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HomeMy WebLinkAbout99-03409IN RE FARMERS NATIONAL IN THE COURT OF COMMON PLEAS BANCORP, INC. CUMBERLAND COUNTY, PENNSYLVANIA ACNB CORPORATION and ACNB : No. EQUITY 1999 NORTH, INC. Plaintiffs V. ORRSTOWN FINANCIAL SERVICES, INC., CIVIL ACTION INEQUITY Defendant NOTICE YOU HAVE BEEN SUED IN COURT. If you wish to defend against the claims set forth in the following pages, you must take action within twenty (20) days after this Application for Relief and Notice are served, by entering a written appearance personally or by attorney and filing in writing with the Court your defenses or objections to the claims set forth against you. You are warned that if you fail to do so the case may proceed without you and a judgment may be entered against you by the Court without further notice for any money claimed in the Complaint or for any other claim or relief requested by the Plaintiff. You may lose money or property or other rights important to you. YOU SHOULD TAKE THIS PAPER TO YOUR LAWYER AT ONCE. IF YOU DO NOT HAVE A LAWYER OR CANNOT AFFORD ONE, GO TO OR TELEPHONE THE OFFICE SET FORTH BELOW TO FIND OUT WHERE YOU CAN GET LEGAL HELP. Court Administrator Cumberland County Courthouse, Fourth Floor Carlisle, PA 17013 (717) 240-6200 USTED HA SIDO DEMANDADO/A EN CORTE. Si usted desea defenderse de las demandas que se presentan mas adelante en las siguientes paginas, debe tomar action dentro de los proximos veinte (20) digs despues de la notification de esta Demanda y Aviso radicando personalmente o por medio de un abogado una comparecencia escrita y radicando en la Corte por escrito sus defensas de, y objecciones a, las demandas presentadas aqui en contra suya. Se le advierte de que si usted falls de tomar action como se describe anteriormente, el caso puede proceder sin usted y un fallo por cualquier suma de dinero reclamada en la demanda o cualquier otra reclamation o remedio solicitado por el demandante puede ser dictado en contra suya por la Corte sin mas aviso adicional. Usted puede perder dinero o propiedad u otros derechos importantes para usted. USTED DEBE LLEVAR ESTE DOCUMENTO A SU ABOGADO INMEDIATAMENTE. SI USTED NO TIENE UN ABOGADO O NO PUEDE PAGARLE A UNO, LLAME O VAYA A LA SIGUIENTE OFICINA PARA AVERIGUAR DONDE PUEDE ENCONTRAR ASISTENCIA LEGAL. Court Administrator Cumberland County Courthouse, Fourth Floor Carlisle, PA 17013 (717) 240-6200 IN RE FARMERS NATIONAL BANCORP, INC. ACNB CORPORATION and ACNB NORTH, INC. Plaintiffs V. ORRSTOWN FINANCIAL SERVICES, INC., Defendant IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY, PENNSYLVANIA NoA 1EQUITY 1999 : CIVIL ACTION INEQUITY APPLICATION FOR RELIEF NOW COME Plaintiffs ACNB Corporation and ACNB North, Inc. pursuant to 15 Pa.C.S.A. §1 579(a) to respectfully request that the fair market value of the shares of Farmers National Bancorp, Inc. be determined by this Honorable Court and states the following in support thereof: 1. Prior to March 1, 1999, Farmers National Bancorp, Inc. (hereinafter "Fanners") was a corporation which maintained its registered office and principal place of business in Cumberland County, Pennsylvania. 2. Plaintiff ACNB Corporation (hereinafter "ACNB") is a corporation which maintains its registered office and principal place of business in Adams County, Pennsylvania, and which is the parent corporation of Plaintiff ACNB North, Inc. 3. Plaintiff ACNB North, Inc. (hereinafter "ACNB North") is a corporation which maintains its registered office and principal place of business 'in Adams County, which is a subsidiary of ACNB, and which is the successor of Farmers as a result of a merger which became effective on March 1, 1999. 4. Defendant Orrstown Financial Services, Inc. (hereinafter"Orrstown") is acorporation that maintains its registered office and principal place of business in Cumberland County, Pennsylvania. 5. On July 28, 1998, Plaintiffs and Fanners entered into an Agreement and Plan of Reorganization under which called for the merger of Farmers and ACNB North. 6. At a Special Meeting of Shareholders of Farmers held on December 15, 1998, Farmers' shareholders approved said merger pursuant to the Pennsylvania Business Corporation Law and the Articles of Incorporation of Farmers. 