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EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
STERLING BANCSHARES, INC.
AND
LONE STAR BANCORPORATION, INC.
DATED AS OF MARCH 1, 2001
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TABLE OF CONTENTS
ARTICLE I CERTAIN DEFINITIONS............................................................... 2
Section 1.01 Certain Definitions...................................................... 2
ARTICLE II THE MERGER AND RELATED TRANSACTIONS.............................................. 7
Section 2.01 Merger................................................................... 7
Section 2.02 Time and Place of Closing................................................ 7
Section 2.03 Effective Time........................................................... 8
Section 2.04 Reservation of Right to Revise Transaction; Further Actions.............. 8
Section 2.05 Tax-Free Reorganization.................................................. 8
ARTICLE III MERGER CONSIDERATION; EXCHANGE PROCEDURES....................................... 8
Section 3.01 Merger Consideration..................................................... 8
Section 3.02 Determination and Adjustment of Merger Consideration and
Exchange Ratio........................................................... 9
Section 3.03 Company Stock Options.................................................... 10
ARTICLE IV EXCHANGE OF SHARES............................................................... 11
Section 4.01 Exchange Agent........................................................... 11
Section 4.02 Exchange Procedures...................................................... 11
Section 4.03 Voting and Dividends..................................................... 12
Section 4.04 No Further Ownership Rights in Company Common Stock...................... 12
Section 4.05 No Fractional Shares..................................................... 12
Section 4.06 Termination of Exchange Fund............................................. 13
Section 4.07 Escheat of Exchange Fund................................................. 13
Section 4.08 Lost Certificates........................................................ 13
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................... 14
Section 5.01 Organization, Standing and Authority..................................... 14
Section 5.02 Company Common Stock..................................................... 14
Section 5.03 Subsidiaries............................................................. 15
Section 5.04 Authorization of Merger and Related Transactions......................... 16
Section 5.05 Financial Statements and Regulatory Reports.............................. 17
Section 5.06 Absence of Undisclosed Liabilities....................................... 17
Section 5.07 Tax Matters.............................................................. 17
Section 5.08 Allowance for Credit Losses.............................................. 19
Section 5.09 Other Regulatory Matters................................................. 19
Section 5.10 Properties............................................................... 19
Section 5.11 Compliance with Laws..................................................... 19
Section 5.12 Employee Benefit Plans................................................... 20
Section 5.13 Commitments and Contracts................................................ 21
Section 5.14 Material Contract Defaults............................................... 22
Section 5.15 Legal Proceedings........................................................ 23
Section 5.16 Absence of Certain Changes or Events..................................... 23
Section 5.17 Reports.................................................................. 24
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Section 5.18 Insurance................................................................ 24
Section 5.19 Labor.................................................................... 25
Section 5.20 Material Interests of Certain Persons.................................... 25
Section 5.21 Registration Obligations................................................. 25
Section 5.22 Brokers and Finders...................................................... 25
Section 5.23 State Takeover Laws...................................................... 25
Section 5.24 Environmental Matters.................................................... 25
Section 5.25 Loans.................................................................... 26
Section 5.26 Fiduciary Responsibilities............................................... 27
Section 5.27 Patents, Trademarks and Copyrights....................................... 27
Section 5.28 Company Action........................................................... 27
Section 5.29 Dissenting Shareholders.................................................. 27
Section 5.30 Pooling of Interests..................................................... 28
Section 5.31 Company Indebtedness..................................................... 28
Section 5.32 Statements True and Correct.............................................. 28
Section 5.33 Representations Not Misleading........................................... 28
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF STERLING....................................... 29
Section 6.01 Organization, Standing and Authority..................................... 29
Section 6.02 Sterling Capital Stock................................................... 29
Section 6.03 Authorization of Merger and Related Transactions......................... 29
Section 6.04 Financial Statements..................................................... 30
Section 6.05 Sterling SEC Reports..................................................... 30
Section 6.06 Regulatory Matters....................................................... 30
Section 6.07 Legal Proceedings........................................................ 31
Section 6.08 Compliance with Laws..................................................... 31
Section 6.09 Sterling Employee Benefit Plans.......................................... 31
Section 6.10 Representations Not Misleading........................................... 32
Section 6.11 Statements True and Correct.............................................. 32
Section 6.12 Brokers and Finders...................................................... 32
ARTICLE VII CONDUCT OF THE COMPANY'S BUSINESS............................................... 33
Section 7.01 Conduct of Business Prior to the Effective Time.......................... 33
Section 7.02 Forbearances............................................................. 34
ARTICLE VIII ADDITIONAL AGREEMENTS.......................................................... 36
Section 8.01 Access and Information................................................... 36
Section 8.02 Registration Statement and Proxy Statement............................... 37
Section 8.03 Company Shareholder's Meeting............................................ 37
Section 8.04 Filing of Regulatory Approvals........................................... 38
Section 8.05 Press Releases........................................................... 38
Section 8.06 Company Options.......................................................... 38
