adverse change in
the assets (including loan portfolio), business, operations, employees, revenue,
income, prospects, condition (financial or otherwise), liabilities, net worth,
or results of operations of Spangler from that which is represented or warranted
in this Agreement.
(S) 5.4(f) Legal Opinion of Spangler's Counsel. Spangler shall have
delivered to CNB and County an opinion or opinions of counsel, dated as of the
Closing Date, in form and substance reasonably satisfactory to CNB and its
counsel, to the effect that:
(i) Spangler is a national banking association existing and in
good standing under the laws of the United States and has full corporate
power to own and operate its business and properties and to carry on its
business as currently conducted. Its Certificate of Authority, granted by
the OCC on March 1, 1904, has not been rescinded or modified and remains
in full force and effect.
(ii) Execution, delivery, and performance of this Agreement by
Spangler and consummation of the transactions contemplated hereby do not
and will not conflict with, or result in the breach of, or constitute a
default under, any of the provisions of the Articles of Spangler or, to
such counsel's knowledge, after due inquiry, of any material agreement to
which Spangler is a party or by which it or any of its properties may be
bound.
(iii) Spangler has full corporate power and corporate authority
to execute, deliver, and perform this Agreement, and this Agreement has
been duly authorized, approved, and adopted by all requisite corporate
action of Spangler, and by the shareholders of Spangler, and constitutes a
valid and binding obligation of Spangler.
(iv) All filings and registrations with, and notifications to,
all federal and state authorities required on the part of Spangler for the
consummation of the Merger have been made; all approvals and authorizations
of all federal and state authorities required with respect to Spangler for
consummation of the Merger are in full force and effect, and all applicable
waiting periods have passed.
(S) 5.4(g) Letter of Certified Public Accountants. Spangler shall have
delivered to CNB a letter from Spangler's CPA, addressed to CNB, in form and
substance satisfactory to CNB, to the effect that:
(i) they are independent certified public accountants with
respect to Spangler within the meaning of the Securities Act and the
applicable published rules and regulations thereunder;
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(ii) in their opinion the financial statements of Spangler
examined by them and included in the S-4 Registration Statement comply as
to form in all material respects with the applicable accounting
requirements of the Securities Act, and of the published rules and
regulations issued by the SEC thereunder; and
(iii) at the request of Spangler they have carried out
procedures to a specified date not more than five (5) business dates prior
to the Closing Date, which procedures do not constitute an examination in
accordance with GAAP, with respect to the Spangler financial statements as
follows: (A) read the unaudited financial statements included in the S-4
Registration Statement; (B) read the unaudited financial statements of
Spangler for the period from the date of the most recent financial
statements included in the S-4 Registration Statement through the date of
the most recent interim financial statements available in the ordinary
course of business; (C) read the minutes of the meetings of shareholders
and of the board of directors of Spangler from December 31, 1998 to said
date not more than five (5) business days prior to the Closing Date; and
(D) made inquiries of certain officers and employees of Spangler who have
responsibility for financial and accounting matters as to (1) whether the
unaudited financial statements included in the S-4 Registration Statement
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act and the published rules and regulations
issued by the SEC thereunder; (2) whether said unaudited financial
statements are fairly presented in conformity with GAAP applied on a basis
substantially consistent with that of the audited financial statements; and
(3) whether there has been any change in capital stock or long-term debt or
any decrease in combined total assets, shareholders' equity, income before
income taxes, or in the total or per share amounts of combined income
before securities gains or losses or net income of Spangler; and, based on
such procedures, nothing has come to their attention which would cause them
to believe that: (i) the unaudited financial statements of Spangler
included in the S-4 Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act and the published rules and regulations issued by the SEC
thereunder; (ii) said financial statements are not fairly presented in
conformity with GAAP applied on a basis substantially consistent with that
of the audited financial statements; (iii) as of said date not more than
five (5) business days prior to the Closing Date, there was, except as set
forth in the S-4 Registration Statement, any (x) change in capital stock or
long-term debt of Spangler or (y) decrease in total assets or shareholders'
equity, in each case as compared with the amounts shown in the balance
sheet of Spangler at the date of the most recent financial statements
included in the S-4 Registration Statement; or (iv) for the period from the
date of the most recent financial statements included in the S-4
Registration Statement to said date not more than five (5) business dates
prior to the Closing Date, there were, except as set forth in the S-4
Registration Statement, any decreases, as compared with the corresponding
portion of the preceding 12-month period, in income before income taxes or
in the total or per share amounts of income before securities gains or
losses or combined net income.