7. Prior to said merger, Orrstown was the owner of 13,980 shares of Farmers' common stock. 8. By letter of December 9, 1998, Orrstown had given notice to Farmers, pursuant to 15 Pa.C.S.A. § 1574, that Orrstown dissented from the proposed merger and demanded it be paid the fair value of its shares. 9. By letter of January 28, 1999, Farmers provided Orrstown with notice, pursuant to 15 Pa.C.S.A. §1575, that the merger had been approved at the December 15 meeting and that Orrstown had to deliver its stock certificates by February 28, 1999, if it wished to demand payment of the fair value thereof. 10. Orrstown did duly deliver and deposited its shares in Farmers, 15 Pa.C.S.A. §1575. 11. Pursuant to 15 Pa.C.S.A. §1574, Plaintiffs notified Orrstown by letter of March 24, 1999, that the merger was consummated and effective March 1, 1999, that it had determined that 2 Farmers' shares' "fair value," as that tern is defined by 15 Pa.C.S.A. §1572, to be $34.60 per share, and that forwarded payment for the shares that Orrstown had deposited. 12. By letter of April 7, 1999, Orrstown gave notice to ACNB, pursuant to 15 Pa.C.S.A. § 1578(a) that it estimated that "fair value" of Farmers shares to be $66.28 per share and demanded payment of the alleged deficiency. 13. 15 Pa.C.S.A. §1579 expressly provides Plaintiffs with the right to file the instant Application for Relief requesting that this Court determine the "fair value" of Farmers' shares and vests this Court with exclusive and plenary jurisdiction over this matter. 14. 15 Pa.C.S.A. §104 provides that this Court has the powers of a court in equity or chancery to provide the statutory remedies available under that title, thus including the remedy provided by 15 Pa.C.S.A. §1579(a) which is sought hereby. 15. This Court is specifically authorized to assess all costs of a proceeding such as the instant one and all attorneys fees and expenses inured against a dissenting shareholder by 15 Pa.C.S.A. §1580, if the shareholder's demand for payment is found to be dilatory, obdurate, arbitrary, vexatious, or in bad faith. 16. The Comments to the definition of "fair value" in 15 Pa.C.S.A. §1572 specifically reference that it is intended that investment banker opinions concerning price should be received, yet, based upon information and belief, Plaintiffs aver that Ottstown has not obtained such an opinion either to determine the amount of nor to support its demand. 3 17. Orrstown has made and persisted in making a demand which is approximately double the fair value of Farmers' stock and has, therefore, acted in an obdurate, arbitrary, and vexatious manner and in bad faith. WHEREFORE, Plaintiffs ACNB Corporation and ACNB North, Inc. respectfully pray that this Honorable Court determine the "fair value" of the shares of Farmers National Bancorp, Inc. that were owned by dissenting shareholder Orrstown Financial Services, Inc. and to assess all costs and expenses of this proceeding and all attorneys fees and expenses incurred herein by Plaintiffs against Defendant Or stown Financial Services, Inc. SHUMAKER WILLIAMS, P.C. Dated 4 oor? By , aurence W. Dague, I.D. David R. Breschi, I.D. 459001 Angela L. Dumm, I.D. 467810 P.O. Box 88 Harrisburg, PA 17108 (717) 763-1121 :96952 Attorneys for Plaintiffs 4 The undersigned, Ronald L. Hankey, hereby verifies and states that., 1. He's President of Adams County National Bank; 2. He is authorized to make this Verification on its behalg 3. The facts set forth in the foregoing APPlication for RelieVComplaint are true and cornet to the best of his knowledge, information and belief, and 4. He is aware that any false statements herein ate made subject to the Penalties of 18 Pa.C.S.A. §4904, relating to uitsworn falsification to authorities. Dated; June 3, 1999 2t f ankey, President i LLI iji L r J :.1(1. o Cn i? i c7? 0 in ?- Yeu Are Hereby .Not, ie TC o -plead T. 71,. r,..l.._. Been I L Dusinkrr, Esquire Altomey I.D. No. 41065 Timothy J. Nicinan, Esquire Atlomcy LD. No. 66024 Carl D. Luodblad, Esquire Altomey LD. No. 80057 RHOADS 3 SINON LI.P One South Market Squam, 1211, Floor 11.0. Box 1146 Harrisburg, Pnnuylratua 17108-1146 (717) 233.5731 ATTORNEYS FOR DEFENDANT IN RE FARMERS NATIONAL BANCORP, INC. ACNB CORPORATION and ACNB NORTH, INC., Plaintiff V. ORRSTOWN FINANCIAL SERVICES, INC., Defendant ................................................... v r n b4?