Section 8.07 Miscellaneous Agreements and Consents.................................... 39
Section 8.08 Affiliates Letters....................................................... 39
Section 8.09 Indemnification.......................................................... 39
Section 8.10 Certain Change of Control Matters........................................ 40
Section 8.11 Employee Benefits........................................................ 41
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Section 8.12 Certain Actions.......................................................... 41
Section 8.13 No Solicitation.......................................................... 41
Section 8.14 Termination Fee.......................................................... 43
Section 8.15 Accruals................................................................. 43
Section 8.16 Certain Agreements....................................................... 44
Section 8.17 Release Agreements....................................................... 44
Section 8.18 Financial Statements..................................................... 44
Section 8.19 NASDAQ Listing........................................................... 44
Section 8.20 Post-Closing Actions..................................................... 44
Section 8.21 Delivery of Company Disclosure Schedule.................................. 44
Section 8.22 Combined Report.......................................................... 45
Section 8.23 Notification; Updated Disclosure Schedules............................... 45
Section 8.24 Future Board Representation.............................................. 45
ARTICLE IX CONDITIONS TO MERGER............................................................. 46
Section 9.01 Conditions to Each Party's Obligation to Effect the Merger............... 46
Section 9.02 Conditions to Obligations of The Company to Effect the Merger............ 47
Section 9.03 Conditions to Obligations of Sterling and Merger Sub to Effect the Merger 48
ARTICLE X TERMINATION....................................................................... 49
Section 10.01 Termination.............................................................. 49
Section 10.02 Effect of Termination.................................................... 50
Section 10.03 Non-Survival of Representations, Warranties and Covenants................ 50
Section 10.04 Termination Relating to Company Disclosure Schedule...................... 50
ARTICLE XI GENERAL PROVISIONS............................................................... 50
Section 11.01 Expenses................................................................. 50
Section 11.02 Entire Agreement; Parties in Interest.................................... 51
Section 11.03 Amendments............................................................... 51
Section 11.04 Waivers.................................................................. 51
Section 11.05 No Assignment............................................................ 51
Section 11.06 Notices.................................................................. 51
Section 11.07 Specific Performance..................................................... 52
Section 11.08 Governing Law............................................................ 52
Section 11.09 Counterparts............................................................. 52
Section 11.10 Captions................................................................. 52
Section 11.11 Severability............................................................. 53
Attachments:
Annex A. Form of Noncompete Agreement.
Annex B Form of Affiliate Letter.
Annex C. Form of Release Agreement.
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of March
1, 2001, is by and between STERLING BANCSHARES, INC. ("Sterling"), a Texas
corporation and a registered bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), and LONE STAR BANCORPORATION, INC., a
Texas corporation and a registered bank holding company under the BHCA (the
"Company"). Capitalized terms not otherwise defined herein shall have the
meanings set forth in Article I.
WITNESSETH:
WHEREAS, pursuant to the terms and subject to the conditions of this
Agreement, Sterling will acquire the Company through the merger of the Company
with a to-be-formed subsidiary ("Merger Sub") of Sterling to be added as a party
to this Agreement after the date hereof, or by such other means as provided for
herein (the "Merger"); and
WHEREAS, pursuant to the Merger, and upon the terms and subject to the
conditions of this Agreement, each issued and outstanding share of Company
Common Stock (other than the Dissenting Shares) will be converted into the right
to receive shares of Sterling Common Stock; and
WHEREAS, (i) the respective Boards of Directors of Sterling and the
Company have each determined that this Agreement, the Merger and the
transactions contemplated hereby are in the best interests of their respective
companies and shareholders and have approved this Agreement, the Merger and the
other transactions contemplated hereby, (ii) the Board of Directors of the
Company has unanimously (a) determined, based upon such factors as it considers
material and the opinion of The ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Company, Inc., its financial
advisor, that the consideration to be paid for the outstanding shares of Company
Common Stock is fair to the shareholders of the Company and (b) resolved to
recommend to the shareholders of the Company that they vote in favor of adoption
of this Agreement, and (iii) Sterling, as the parent of the Merger Sub, has
approved and adopted this Agreement, the Merger and the transactions
contemplated hereby; and
WHEREAS, to induce Sterling to enter into this Agreement and for the
consideration set forth therein, the Key Company Officials have agreed,
concurrently with the execution of this Agreement, to execute and deliver
respective Noncompete Agreements to Sterling, in the form attached hereto as
Annex A;
WHEREAS, after the Merger, Sterling intends to effect the merger (the
"Bank Merger") of Lone Star Bank, a wholly owned subsidiary of Lone Star
Bancorporation of Delaware, Inc., a Delaware corporation (the "Delaware
Company") and an indirect wholly owned subsidiary of the Company (the "Bank"),
with and into Sterling Bank, a wholly owned subsidiary of Sterling
Bancorporation, Inc., a Delaware corporation ("Bancorporation") and an indirect
wholly owned subsidiary of Sterling ("Sterling Bank"), with Sterling Bank as the
surviving bank;
WHEREAS, for federal income tax purposes, the Merger is intended to
qualify as a tax-free reorganization, pursuant to Section 368 of the Code; and
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WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a pooling of interest in accordance with APB Opinion 16; and
WHEREAS, Sterling and the Company desire to provide for certain
undertakings, conditions, representations, warranties and covenants in
connection with the Merger and the related transactions contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements contained herein, the
benefits to be derived by each party hereunder and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Certain Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Acquisition Proposal" shall have the meaning set forth in Section
8.13.