(S) 5.4(h) Updated Spangler Schedules. Spangler shall have delivered
to CNB such supplements as may be necessary or appropriate to ensure the
accuracy and completeness as of the Closing Date of the information disclosed in
the Schedules and Exhibits provided by Spangler pursuant hereto.
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(S) 5.4(i) Outstanding Shares. Not more than 2,500 shares of Spangler
Common Stock shall be outstanding immediately prior to the Effective Time of the
Merger, and Spangler shall have no other outstanding equity securities or
securities convertible into, or exercisable or exchangeable for, equity
securities of Spangler.
(S) 5.4(j) Resignations of Directors and Officers. The directors and
officers of Spangler shall have submitted their resignations, effective as of
the Effective Time of the Merger.
(S) 5.4(k) Other Information and Actions. Spangler shall have
delivered or caused to be delivered to CNB such other documents or instruments,
and shall have taken or caused to be taken such other actions, as may reasonably
have been requested by CNB or its counsel with respect to the transactions
contemplated by this Agreement.
(S) 5.4(l) Measurement Price. The Measurement Price shall not exceed
$39.00, as appropriately adjusted for any CNB stock splits, reverse stock
splits, stock dividends, recapitalizations or similar events from and after the
date of this Agreement through the Closing Date.
(S) 5.4(m) Dissenters Rights. The number of shares of Spangler Common
Stock that are voted against approval of this Agreement plus the number of
shares of Spangler Common Stock as to which the record holders serve notice of
their dissent from this Agreement (without double-counting such shares) shall
not exceed ten percent (10%) of the number of shares of Spangler Common Stock
outstanding immediately prior to the Merger.
ARTICLE SIX
Termination
(S) 6.1 Termination.
(S) 6.1(a) This Agreement may be terminated by any of the parties at
any time prior to the Effective Time of the Merger, whether before or after
approval by the shareholders of Spangler, if (i) the shareholders of Spangler
shall not have approved this Agreement by September 30, 1999, (ii) final
regulatory approvals have not been obtained by September 30, 1999, or (iii) the
Closing shall not have occurred by October 31, 1999, unless otherwise agreed in
writing by the parties.
(S) 6.1(b) Notwithstanding the approval set forth in (S) 6.1(a)(i),
this Agreement may be terminated at any time prior to the Effective Time of the
Merger:
(i) by the mutual consent in writing of CNB and Spangler duly
authorized by Board action of each such party;
(ii) by CNB if (A) one or more of the conditions set forth in
Section 5.4 hereof have not been satisfied (through no fault of CNB or
County) by September 15, 1999 and such conditions are not waived by CNB or
(B) there has been a material breach on the part of Spangler of any
representation, warranty or agreement contained herein which cannot be or
has not been cured within 30 days after written notice by CNB to Spangler
of such breach (provided that CNB or County is not then in material breach
of any representation, warranty, covenant or other agreement contained
herein);
(iii) by Spangler if (A) one or more of the conditions set forth
in Section 5.3 hereof have not been satisfied (through no fault of
Spangler) by September 15, 1999, and such conditions are not waived by
Spangler or (B) there has been a material breach on the part of CNB or
County of any representation, warranty or agreement contained herein which
cannot
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be or has not been cured within 30 days after written notice by Spangler
to CNB of such breach (provided that Spangler is not then in material
breach of any representation, warranty, covenant or other agreement
contained herein);
(iv) by Spangler in the event that CNB or County enters into an
Agreement to sell all or substantially all of its assets or stock or to merge
with a third party.
(S) 6.2 Effect of Termination.