/L Within 'nty (20) Days From Service HerW A ikfAOtL.I11d4Te M,.., o_ att IV - IN THE COURT OF COMMON PLEAS CUMBERLAND COUNTY PENNSYLVANIA CIVIL ACTION IN EQUITY NO. 3409 EQUITY 1999 ANSWER TO APPLICATION FOR RELIEF Defendant Orrstown Financial Services, Inc. ("Orrstown"), by its attorneys, Rhoads & Sinon LLP, hereby files this Answer to Application for Relief stating as follows: 1. The allegations of Paragraph 1 of the Application for Relief are admitted on information and belief. 2 Tire allegations of Paragraph 2 of the Application for Relief are admitted on 299384.2 infornation and belief. 3. The allegations of Paragraph 3 of the Application for Relief are admitted on information and belief. 4. The allegations of Paragraph 4 of the Application for Relief are admitted in part and denied in part. While it is admitted that Orrstown maintains its principal place of business in Cumberland County, Pennsylvania, it is denied that Orrstown's registered office is located in Cumberland County, Pennsylvania. To the contrary, Orrstown's registered office is located in Franklin County, Pennsylvania. 5. The allegations of Paragraph 5 of the Application for Relief are admitted. By way of further answer, the Agreement and Plan of Reorganization referenced in iltis Paragraph, being a writing, speaks for itself. 6. The allegations of Paragraph 6 of the Application for Relief are admitted. 7. The allegations of Paragraph 7 of the Application for Relief are admitted. 8. The allegations of Paragraph 8 of the Application for Relief are admitted. By way of further answer the letter referenced in this Paragraph, being a writing, speaks for itself. 9. The allegation of Paragraph 9 of the Application for Relief are admitted. By way of further answer, the notice referenced in this Paragraph, being a writing, speaks for itself. 10. The allegations of Paragraph 10 of the Application for Relief are admitted. 11. Denied as stated. It is admitted that by letter dated March 24, 1999, Plaintiffs notified Orrstown that the merger was consummated and effective March 1, 1999, that Plaintiffs had estimated the Fanners' shares' "fair value" to be $34.60 per share, and forwarded payment at that per share amount for the shares that Orrstown had deposited. It is specifically denied, however, that -2- the $34.60 value placed upon the shares by Plaintif7s was "lair value" as that term is defined in 15 Pa.C.S.A. § 1572. To the contrary, Orrstown submits that pursuant to IS Pa.C.S.A. § 1572, the fair value of the shares is $66.28 per share and that Plaintiffs' failure to ascribe it fair value to the shares even approaching that amount is in itself dilatory, obdurate, arbitrary, vexatious and in bad faith, thus entitling Orrstown to its attorneys' fees and all its other costs incurred with respect to this action. Finally, the letter referenced in this Paragraph, being a writing, speaks f'or itself. 12. The allegations of Paragraph 12 of the Application for Relicl'are admitted. By way of further answer, the letter referenced in this Paragraph, being a writing, speaks for itself. 13. The allegations of Paragraph 13 of the Application Ibr Relict 'are legal conclusions to which no response is required. 14. The allegations of Paragraph 14 ol'the Application firr Relief are legal conclusions to which no response is required. 15. The allegations of paragraph 15 ol'the Application firr Relief are legal conclusions to which no response is required. To the extent that it response is deemed appropriate, it is denied as staled. While it is admitted that the Court is authorized to assess all costs in a proceeding like this and attorneys' fees and expenses incurred against it dissenting shareholder by IS Pa.C.S.A. § 1580 if the shareholder's dennand lirr payment is found to be dilatory, obdurate, arbitrary vexatious or in bad faith, it is specifically denied that On:stown's demand firr payment is dilatory, obdurate, arbitrary, vexatious or in had faith. To the contrary, 1'lainliff's have acted in bad faith and in a dilatory, obdurate, arbitrary and vexatious manner kith respect to Orrstown's rights under 15 11a.C.S.A. § 1571 et jKy. by attempting to obtain OrNtown's interest in Fanners at a price -3- significantly below its fair value, and for the other reasons outlined in Orstown's New Matter. Accordingly, Orrstown is entitled to its attorneys' fees and all other costs incurred in connection with this action. 