"Acquisition Transaction" shall have the meaning set forth in Section
8.13.
"Affiliate" shall mean, with respect to any Person, any Person that,
directly or indirectly, controls or is controlled by or is under common control
with such Person.
"Affiliate Letter" shall have the meaning set forth in Section 8.08.
"Agreement" shall have the meaning set forth in the introduction
hereto.
"APB Opinion 16" shall mean Accounting Principles Board Opinion No. 16.
"Approvals" shall mean any and all filings, permits, consents,
authorizations and approvals of any governmental or regulatory authority or of
any other third person necessary to give effect to the arrangement contemplated
by this Agreement or necessary to consummate the Merger.
"Authorizations" shall have the meaning set forth in Section 5.01.
"Average Closing Price" shall have the meaning set forth in Section
3.02(b).
"BHCA" shall have the meaning set forth in the introduction to this
Agreement.
"Bancorporation" shall have the meaning set forth in the recitals to
this Agreement.
"Bank" shall have the meaning set forth in the recitals to this
Agreement.
"Bank Merger" shall have the meaning set forth in the recitals to this
Agreement.
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"Business Day" shall mean any day that is not a Saturday, Sunday or
other day on which commercial banks in Houston, Texas are authorized or required
by law to remain closed.
"Certificates" shall have the meaning set forth in Section 4.02.
"Closing" shall have the meaning set forth in Section 2.02.
"Closing Date" shall have the meaning set forth in Section 2.02.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
"Commissioner" shall mean the Texas Banking Commissioner.
"Company" shall have the meaning set forth in the introductory
paragraph to this Agreement.
"Company Benefit Plans" shall have the meaning set forth in Section
5.12.
"Company Board" shall mean the Board of Directors of the Company.
"Company Common Stock" shall mean the common stock, par value $1.00 per
share, of the Company.
"Company Disclosure Schedule" shall mean that document containing the
written detailed information required to be furnished pursuant to the terms of
this Agreement prepared and delivered by the Company to Sterling prior to the
execution of this Agreement.
"Company ERISA Plan" shall have the meaning set forth in Section 5.12.
"Company Financial Statements" shall have the meaning set forth in
Section 5.05.
"Company Indebtedness" shall mean all liabilities, indebtedness or
obligations of the Company, and its Subsidiaries, on a consolidated basis (i)
for borrowed money or loans, (ii) constituting an obligation to pay the deferred
purchase price of property or services, (iii) which (A) under GAAP should be
shown on the Company's balance sheet as a liability, and (B) are payable more
than one year from the date of creation, or (iv) constituting principal under
leases capitalized in accordance with GAAP; provided that the term shall not
include deposits of Lone Star Bank.
"Company Material Adverse Effect" shall have the meaning set forth in
Section 5.01.
"Company Options" shall have the meaning set forth in Section 3.03.
"Company Shareholders' Meeting" shall have the meaning set forth in
Section 5.32.
"Company Stock Plan" shall have the meaning set forth in Section 5.12.
"Condition" shall have the meaning set forth in Section 5.01.
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"Dissenting Share" shall have the meaning set forth in Section 3.01.
"Effective Time" shall have the meaning set forth in Section 2.03.
"Employee" shall mean any current or former employee, officer or
director, independent contractor or retiree of the Company, its Subsidiaries and
any dependent or spouse thereof.
"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 life 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 a Hazardous Substance, or otherwise
regulated, whether by type or by quantity, including any material containing any
such substance as a component.
"ERISA" shall have the meaning set forth in Section 5.12.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" shall have the meaning set forth in Section 4.01.
"Exchange Fund" shall have the meaning set forth in Section 4.01.
"Exchange Ratio" shall have the meaning set forth in Section 3.02(c).
"Expenses" shall have the meaning set forth in Section 8.14.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System and any Federal Reserve Bank.
"GAAP" shall mean generally accepted accounting principles in the
United States, applied on a consistent basis.