(S) 6.2(a) If this Agreement is terminated pursuant to Section 6.1
hereof, all further obligations of the parties hereto under this Agreement shall
terminate and the Merger shall be abandoned, except that the provisions of this
Section 6.2(a) and Sections 2.10 (Brokers), 4.2(b) (confidential information),
and 6.2(b) (expenses in the event of termination) hereof shall survive any such
termination and abandonment of the Merger.
(S) 6.2(b) Notwithstanding the foregoing, (i) in the event this
Agreement is terminated by Spangler pursuant to Section 6.1(b)(iii)(B) hereof or
by CNB pursuant to Section 6.1(b)(ii)(B) hereof, the party terminating this
Agreement shall be entitled to reimbursement from the other party for the costs
and expenses (including fees and expenses of attorneys, auditors and financial
advisors) actually and reasonably incurred by it in connection with this
Agreement and the transactions contemplated hereby, but not to exceed $40,000,
and (ii) in the event this Agreement is not approved by the shareholders of
Spangler by the requisite vote, CNB and County shall be entitled to such
reimbursement from Spangler, but not to exceed $75,000.
ARTICLE SEVEN
Definitions
Except as otherwise expressly provided herein, the capitalized terms set
forth below (in their singular and plural forms, as applicable) shall have the
following meanings:
(S) 7.1 Spangler Tax Returns shall mean all federal, state, local, and
foreign tax returns, reports, and declarations of estimated tax with respect to
income, sales, and all other applicable taxes, and all other tax returns and
reports (including, without limitation, income, profit, franchise, sales, use,
real property, personal property, ad valorem, excise, employment, social
security, and wage withholding taxes of every kind, character, or description
imposed by any governmental or quasi-governmental authority), the filing of
which by Spangler is required by applicable law (without regard to extensions of
time permitted by law, regulation, or otherwise) at or before the Effective
Time.
(S) 7.2 Spangler Common Stock shall mean the $20.00 par value common
stock of Spangler.
(S) 7.3 Spangler Financial Statements shall mean its audited balance
sheets as of December 31, 1998, 1997 and 1996 and the related statements of
income, changes in shareholders' equity, and cash flows for the years then
ended, including any schedules.
(S) 7.4 Spangler Interim Financial Statements shall mean Spangler's
unaudited balance sheets, statements of income, statements of changes in
shareholders' equity, and statements of cash flows (including related notes and
schedules, if any) for the quarters ending after December 31, 1998.
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(S) 7.5 Spangler Shareholders' Meeting shall mean the meeting of
shareholders of Spangler in accordance with the applicable provisions of
Pennsylvania law for the purpose of considering and voting on this agreement and
the transactions contemplated hereby.
(S) 7.6 Spangler Taxes shall mean income, profits, gross receipts,
franchise, value added, payroll, sales, employment, use, property, withholding,
excise, and occupancy taxes, and any penalties, interest, or additions to tax
imposed thereon or in connection therewith, due or claimed to be due by any
taxing authority in connection with any of the Spangler Tax Returns.
(S) 7.7 Spangler's CPA shall mean the firm of independent, certified
public accountants for Spangler.
(S) 7.8 CNB Tax Returns shall mean all federal, state, local, and foreign
tax returns, reports, and declarations of estimated tax with respect to income,
sales, and all other applicable taxes, and all other tax returns and reports
(including, without limitation, income, profit, franchise, sales, use, real
property, personal property, ad valorem, excise, employment, social security,
and wage withholding taxes of every kind, character, or description imposed by
any governmental or quasi-governmental authority), the filing of which by CNB is
required by applicable law (without regard to extensions of time permitted by
law, regulation, or otherwise) at or before the Effective Time.
(S) 7.9 CNB Common Stock shall mean the $1.00 par value common stock of
CNB.
(S) 7.10 CNB Financial Statements shall mean (i) the audited financial
statements included in CNB's Annual Reports on Form 10-K (including exhibits)
filed with the SEC for the fiscal years ended December 31, 1998, 1997 and 1996,
as the same may have been amended, and the unaudited financial statements
included in its Quarterly Reports on Form 10-Q (including exhibits) filed with
the SEC for the quarters ending after December 31, 1998 but before the Closing
Date.