16. The allegations of Paragraph 16 of the Application for Relief are legal conclusions to which no response is required. To the extent that a response is deemed appropriate, there is no requirement in 15 Pa.C.S.A. § 1572 that a dissenting shareholder obtain the opinion of an investment banker to support its estimate of fair value of shares. To the contrary, 15 Pa.C.S.A. §1578 indicates that a shareholder "believing" a corporation's estimate to be less than fair value may send to the corporation "his own eslimare " of the fair value of his shares. 17. The allegations of Paragraph 17 of the Application for Relief are legal conclusions to which no response is required. To the extent that a response is deemed appropriate, it is denied that Orrstown's demand represents actions in an obdurate, arbitrary and vexatious manner or bad faith. Rather, to the extent that the payment offered by Plaintiffs for Orrstown's shares of stock in Farmers represents approximately half of the fair value of such shares, Plaintiffs have acted in an obdurate, arbitrary and vexatious manner and in bad faith, thus entitling Orrstown to its attorneys' fees and other costs incurred in connection with this action. WHEREFORE, Defendant Orrstowni Financial Services, Inc. respectfully request that this Honorable Court determine the fair value of its shares of Farmers National Bancorp, Inc. and assess all costs and expenses of this proceeding and all attorneys fees and expenses incurred by Defendant against Plaintiffs ACNB Corporation and ACNB North, Inc. -4- NEW MATTF,It 18. The Pennsylvania Business Corporation Law (the "13CL") provides a dissenters rights remedy for situations like that presented here where, in the context of a stock merger, the shareholder does not necessarily ohject to the vuluc phrced upon its shares by agreement of the corporate parties to the Merger, but objects to the "currency" by which it will be paid that value. 19. Here, the ACNB/Farmers merger was not unlairly priced, but the BCL entitles Onstown to receive that price in cash instead of being compelled to accept it in shares of ACNB stock. 20. Orrstown does not objcel to the $06.28 price per Farmers share established by agreement of ACNB and Farmers, which price ACNI3 was willing to pay for each and every Farmers share. To the contrary, Orrstown adopts the $66.28 per share price established by agreement of ACN13 and Farmers its ( )rrstown's estimate of the fair value of its Farmers shares, and demands, as endorsed and required b}' the dissenters rights provisions of the BCL, that it be paid that fair value in cash rather than in shares of ACNB stock. 21. The Ihir value of* the Farmers shares is the price at which ACNB initially offered to purchase the Farmers shares, which was $66.28. This $66.28 price is calculated utilizing a formula in the Agreement and Flan of Reorganization between Plaintiffs and Farmers (the "ACNI) Agreement") wherchy 2.266 shares of ACNB stock would be exchanged for each -5- Farmers share, multiplied by the $29.25 per share price at which ACNB shares were trading at the time the merger was announced, for a total value of $66.28 per Fanners share. 22. Not only is the $66.28 per Farmers share price the fair value that a willing buyer would pay a willing seller for the shares, but the $66.28 price placed the ACNB/Farmers merger near the median for price to earnings and price to book value multiples for other bank and bank holding company acquisitions announced at and around the time that the ACNB/Farmers merger was announced. Based on reports made publicly available, the median price to earnings and price to book value ratios for bank and bank holding company mergers in the Mid-Atlantic region in 1998 were in the range of 30 times earnings and 2.85 times book value. On the date the deal was announced, based on the trading price of ACNB's shares, the ACNB/Fanners merger was priced at about 30.40 times earnings and about 2.89 times book value. 