"Hazardous Substances" shall mean those substances included within the
statutory or regulatory definitions, listings or descriptions of "pollutant,"
"hazardous material," "contaminant," "toxic waste," "hazardous substance,"
"hazardous waste," "solid waste," or "regulated substance" pursuant to
applicable Environmental Laws and shall include, without limitation, any
material, waste or substance which is or contains explosives, radioactive
materials, oil or any fraction thereof, asbestos, or formaldehyde.
"Indemnified Party" shall have the meaning set forth in Section 8.09.
"Key Company Officials" shall mean H. ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇, W. ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and
▇▇▇ ▇. ▇▇▇▇▇.
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"Law" shall mean any United States (federal, state or local) or foreign
law, statute, ordinance, rule, regulation, order, judgment or decree;
"Liens" shall have the meaning set forth in Section 5.03.
"Maximum Amount" shall have the meaning set forth in Section 8.09.
"Merger" shall have the meaning set forth in the recitals to this
Agreement.
"Merger Consideration" shall mean the shares of Sterling Common Stock
issuable in accordance with Section 3.01(a), subject to the payment of cash paid
in lieu of fractional shares to be issued by Sterling in the Merger in
accordance with Section 3.01(d) and Section 4.05.
"Merger Consideration Adjustment" shall have the meaning set forth in
Section 3.02(b).
"Merger Sub" shall have the meaning set forth in the recitals to this
Agreement.
"NASDAQ" shall mean the NASDAQ National Market of the National
Association of Securities Dealers, Inc.
"Noncompete Agreements" shall mean the Noncompete Agreements in the
form of Annex A attached hereto executed by the Key Company Officials.
"OCC" shall mean the Office of the Comptroller of the Currency.
"Order" shall mean any decree, judgment, injunction, ruling, writ or
other order (whether temporary, preliminary or permanent).
"Permitted Liens" shall mean (i) Liens for current taxes not yet due
and payable and incurred in the ordinary course of business, (ii) with respect
to a lease, the interest of the lessor thereunder, including any Liens on the
interest of such lessor, and (iii) such imperfections of title, Liens,
restrictions and easements that do not materially impair the use or value of the
properties or assets or otherwise materially impair the current operations
relating to the business of the Company or its Subsidiaries or the Company's
consolidated financial condition or consolidated results of operations.
"Person" or "person" shall mean any individual, corporation, limited
liability company, association, partnership, group (as defined in Section
13(d)(3) of the Exchange Act), joint venture, trust or unincorporated
organization, or a government or any agency or political subdivision thereof.
"Preliminary Merger Consideration" shall have the meaning set forth in
Section 3.02.
"Proxy Statement" shall have the meaning set forth in Section 5.32.
"Registration Statement" shall have the meaning set forth in Section
5.32.
"Regulatory Agreement" shall have the meaning set forth in Section
5.11.
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"Regulatory Authorities" shall have the meaning set forth in Section
5.11.
"Regulatory Reporting Document" shall have the meaning set forth in
Section 5.05.
"Remedies Exception" shall mean any bankruptcy, reorganization,
insolvency, fraudulent conveyance or transfer, moratorium or similar law
affecting creditors' rights generally and general principles of equity
(regardless of whether enforcement is considered in a proceeding at law or in
equity).
"Reports" shall have the meaning set forth in Section 5.17.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Sterling" shall have the meaning set forth in the introduction to this
Agreement.
"Sterling Bank" shall have the meaning set forth in the recitals to
this Agreement.
"Sterling Common Stock" shall mean the common stock, par value $1.00
per share of Sterling.
"Sterling Disclosure Schedule" shall mean that document containing the
written detailed information required to be furnished pursuant to the terms of
this Agreement prepared and delivered by Sterling to the Company prior to the
execution of this Agreement.
"Sterling Financial Statements" shall have the meaning set forth in
Section 6.04.
"Sterling Material Adverse Effect" shall have the meaning set forth
Section 6.01.
"Sterling SEC Reports" shall have the meaning set forth in Section
6.05.
"Subsidiary" shall mean, in the case of either Sterling or the Company,
any corporation, association or other entity in which it owns or controls,
directly or indirectly, 25% or more of the outstanding voting securities or 25%
or more of the total equity interest; provided, however, that the term shall not
include any such entity in which such voting securities or equity interest is
owned or controlled in a fiduciary capacity, without sole voting power, or was
acquired in securing or collecting a debt previously contracted in good faith.
"Superior Proposal" shall have the meaning set forth in Section 10.01.
"Surviving Corporation" shall have the meaning set forth in Section
2.01.
"Tax" or "Taxes" shall mean all federal, state, local and foreign
taxes, charges, fees, levies, imposts, duties or other assessments, including,
without limitation, income, gross receipts, excise, employment, sales, use,
transfer, license, payroll, franchise, severance, stamp, occupation, windfall
profits, environmental, federal highway use, commercial rent, customs duties,
capital stock, paid up capital, profits, withholding, Social Security, single
business and unemployment, disability, real property, personal property,
registration, ad valorem, value added, alternative or add-on minimum,
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estimated, or other tax or governmental fee of any kind whatsoever, imposed or
required to be withheld by the United States or any state, local, foreign
government or subdivision or agency thereof, including, without limitation, any
interest, penalties or additions thereto.