(S) 7.11 CNB Taxes shall mean income, profits, gross receipts, franchise,
value added, payroll, sales, employment, use, property, withholding, excise, and
occupancy taxes, and any penalties, interest, or additions to tax imposed
thereon or in connection therewith, due or claimed to be due by any taxing
authority in connection with any of the CNB Tax Returns.
(S) 7.12 Act shall mean the federal Bank Holding Company Act of 1956, as
amended.
(S) 7.13 Affiliate shall mean all persons under common control with
Spangler within the meaning of Sections 4001(a)(14) or (b)(1) of ERISA or any
regulations promulgated thereunder, or Sections 414(b) or (c) of the Code.
(S) 7.14 Agreement shall mean this Agreement and Plan of Merger.
(S) 7.15 Books of Account shall mean all accounting records maintained by
Spangler, CNB or County, as the case may be.
(S) 7.16 Closing shall mean the closing of the transactions contemplated
by this Agreement and shall take place not later than 90 days following the
satisfaction (or waiver, if permitted hereunder) of the closing conditions
specified in Article Five hereof.
(S) 7.17 Closing Date shall mean the date on which the Closing is
completed.
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(S) 7.18 Code shall mean the Internal Revenue Code of 1986, as amended.
(S) 7.19 Confidential Information shall mean any and all commercial,
financial, technical, or other information regarding CNB or Spangler or their
respective businesses, properties, and personnel, or those of their respective
subsidiaries, joint ventures, officers, directors, control persons, or
affiliates, which is derived or results from one party's access to the
properties, books, contracts, commitments, and records of the other pursuant to
the provisions of this Agreement, whether obtained before or after the execution
of this Agreement, except for information (i) otherwise known to the acquiring
party, (ii) already in the public domain, (iii) released without restriction by
the proprietor of the information to another person, or (iv) received by the
acquiring party on a non-confidential basis from another person lawfully
possessing and lawfully entitled to disclose such information.
(S) 7.20 Department of the Treasury shall mean the United States
Department of the Treasury.
(S) 7.21 ERISA shall mean the Employee Retirement Income Security Act of
1974, as amended.
(S) 7.22 Effective Time shall mean 5:00 p.m. on the Closing Date or such
other date and time at which the Merger shall become effective in accordance
with the laws of the United States.
(S) 7.23 Eligible Spangler Shareholder shall mean each holder of record
(other than a dissenting shareholder who perfects statutory dissenters' rights)
of Spangler Common Stock.
(S) 7.24 Environmental Law means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
Regulatory Authority relating to (i) 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 like or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
(S) 7.25 Exchange Act shall mean the Securities Exchange Act of 1934, as
amended.
(S) 7.26 Exchange Agent shall mean the bank or trust company, designated
by CNB and reasonably acceptable to Spangler, with which CNB shall deposit, for
the benefit of Eligible Spangler Shareholders, certificates representing shares
of CNB Common Stock for exchange in accordance with the provisions of Section
1.3 of this Agreement.
(S) 7.27 FDIA shall mean the Federal Deposit Insurance Act of 1950, as
amended.
(S) 7.28 FDIC shall mean the Federal Deposit Insurance Corporation.
(S) 7.29 Federal Reserve Board or FRB shall mean the Board of Governors of
the Federal Reserve System and the Federal Reserve Bank in Philadelphia,
Pennsylvania.
(S) 7.30 GAAP shall mean generally accepted accounting principles
consistently applied.
(S) 7.31 IRS shall mean the United States Internal Revenue Service.
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(S) 7.32 Mailing Date shall mean the date subsequent to the effective date
of the S-4 Registration Statement (and any post-effective amendment thereto)
when the Proxy Statement -Prospectus to be distributed to Spangler's
Shareholders shall first be mailed to such shareholders.
(S) 7.33 Material Adverse Effect shall mean, with respect to CNB or
Spangler, any adverse effect on the assets, business, operations, financial
condition or results of operation which is material to CNB or Spangler,
whichever the case maybe, on a consolidated basis.