23. To the extent that ACNB paid less than $66.28 per share for the Framers stock, that reduction was unrelated to the value of Fanners, but rather was a consequence of a substantial reduction in the market price of value of ACNB shares. ACNB's share price dropped from $29.25 per share to $22.50 per share between the time the acquisition was announced and the shareholder vote, and further fell to $22.00 per share at the March 1, 1999 merger date. As of the date of this Answer to Application for Relief, the market price per share of ACNB shares has further declined to $18.25. This drop in the market price of ACNB shares, however, does not change the fact that when the deal was announced the value placed on the Farmers shares by agreement of ACNB and Farmers was $66.28 per share. .6. 24. ACNB's estimate of fair value of the Farmers shares owned by Orrstown, as stated in Plaintiff's Application for Relief, is inconsistent with Pennsylvania law for the determination of fair value. Specifically, the estimate of fair value provided by ACNB improperly: (a) restricts its analysis to the disfavored "Delaware block method", CO) relies on the market price of Farmers shares, for which there was no recognized public market; (c) places undue emphasis on the market price of the shares, which contains an inherent minority discount; (d) applies a discount for "lack of marketability;" and (e) applies a discount for small capitalization. 25. ACNB's estimated fair value of Orrtown's Farmers shares, as stated in Plaintiff's Application for Relief, is even less than the value of the ACNB shares that other Farmers shareholders received on the effective date of the merger. Employing the $22.00 per share trading price of ACNB shares on March 1, 1999, multiplied by the 2.266 shares exchange ratio provided for in the Agreement and Plan of Reorganization, the per share price received by Farmers shareholders on March 1, 1999 was $49.95. Plaintiffs' estimate of fair value, is more than $15.00 less per share than the amount received by Farmers shareholders on the effective date of the merger and is, therefore, dilatory, obdurate, arbitran, vexatious and clearly made in bad faith. -7- 26. In addition to the bad faith manner in which Farmers and ACNB responded to Orrstown's lawful demand pursuant to its dissenters rights, Farniers has demonstrated a continuing and ongoing pattern of bad faith in its dealings with Orrstown. 27. Specifically, in or about January 1998, Orrstown approached the Board of Directors of Farmers with a proposal contemplating the merger of Farmers and Orrstown. In or about April 1998, Farmers informed Orrstown that it was considering its options and would communicate with Orrstown further as it contemplated the future of Farmers, thereby indicating that the Farmers Board of Directors was considering Orrstown's proposal. Nonetheless, Orrstown never received any further communication from Fanners prior to the public announcement of the ACNB/Farmers merger. 28. ACNB and Farmers also acted in a dilatory, obdurate, arbitrary, vexatious and bad faith manner in the way it structured the ACNB/Farmers merger. This improper conduct has led to this action because it placed Farmers shareholders at risk in the event the market value of ACNB shares would decline pending consummation of the merger, as it indeed did, to dramatically decrease to the detriment and prejudice of Farmers shareholders like Orrstown and to the benefit of ACNB. As a result, ACNB was able to obtain the Farmers shares for significantly less than the $66.28 per share value of those shares agreed upon by ACNB and Farmers. -8- 29. The ACNB Agreement did not include features frequently present in a stock merger agreement that are designed to protect shareholders from the risks described in the preceding paragraph by effectively guaranteeing a minimum price to shareholders, such as a "collar" that would provide for the ability of Farmers to terminate the transaction, or a flexible exchange ratio that would provide for an adjustment in the number of ACNB shares to be exchanged in order to maintain the $66.28 per share value, in each case in the event that the price of ACNB shares fell below a certain level. 30. The same counsel represented both Farmers and the Plaintiffs with respect to the ACNB/Farmers merger. 