"Taxable Period" shall mean any period prescribed by any governmental
authority, including, but not limited to, the United States or any state, local,
foreign government or subdivision or agency thereof for which a Tax Return is
required to be filed or Tax is required to be paid.
"Tax Return" shall mean any report, return, information return or other
information required to be supplied to a taxing authority in connection with
Taxes, including, without limitation, any return of an affiliated or combined or
unitary group that includes the Company or any of its Subsidiaries.
"TBCA" shall mean the Texas Business Corporation Act, as amended.
"Termination Fee" shall have the meaning set forth in Section 8.14.
ARTICLE II
THE MERGER AND RELATED TRANSACTIONS
Section 2.01 Merger.
(a) Upon the terms and subject to the conditions set forth in this
Agreement and in accordance with the TBCA, at the Effective Time, the Company
shall be merged with and into the Merger Sub. As a result of the Merger, the
separate existence of the Company shall thereupon cease, and the Merger Sub
shall continue as the surviving corporation of the Merger (the "Surviving
Corporation") and as a subsidiary of Sterling.
(b) The articles of incorporation of the Merger Sub as in effect
immediately prior to the Effective Time shall be the articles of incorporation
of the Surviving Corporation.
(c) The bylaws of the Merger Sub as in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation.
(d) The directors of the Merger Sub immediately prior to the Effective
Time shall become the directors of the Surviving Corporation and the officers of
the Merger Sub immediately prior to the Effective Time shall become the officers
of the Surviving Corporation, in each case until their respective successors are
duly elected and qualified.
(e) The Merger shall have the effects set forth in the TBCA.
Section 2.02 Time and Place of Closing. The closing of the transactions
contemplated hereby (the "Closing") will take place at the offices of ▇▇▇▇▇▇▇ &
▇▇▇▇▇ L.L.P. in Houston, Texas on the date (the "Closing Date") that the
Effective Time occurs, or at such other time, and at such place, as may be
agreed to in writing by the parties hereto.
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Section 2.03 Effective Time. On the Business Day selected by Sterling
occurring within ten (10) Business Days following the date on which the
expiration of all applicable waiting periods in connection with approvals of
governmental authorities necessary to effectuate the Merger occurs and all
conditions to the consummation of this Agreement are satisfied or waived, unless
an earlier or later date has been agreed by the parties, appropriate articles or
certificates of merger shall be executed and filed in accordance with the TBCA,
and the Merger provided for herein shall become effective upon such filing or at
such time as may be specified in such articles or certificates of merger. The
time of such filing or such later effective time is herein called the "Effective
Time."
Section 2.04 Reservation of Right to Revise Transaction; Further
Actions.
(a) Notwithstanding anything to the contrary provided elsewhere in this
Agreement, if Sterling notifies the Company in writing prior to the Closing that
Sterling prefers to change the method of effecting the acquisition of the
Company by Sterling (including, without limitation, the provisions as set forth
in Article II) the parties hereto shall forthwith execute an appropriate
amendment or restatement of this Agreement to reflect such changes; provided,
however, that no such change shall (i) alter or change the amount or the kind of
the consideration to be received by the holders of Company Common Stock as
provided for in this Agreement, (ii) take the form of an asset purchase, (iii)
adversely affect the tax treatment to the Company shareholders as a result of
receiving the Merger Consideration, or (iv) adversely affect the timing of the
Closing of the Merger.
(b) In addition, the parties hereto agree that if Sterling so
determines, each of the parties will execute such additional agreements and
documents and take such other actions as Sterling determines necessary or
appropriate to facilitate the Merger and the acquisition of the Company by
Sterling, including, without limitation, entering into agreements to facilitate
the Bank Merger.
Section 2.05 Tax-Free Reorganization. The parties hereto intend that
the Merger shall constitute a reorganization within the meaning of Section 368
of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
Treasury Regulations promulgated thereunder.
ARTICLE III
MERGER CONSIDERATION; EXCHANGE PROCEDURES
Section 3.01 Merger Consideration. Subject to the provisions of this
Agreement, at the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or shareholder:
(a) Except as provide in Section 3.01(c), Section 3.01(d) and Section
3.01(e), each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive a
fractional number of shares of Sterling Common Stock equal to the Exchange Ratio
calculated in accordance with Section 3.02.
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(b) Each of the shares of common stock of the Merger Sub issued and
outstanding immediately before the Effective Time shall continue to be issued
and outstanding as one share of common stock of the Surviving Corporation and
shall constitute the only outstanding shares of capital stock of the Surviving
Corporation.