(S) 7.34 Merger shall mean the merger of Spangler with and into County
pursuant to the applicable laws of the United States and in accordance with the
provisions of this Agreement.
(S) 7.35 OCC shall mean the Office of the Comptroller of the Currency, a
bureau of the United States Department of the Treasury and the regulator of
national banks, or any successor agency.
(S) 7.36 Other Plan shall mean any rabbi trust, employment contract,
deferred compensation, bonus, stock option, stock award, stock purchase, or
other employee benefit plan, agreement, commitment, or arrangement except a
Pension Plan or a Welfare Plan.
(S) 7.37 Pension Plan shall mean any "employee benefit pension plan" as
such term is defined in Section 3(2) of ERISA and regulations thereunder.
(S) 7.38 Pennsylvania Department means the Pennsylvania Department of
Banking.
(S) 7.39 Previously Disclosed shall mean information (i) delivered prior
to the date of this Agreement in the manner prescribed for the giving of notices
pursuant to Section 7.8 of this Agreement and describing in reasonable detail
the matters contained therein, or (ii) disclosed prior to the date of this
Agreement in any report or registration statement filed (or required to be
filed) by any party to this Agreement and delivered by that party to the other
party hereto.
(S) 7.40 S-4 Registration Statement shall mean the Registration
Statement on Form S-4 (or other appropriate form) filed by CNB with the SEC
under the Securities Act for the purpose of registering a number of shares of
CNB Common Stock to be exchanged for shares of Spangler Common Stock in the
Merger.
(S) 7.41 SEC shall mean the United States Securities and Exchange
Commission.
(S) 7.42 Securities Act shall mean the Securities Act of 1933, as amended.
(S) 7.43 Stock Event shall mean any subdivision of the outstanding shares
of CNB Common Stock into a greater number of shares by means of a stock split,
stock dividend, or reclassification.
(S) 7.44 Takeover Proposal shall mean any proposal, other than as
contemplated by this Agreement, for a merger or other business combination
involving Spangler or for the acquisition of a substantial equity interest in
Spangler or for the acquisition of a substantial portion of the assets of
Spangler.
(S) 7.45 Welfare Plan shall mean any "employee welfare benefit plan" as
such term is defined in Section 3(1) of ERISA and the regulations thereunder.
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ARTICLE EIGHT
Miscellaneous
(S) 8.1 Expenses. Except as provided in Section 6.2(b) hereof, each
party shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereby, including the fees and
expenses of its own financial or other consultants, investment bankers,
accountants, and counsel.
(S) 8.2 Entire Agreement; Amendment. This Agreement, including any
Exhibits and Schedules hereto and other writings specifically referred to,
constitutes the entire agreement among the parties hereto with respect to the
transactions contemplated hereby and supersedes all prior oral or written
agreements, commitments, or understandings with respect to the matters provided
for herein. No amendment, modification, or discharge of this Agreement shall be
valid or binding unless set forth in writing and duly executed by the party
against whom enforcement of the amendment, modification, or discharge is sought;
provided, however, that, subject to Section 6.1 hereof, after approval by
Spangler's shareholders, there can be no amendment which will affect the rights
of such shareholders in a manner which, in the judgment of any of the parties
hereto, is materially adverse to Spangler's Shareholders.
(S) 8.3 Waiver. No delay or failure on the part of any party hereto to
exercise any right, power, or privilege under this Agreement or under any other
instrument given in connection with or pursuant to this Agreement shall impair
any such right, power, or privilege or be construed as a waiver of any default
or as acquiescence therein. No single or partial exercise of any such right,
power, or privilege shall preclude the further exercise of any such right,
power, or privilege or the exercise of any other right, power, or privilege. No
waiver shall be valid against any party hereto unless made in writing and signed
by the party against whom enforcement of such waiver is sought and then only to
the extent expressly specified herein.
(S) 8.4 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating hereto, shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania to
the extent federal law does not control.