31. Orrstown believes, and therefore avers, that the Board of Directors of Farmers was not properly advised or informed regarding the risks associated with structuring the merger in the manner provided for in the Agreement and Plan of Reorganization. 32. The Proxy Statement/Prospectus prepared and distributed by Plaintiffs and Farmers to Fainters' shareholders contained a number of inadequate material disclosures, including, but not limited to: (a) failing to disclose that the same counsel represented both Farmers and ACNB with respect to the ACNB Agreement, thus potentially prejudicing Farmers shareholders; (b) failing to disclose that the Agreement did not provide for a "collar"and failing to discuss the risks associated with the absence of such a provision, including the possibility that the value of ACNB's stock could decrease dramatically, resulting in a significant reduction in the value of the merger to Fanners' shareholder, -9- (c) failing to disclose and explain the risks that the value of ACNB's stock may decrease, thus decreasing the value received in exchange for a stockholder's shares in Farmers; and (d) failing to explain the effect and risks of a fixed exchange ratio in the event of a material decline in the value of ACNB shares on the, value be received by Farmers' shareholders as consideration for their stock. 33. The foregoing conduct of the Plaintiffs with respect to Orrstown's lawful demand in exercise of its dissenters rights was in bad faith and in a dilatory, obdurate, arbitrary and vexatious manner with respect to Orrstown's rights. Thus, in addition to being entitled to receive the difference between the actual fair value of its Farmers shares of $66.28 per share and the amount previously forwarded to Orrstown by ACNB, Orrstown is entitled to its attorneys' fees and all other expenses incurred in this matter. WHEREFORE, Defendant Orrstown Financial Services, Inc. respectfully requests that this Honorable Court determine the fair value of the shares of Farmers National Bancorp, Inc. owned by Orrstown Financial Services, Inc. and assess all costs and expenses of this proceeding and all attorneys fees and expenses incurred by Defendant against Plaintiffs ACNB Corporation and ACNB North, Inc. ?DS & S?NON LP By: c ean H. usinberre Timothy J. Nieman Carl D. Lundblad One South Market Square Harrisburg, PA 17108 (717) 233-5731 Attorneys for Orrstown Financial Services, Inc. -10- ,06123,'99 WED 09:33 FAX 717 231 8878 RROADS & SINON LLP 10002 YMF1C'AT1C1N Kenneth R. Shoemaker deposes and says, subject to the penalties of 18 Pa. C.S.A. 4904 relating to unsworn falsification to authorities, that lie is the President and Chief Executive Officer of Orrstown Financial Services, Inc., that he is authorized to make this verification and that the facts set fcnth in the foregoing Answer and New Matter are true and arrrecfto the best of his knowledge, information and belief. Dated; Ke ie t R. Shoemaker, President CERTIFICATE OF SERVICE I hereby certify that on June 28, 1999, a true and correct copy of the foregoing "Answer to Application for Relief' was served by means of United States Mail, first class, postage prepaid, me upon the following: Laurence W. Dague Shumaker Williams, P.C. P.O. Box 88 Harrisburg, PA 17108 ci'; i.?: '_? i ', ?? ;'?. . I. 1.. u: ?'- ?:: ! ..f ?' ? '?. ._. ,?_ i _.? :? ?, r.') ? '.J IN RE FARMERS NATIONAL : IN THE COURT OF COMMON PLEAS BANCORP, INC. : CUMBERLAND COUNTY, PENNSYLVANIA ACNB CORPORATION and ACNB : No. 3409 EQUITY 1999 NORTH, INC. Plaintiffs V. ORRSTOWN FINANCIAL SERVICES, INC., CIVIL ACTION INEQUITY Defendant RETURN OF SERVICE I, Jay C. Hileman, being duly sworn according to law depose and say that on June 7, 1999, I served the Application for Relief upon Defendant Orrstown Financial Services, Inc. by personally delivering a true and correct copy of same to Charles E. Ferguson, Vice President, at 3580 Orrstown Road, Or stown, Pennsylvania 17244. Dated: Jooe 7 /999 a ilemanSworn 10 and subscribed before me t1tis day 4f June , 1999. Notary Public My Commission Expires: Notary Pubac T Co?Y ? 2.2002 :97087 Ljp',nn anW t ssoclatwn of NOW" ,; .,_ ..; . ,.. ?- _. _ ? l,a? ? ?? > i ??=-- ? ? ? ?'; ? ?r LLII.. ?'•• t'om' l ? Lt- {-. =, ?n{L ?