(c) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by Sterling, Bancorporation
or any direct or indirect wholly owned Subsidiary of Sterling or the Company
immediately prior to the Effective Time shall be canceled without any conversion
and no payment or distribution shall be made with respect thereto.
(d) Notwithstanding any other provision of this Agreement, each holder
of shares of Company Common Stock exchanged pursuant to the Merger, who would
otherwise have been entitled to receive a fraction of a share of Sterling Common
Stock (after taking into account all certificates delivered by such holder)
shall receive, in lieu thereof, cash (without interest) in accordance with
Section 4.05 hereof. No such holder will be entitled to dividends, voting rights
or other rights as a shareholder in respect of any fractional share.
(e) Notwithstanding anything in this Agreement to the contrary, no
share of Company Common Stock, the holder of which shall have complied with the
provisions of Article 5.12 of the TBCA as to appraisal rights (a "Dissenting
Share"), shall be deemed converted into and to represent the right to receive
the Merger Consideration hereunder, and the holders of Dissenting Shares, if
any, shall be entitled to payment, solely from the Surviving Corporation, of the
appraised value of such Dissenting Shares to the extent permitted by and in
accordance with the provisions of Article 5.12 of the TBCA; provided, however,
that (i) if any holder of Dissenting Shares shall, under the circumstances
permitted by the TBCA, subsequently deliver a written withdrawal of his or her
demand for appraisal of such Dissenting Shares, (ii) if any holder fails to
establish his or her entitlement to rights to payment as provided in such
Article 5.12, or (iii) if neither any holder of Dissenting Shares nor the
Surviving Corporation has filed a petition demanding a determination of the
value of all Dissenting Shares within the time provided in such Article 5.12,
such holder or holders (as the case may be) shall forfeit such right to payment
for such Dissenting Shares pursuant to such Article 5.12 and each such
Dissenting Share shall thereupon be converted into and shall represent the right
to receive the Merger Consideration therefor. The Company shall give Sterling
(i) prompt notice of any written objections to the Merger submitted to the
Company in accordance with Article 5.12, attempted withdrawals of such
objections, and any other instruments served pursuant to applicable law received
by the Company relating to shareholders' rights of appraisal and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the TBCA. The Company shall not, except with the prior
written consent of Sterling, voluntarily make any payment with respect to any
demands for appraisals of Company Common Stock, offer to settle or settle any
such demands or approve any withdrawal of any such demands.
Section 3.02 Determination and Adjustment of Merger Consideration and
Exchange Ratio.
(a) Based and conditioned upon the exercise or termination of all the
Company's outstanding stock options prior to the Effective Time, all of the
issued and outstanding shares of
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the Company's Common Stock shall be converted as of the Effective Time into the
right to receive an aggregate of 1,760,000 shares of Sterling Common Stock (the
"Preliminary Merger Consideration"), subject to the adjustments described in
this Section 3.02.
(b) The Preliminary Merger Consideration shall be reduced if the
Company Indebtedness outstanding as of the Effective Time (principal, interest
and other charges) exceeds $2,000,000. The Preliminary Merger Consideration will
be decreased by the number of shares of Sterling Common Stock (such number of
shares being referred to herein as the "Merger Consideration Adjustment")
determined by dividing (i) an amount equal to the sum of the Company
Indebtedness outstanding as of the Effective Time less $2,000,000, by (ii) the
Average Closing Price. As used herein, the "Average Closing Price" shall mean
the average closing price per share of the Sterling Common Stock (rounded to the
nearest cent) on the Nasdaq (as reported in The Wall Street Journal or, if not
reported thereby, another authoritative source as chosen by Sterling) for the
ten consecutive trading days in which such shares are quoted on the Nasdaq
ending on the second trading day immediately prior to the Effective Time.
(c) For purposes of this Agreement, the term "Exchange Ratio" shall
mean the amount, calculated as of the Closing Date, that is equal to the
quotient (calculated to the nearest five (5) decimal places) of a fraction, of
which (i) the numerator is equal to the sum of (A) Preliminary Merger
Consideration, less (B) the Merger Consideration Adjustment, and (ii) the
denominator is equal to the total issued and outstanding shares of Company
Common Stock immediately prior to the Effective Time (including all shares of
Company Common Stock issued upon exercise of the Company Options, but excluding
the shares of Company Common Stock to be cancelled pursuant to Section 3.01(c)).
(d) The Exchange Ratio and the Preliminary Merger Consideration will be
adjusted appropriately to reflect any stock dividends, splits, recapitalizations
or other similar transactions with respect to the Sterling Common Stock where
the record date occurs prior to the Effective Time.
Section 3.03 Company Stock Options.