(S) 8.5 Governmental Agencies. All references herein to various
applicable governmental regulatory agencies shall be deemed to include, to the
extent required by law, any other such regulatory agency that, by virtue of
legislative change or any action permitted to a party hereunder, properly
assumes jurisdiction of any of the transactions contemplated by this Agreement.
(S) 8.6 Specific Performance. The parties recognize and hereby
acknowledge that it is impossible adequately to measure in money the damages
that would result to a party by reason of the failure of any of the parties to
perform any of the obligations imposed upon it by this Agreement. Accordingly,
if, after approval by the shareholders of Spangler, any party should institute
an action or proceeding seeking specific performance of the provisions hereof,
each party against which such action or proceeding is brought hereby waives the
claim or defense that the party instituting such action or proceeding has an
adequate remedy at law and hereby agrees not to assert in any such action or
proceeding the claim or defense that such a remedy at law exists.
(S) 8.7 Notices. All notices, demands, requests, or other communications
that may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be hand
delivered or mailed by registered or certified mail, return receipt
A-41
requested, postage prepaid, or transmitted by telegram, telex, or facsimile
transmission, address as follows:
(i) If to CNB or County to:
CNB Financial Corporation
P.O. Box 42
Corner of Market & Second Street
Clearfield, PA 16830
Attention: James P. Moore
President
with copy (which shall not constitute notice) to:
Michael M. Lyons, Esq.
Klett Lieber Rooney & Schorling
One Oxford Centre, 40th Floor
Pittsburgh, PA 15219
(ii) If to Spangler to:
The First National Bank of Spangler
1808 Bigler Avenue
P.O. Box 579
Spangler, PA 15775
Attention: Dale E. Hill
President
with copy (which shall not constitute notice) to:
Michael L. Hund, Esq.
Reed Smith Shaw & McClay
213 Market Street
P.O. Box 11844
Harrisburg, PA 17108
Each party may designate by notice in writing a new address to which any notice,
demand, request, or communication may thereafter be given, served, or sent.
Each notice, demand, request, or communication sent by mail shall be deemed to
have been given two (2) business days after the date of such mailing, except
that a notice of change of address shall not be deemed to have been given until
received by the addressee and notices sent by telegram, telex, facsimile
transmission, or hand delivery shall be deemed to have been given as of the date
received.
(S) 8.8 No Third Party Beneficiaries. It is the explicit intention of
the parties hereto that no person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this Agreement
against any of the parties hereto, and the covenants, undertakings, and
agreements set forth in this Agreement shall be solely for the benefit of, and
shall be enforceable only by, the parties hereto or their respective successors
or legal representatives as permitted hereunder.
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(S) 8.9 No Assignment. This Agreement may not be assigned by any of the
parties hereto, by operation of law, or otherwise, except as contemplated hereby
and shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and legal representatives.
(S) 8.10 Headings. Article and section headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction, or scope of any of the provisions hereof.
(S) 8.11 Termination of Representations and Warranties. Except as
otherwise provided in this Agreement, the representations and warranties of the
parties set forth in this Agreement or in certificates, schedules, or other
documents delivered pursuant hereto shall expire at, and be terminated and
extinguished at, the Closing; provided, however, that in the case of
consummation of the Merger, no representation or warranty of Spangler provided
for herein shall be deemed to be terminated or extinguished so as to deprive CNB
or County of any defense in law or equity that it otherwise would have to any
claim against it by any person, including, without limitation, any shareholder
or former shareholder of Spangler.
(S) 8.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original instrument, but all of
which counterparts shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their behalf and in their name, on the day and year first above
written.
[CORPORATE SEAL] CNB FINANCIAL CORPORATION
BY: /s/ James P. Moore
-------------------------------------
James P. Moore
ATTEST: TITLE: President
/s/ William A. Franson
- ------------------------------
Secretary
[CORPORATE SEAL] COUNTY NATIONAL BANK
BY: /s/ William F. Falger
---------------------------------------
William F. Falger
ATTEST: TITLE: President
/s/ William A. Franson
- -------------------------------
Secretary
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[CORPORATE SEAL] THE FIRST NATIONAL BANK OF SPANGLER
BY: /s/ Dale E. Hill
-------------------------------------------
Dale E. Hill
ATTEST: TITLE: President
/s/ Allan J. Kirsch
- --------------------------------------
Secretary
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APPENDIX B
DANIELSON ASSOCIATES INC.