- -? o rn J IN RE FARMERS NATIONAL : IN THE COURT OF COMMON PLEAS BANCORP, INC. CUMBERLAND COUNTY, PENNSYLVANIA ACNB CORPORATION and ACNB No. 3409 EQUITY 1999 NORTH, INC. Plaintiffs V. ORRSTOWN FINANCIAL SERVICES, INC., : CIVIL ACTION INEQUITY Defendant PRELIMINARY OBJECTIONS TO DEFENDANT'S NEW MATTER NOW COME Plaintiffs ACNB Corporation and ACNB North, Inc. by their attorneys, Shumaker Williams, P.C., to make the following Preliminary Objections, pursuant to Pa.R.Civ.P. 1017 and 1028, to the New Matter set forth in Defendant's Answer to Application for Relief: A. Legal Insufficiency The filing of "New Matter" is provided for by Pa.R.Civ.P. 1030, as follows: (a) Except as provided by subdivision (b), all affirmative defenses ... shall be pleaded under the heading "New Matter." A party may set forth as new matter any other material facts which are not merely denials of the averments of the preceding pleading. [emphasis added] 2. The instant action consists exclusively of an action under 15 Pa.C,.S.A. §1579 to determine the "fair value" of shares of stock in Farmers National Bancorp, Inc. (hereinafter "Farmers") that had been owned by Defendant Orrstown Financial Services, Inc. (hereinafter "Onstown"). 3. Orrstown's "New Matter" repeatedly attempts to raise issues conceming the advisability of the merger of Farmers from which Orrstown dissented or the practices and procedures .i utilized to accomplish it. S= "Answer to Application for Relief' (hereinafter "Answer") at 8-10 (%28-32). 4. Issues conceming the underlying merger do not constitute affirmative defenses to this action; and, furthermore, such issues are not only not material to this action but are wholly irrelevant. 5. Orrstown's "New Matter" also attempts to raise issues based upon allegations that Plaintiffs and/or Farmers acted inappropriately in relation to Orrstown's alleged rights -- not in respect to determining the fair value of Orrstown's stock but in relation to the underlying merger or to unspecified matters concerning shareholders' interests. See nswer at 8-10 (T$26-33). 6. This Honorable is expressly empowered to assess counsel fees and expert fees against either side in this action under 15 Pa.C.S.A. §1580 under the following circumstances: if the court finds that the party against whom the fees and expenses are assessed acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights provided by this subchapter. [emphasis added] 7. The "subchapter" referred to in that provision is "Subchapter D. Dissenters Rights," 15 Pa.C.S.A. §§1571 through 1580 of the Business Corporation Law of 1988, as amended, 15 I Pa.C.S.A. §1101, g1 aeQ. 8. Since that subchapter deals exclusively with the rights of a dissenting shareholder to receive the "fair value" of its shares, any matters concerning the actions of Plaintiffs or Farmers relating to other alleged rights of Orrstown do not constitute affirmative defenses and are wholly irrelevant to the instant action. 2 9. Orrstown's "New Matter" also attempts to raise issues concerning the price at which the stock of Plaintiff ACNB Corporation allegedly traded at various times in relation to the merger. S= Answer at 6 ($23). 10. Issues relating to the price of ACNB stock do not constitute affirmative defenses and are wholly irrelevant to this action. 11. Orrstown's "New Matter" also attempts to not only raise issues concerning the price that was allegedly offered and paid for all shares of stock of Farmers in the merger but argues that that price is determinative of "fair value." See nswe at 5-6 (1$18-22) and 7 (¶124-25) . 12. The term "Fair Value" is expressly defined in 15 Pa.C.S.A. § 1572, as follows: The fair value of shares immediately before effectuation of the corporate action to which the dissenter objects, taking into account all relevant factors, but excluding any appreciation or depreciation in anticipation of the corporate action. [emphasis added] 13. Thus, issues relating to the price offered or paid for the all stock of Farmers do not constitute affirmative defenses and are wholly irrelevant to this action. WHEREFORE, Plaintiffs respectfully request that this Honorable Court sustain the instant Preliminary objection on the basis that Orstown's "New Matter" is legally insufficient, pursuant to Pa.R.Civ.P. 1028(a)(4). B. Failure to Conform 14. Paragraphs 1 through 13 above are incorporated herein by reference. 