(a) Prior to the Closing Date, the Company shall (i) cause each
unexpired and unexercised option as set forth in Section 5.02 of the Company
Disclosure Schedule ("Company Options") to either be (A) exercised and fully
paid at an exercise price between $3.90 and $4.20 per share and converted into
shares of Company Common Stock, or (B) terminated, and (ii) cause the Company's
Nonqualified Stock Option Plan to be terminated. The Company shall not permit
any holder of the Company Options to exercise such Company Option by any means
other than the payment of the exercise price thereof in cash, unless the Company
is contractually obligated to do so. With respect to any such holder, the
Company shall use its best efforts to encourage such holder to exercise such
Company Option by payment in cash.
(b) The Company shall take all actions necessary or reasonably
requested by Sterling to ensure that following the Effective Time, no holder of
any Company Option will have any right thereunder to acquire any equity
securities of the Company, Sterling or any of their respective Subsidiaries or
any right to payment in respect of any such securities of the Company except for
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payment of the Merger Consideration with respect to the shares of Company Common
Stock into which such Company Options are converted prior to the Effective Time.
ARTICLE IV
EXCHANGE OF SHARES
Section 4.01 Exchange Agent. As of the Effective Time, Sterling shall
deposit with a bank or trust company designated by Sterling and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the holders
of shares of Company Common Stock, for exchange in accordance with this Article
IV, certificates representing the shares of Sterling Common Stock included
within the Merger Consideration issuable pursuant to Section 3.01 and Section
3.02 in exchange for outstanding shares of the Company Common Stock, (such
shares of Sterling Common Stock, together with any dividends or distributions
with respect thereto paid in respect of a record date after the Effective Time,
being hereinafter referred to as the "Exchange Fund"). The Exchange Agent shall,
pursuant to irrevocable instructions from Sterling, deliver the Merger
Consideration contemplated to be issued pursuant hereto out of the Exchange
Fund. The Exchange Fund shall not be used for any other purpose.
Section 4.02 Exchange Procedures. Within five Business Days after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which, immediately prior to the Effective Time,
represented outstanding shares of Company Common Stock (the "Certificates"),
other than shares canceled in accordance with Section 3.01(c): (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates theretofore representing shares of Company
Common Stock shall pass, only upon proper delivery of such Certificates to the
Exchange Agent, and shall be in such form and have such other provisions as
Sterling shall specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for the Merger Consideration. Upon surrender of
a Certificate for cancellation to the Exchange Agent (or to such other agent or
agents as may be appointed by Sterling), together with such letter of
transmittal, duly executed, and any other required documents, the holder of such
Certificate(s) shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Sterling Common Stock which such
holder has the right to receive pursuant to the provisions of Section 3.01 and
cash in lieu of fractional shares of Sterling Common Stock as contemplated by
Section 3.01(d), and the Certificate(s) so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of Company Common Stock which
is not registered in the transfer records of Company, a certificate representing
the appropriate number of shares of Sterling Common Stock may be issued to a
transferee if the Certificate(s) representing such Company Common Stock is
presented to the Exchange Agent accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
4.02, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Sterling Common Stock and cash in lieu of any fractional
shares of Sterling Common Stock as contemplated by Section 3.01(d) and Section
4.05. The Certificate(s) for Company Common Stock so surrendered shall be duly
endorsed as the Exchange Agent may require. Sterling shall not be obligated to
deliver the consideration to which any former holder of Company Common Stock is
entitled as a result of the Merger until such holder surrenders his
Certificate(s) formerly
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representing shares of Company Common Stock for exchange as provided in this
ARTICLE IV. In addition, certificates surrendered for exchange by any person
constituting an "affiliate" of Company for purposes of Rule 145(c) under the
Securities Act shall not be exchanged for certificates representing whole shares
of Sterling Common Stock until Sterling has received a written agreement from
such person as provided in Section 8.08. If any certificate for shares of
Sterling Common Stock, or any check representing cash or declared but unpaid
dividends, is to be issued in a name other than that in which a certificate
surrendered for exchange is issued, the Certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and the person
requesting such exchange shall affix any requisite stock transfer tax stamps to
the Certificate surrendered or provide funds for their purchase or establish to
the satisfaction of the Exchange Agent that such taxes are not payable.
Section 4.03 Voting and Dividends. Former shareholders of record of the
Company shall be entitled to vote after the Effective Time at any meeting of
Sterling shareholders the number of whole shares of Sterling Common Stock into
which their respective shares of Company Common Stock are converted, regardless
of whether such holders have exchanged their Certificates representing Company
Common Stock for certificates representing Sterling Common Stock in accordance
with the provisions of this Agreement. Until surrendered for exchange in
accordance with the provisions of Section 4.01, each Certificate theretofore
representing shares of the Company Common Stock (other than shares to be
canceled pursuant to Section 3.01) shall from and after the Effective Time
represent for all purposes only the right to receive the Merger Consideration,
as set forth in this Agreement. Former shareholders of record of the Company
shall be entitled to any dividends paid to holders of record of Sterling Common
Stock after the Effective Time, provided that no dividend or other distribution
payable to the holders of record of Sterling Common Stock, at or as of any time
after the Effective Time, shall be paid to the holder of any Certificate
representing shares of Company Common Stock issued and outstanding at the
Effective Time until such holder physically surrenders such Certificate for
exchange as provided in Section 4.01, promptly after which time all such
dividends or distributions shall be paid (without interest).