6110 Executive Boulevard
Suite 504
Rockville, Maryland 20852-3903
April 20, 1999
Board of Directors
First National Bank of Spangler
1808 Bigler Avenue
Spangler, Pennsylvania 15775
Dear Members of the Board:
Set forth is Danielson Associates Inc.'s ("Danielson Associates") opinion
as to the "fairness" of the offer by CNB Financial Corporation ("CNB") of
Clearfield, Pennsylvania to acquire all of the outstanding common stock of First
National Bank of Spangler ("First Spangler" or the "Bank") of Spangler,
Pennsylvania through an exchange of stock with a value at the time of the offer
of about $8.2 million. The "fair" sale value is defined as the price at which
all of the shares of First Spangler's common stock would change hands between a
willing seller and a willing buyer, each having reasonable knowledge of the
relevant facts. In opining to the "fairness" of the offer, the "fair" value of
the CNB common stock to be exchanged for First Spangler common stock had to be
determined.
In preparing the opinion, the markets served by First Spangler have been
analyzed; its business and future prospects have been reviewed; its financial
performance has been compared with banks in the region; and the acquisition
prices of comparable banks have been analyzed. In addition, any unique
characteristics have been considered.
This opinion is based on data supplied by First Spangler, and relies on
some public information, all of which is believed to be reliable, but the
accuracy or the completeness of such information cannot be guaranteed. The
opinion assumes that there are no significant loan problems beyond what was
stated in recent reports ro regulatory agencies.
In determining the "fair" value of First Spangler, the emphasis has been on
prices paid for banks and bank holding companies with similar financial,
structural and market characteristics. These sale prices were then related to
earnings, and equity capital, also referred to as "book."
In determining the "fairness" of the offer, we compared the common stock to
be exchanged by CNB for First Spangler common stock with the common stock of
other, similar bank holding companies. In so doing, we also compared CNB's
financial performance with these comparable financial institutions.
Based on the forgoing, we are of the opinion on the date hereof that the
offer made by CNB to acquire all of the common stock of First Spangler pursuant
to the merger agreement is "fair" from a financial point of view to First
Spangler and its shareholders.
Respectfully submitted,
/s/ Arnold G. Danielson
-----------------------
Arnold G. Danielson
Chairman
Danielson Associates Inc.
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APPENDIX C
(b) Dissenting shareholders
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a shareholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares so
held by him when such merger shall be approved by the Comptroller upon written
request made to the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
(c) Valuation of Shares
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the merger, by an appraisal made by a committee of
three persons, composed of (1) one selected by the vote of the holders of the
majority of the stock, the owners of which are entitled to payment in cash; (2)
one selected by the directors of the receiving association; and (3) one selected
by the two so selected. The valuation agreed upon by any two of the three
appraisers shall govern. If the value so fixed shall not be satisfactory to any
dissenting shareholder who has requested payment, that shareholder may, within
five days after being notified of the appraised value of his shares, appeal to
the Comptroller, who shall cause a reappraisal to be made which shall be final
and binding as to the value of the shares of the appellant.
(d) Application to shareholders of merging associations: appraisal by
Comptroller; expenses of receiving association; sale and resale of shares;
State appraisal and merger law
If, within ninety days from the date of consummation of the merger, for any
reason one or more of the appraisers is not selected has herein provided, or the
appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be
promptly paid to the dissenting shareholders by the receiving association. The
shares of stock of the receiving association which would be been delivered to
such dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting shareholders. The appraisal of such shares of stock in any State
bank shall be determined in the manner prescribed by the law of the State in
such cases, rather than as provided in this section, if such provision is made
in the State law; and no such merger shall be in contravention of the law of the
State under which such bank is incorporated. The provisions of this subsection
shall apply only to shareholders of (and stock owned by them in) a bank or
association being merged into the receiving association.
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