15. Orrstown's "New Matter" fails to conform with Subchapter D of the Business Corporation Law of 1988, as amended, by attempting to raise issues that are inconsistent with provisions thereof and/or are wholly irrelevant to proceedings thereunder. 3 16. Onstown's "New Matter" fails to conform with Pa.R.Civ.P. 1030 by attempting to raise issues that do not constitute affirmative defenses to Plaintiff's Application for Relief and that are wholly irrelevant to Plaintiffs Application for Relief. WHEREFORE, Plaintiffs respectfully request that this Honorable Court sustain the instant Preliminary Objection on the basis that Onstown's "New Matter" does not conform to law and rule, pursuant to Pa.R.Civ.P. 1028(a)(2). C. Impertinent Matter 17. Paragraphs I through 16 above are incorporated herein by reference. 18. Orrstown's "New Matter" is impertinent, since it wholly irrelevant to the instant action. WHEREFORE, Plaintiffs respectfully request that this Honorable Court sustain the instant Preliminary Objection on the basis that Orrstown's "New Matter" is impertinent, pursuant to Pa.R.Civ.P. 1028(a)(2). SHUMAKER WILLIAMS, P.C. Dated: July 19, 1999 By a aurence W. Dague, LD. # 9715 David R. Breschi, I.D. #59001 Angela L. Dumm, I.D. #67810 P.O. Box 88 Harrisburg, PA 17108 (717) 763-1121 :98468 Attorneys for Plaintiffs 4 CERTIFICATE OF SERVICE I, Laurence W. Dague, Esquire, of the law firm of Shumaker Williams, P.C., hereby certify that I served a true and correct copy of the foregoing Preliminary Objections to Defendant's New Matter on this date by depositing a copy of the same in the possession of the United States mail, first-class, postage prepaid, addressed as follows: Dean H. Dusenberre, Esquire Timothy J. Nieman, Esquire Carl D. Lundblad, Esquire RHOADS & SINON, LLP One South Market Square Harrisburg, PA 17108 Attorneys for Orrstown Financial Service, Inc. SHUMAKER WILLIAMS, P.C. Dated: /?/? By/o_.?a??p l/ Laurence W. Dague ?- P.O. Box 88 Harrisburg, PA 17108 (717) 763-1121 c P lJ=YC.. L C? L)!': W L. [iilll J ?7 j 1. --? :.?I IJ O ell% m U I PRAECIPE FOR LISTING CASE FOR ARGUMENT (Must be typewritten and submitted in duplicate) TO THE PROTHONOTARY OF CUMBERLAND COUNTY: Please list the within matter for the next Argument Court. CAPTION OF CASE (entire caption must be stated in full) IN RE FARMERS NATIONAL BANOORP, INC. ACBB OORPORATION and AGIB NORTH, INC. VS. ORRSPOWN FINANCIAL SERVICES, INC. ORIGINAL n o Q _ 73 c3 c_ (Plaintiff) z cv 9 Q <a (Defendant) No. 3409 Novak 19 99s? ;1. State matter to be argued (i.e., plaintiff's motion for new trial, defendant's deurrer to complaint, etc.): Plaintiffs' Preliminary Objections to Defendant's New Matter. F 2. Identify counsel who will argue case: (a) for plaintiff: Address: (b) for defendant: Address: Laurence W. Dague, I.D. #19715 SHUMAKER WILLIAMS, P.C. P.O. Box 88 Harrisburg, PA 17108 Dean H. Dusenberre RHOADS & SINON One South Market SSqquuaare Harrisburg, PA 17T08 3. 1 will notify all parties in writing within two days that this case has been Listed for argument. 4. Argument Court Date: August 11, 1999 Dated: 7/21/99Attorney for Plain i' s IN RE FARMERS NATIONAL BANCORP, INC. and ACNB CORPORATION AND ACNB NORTH, INC., Plaintiffs V. IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA CIVIL ACTION - EQUITY ORRSTOWN FINANCIAL SERVICES, INC., Defendant NO. 99-3409 EQUITY TERM IN RE: PLAINTIFFS' PRELIMINARY OBJECTIONS TO DEFENDANT'S NEW MATTER BEFORE OLER J_* ORDER OF COURT AND NOW, this 260i day of October, 1999, after careful consideration of Plaintiffs' preliminary objections to Defendant's new matter in the nature of a demurrer, in the form of a motion to strike for lack of conformity to law or rule of court, and in the form of a motion to strike for impertinence, the preliminary objections are denied. BY THE COURT, Laurence W. Dague, Esq. P.O. Box 88 Harrisburg, PA 17108 Attorney for Plaintiff ? f Dean H. Dusinberre, Esq. Timothy J. Nieman, Esq. Carl D. Lundblad, Esq. One South Market Square Harrisburg, PA 17108 Attorneys for Defendant :rc * Hoffer, P.J., did not participate in the consideration or disposition of this case.