Section 4.04 No Further Ownership Rights in Company Common Stock. All
shares of Sterling Common Stock issued upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof (including any cash
paid in lieu of fractional shares of Sterling Common Stock pursuant to Section
3.01(d) and Section 4.05) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and after the Effective Time there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the shares of
Company Common Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article IV.
Section 4.05 No Fractional Shares. No certificates or scrip
representing fractional shares of Sterling Common Stock shall be issued upon the
surrender for exchange of certificates for Company Common Stock pursuant to this
ARTICLE IV, and no dividend or other distribution, stock split or interest shall
relate to any such fractional security, and such fractional interests shall not
entitle the owner thereof to any voting or other rights of a security holder of
Sterling. In lieu of any fractional security, each holder of shares of Company
Common Stock who would otherwise have been entitled to a fraction of a share of
Sterling Common Stock upon surrender of the
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certificate(s) for such Company Common Stock for exchange pursuant to this
ARTICLE IV will be paid an amount in cash (without interest) equal to such
holder's proportionate interest in the amount of the net proceeds from the sale
or sales by the Exchange Agent in accordance with the provisions of this Section
4.05, on behalf of all such holders, of the aggregate fractional shares of
Sterling Common Stock issued pursuant to ARTICLE III. As soon as practicable
following the Effective Time, the Exchange Agent shall determine the excess of
(A) the number of whole shares of Sterling Common Stock delivered to the
Exchange Agent by Sterling pursuant to Section 4.01 over (B) the aggregate
number of whole shares of Sterling Common Stock to be distributed to holders of
Company Common Stock pursuant to ARTICLE III (such excess being herein called
the "Excess Securities") and the Exchange Agent, as agent for the former holders
of Company Common Stock, shall sell the Excess Securities at the prevailing
prices on the NASDAQ. The sale of the Excess Securities by the Exchange Agent
shall be executed on the NASDAQ through one or more member firms of the NASDAQ
and shall be executed in round lots to the extent practicable. Sterling shall
pay all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent, incurred in
connection with such sale of Excess Securities. Until the net proceeds of such
sale of Excess Securities have been distributed to the former shareholders of
Company, the Exchange Agent will hold such proceeds and dividends in trust for
such former shareholders. As soon as practicable after the determination of the
amount of cash to be paid to former shareholders of the Company in lieu of any
fractional interests, the Exchange Agent shall make available in accordance with
this Agreement such amounts to such former shareholders.
Section 4.06 Termination of Exchange Fund. Any portion of the Exchange
Fund that remains undistributed to the former shareholders of the Company for
six months after the Effective Time shall be delivered to Sterling upon demand,
and any shareholders of the Company who have not theretofore complied with this
Article IV shall thereafter look only to Sterling for payment of their claim for
the Merger Consideration.
Section 4.07 Escheat of Exchange Fund. None of Sterling, the Merger
Sub, the Company, or the Exchange Agent shall be liable to any person in respect
of any Merger Consideration from the Exchange Fund delivered to a public office
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificates representing shares of Company Common Stock shall not have been
surrendered immediately prior to the date on which any Merger Consideration in
respect of such Certificate would otherwise escheat to or become the property of
any government authority, any such Merger Consideration in respect of such
Certificate shall, at such time and to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any Person previously entitled thereto.
Section 4.08 Lost Certificates. If any Certificates shall have been
lost, stolen or destroyed, then upon the making of an affidavit of that fact by
the Person claiming such Certificate to be lost, stolen or destroyed and, if
required by Sterling or the Exchange Agent, the posting by such Person of a bond
in such reasonable amount as Sterling or the Exchange Agent may direct as
indemnity against any claim that may be made against the Surviving Corporation
with respect to such Certificate, the Exchange Agent will pay in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration to be paid
in respect of the shares of Company Common Stock represented by such
Certificate, as contemplated by this Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Sterling and the Merger Sub as
follows:
Section 5.01 Organization, Standing and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. The Company is duly qualified to do business and in good
standing in all jurisdictions (whether federal, state, local or foreign) where
its ownership or leasing of property or the conduct of its business requires it
to be so qualified and in which the failure to be duly qualified would have a
material adverse effect on the financial condition, results of operations,
business, properties (the "Condition") of the Company and any of its
Subsidiaries or on the ability of the Company or its Subsidiaries to consummate
the transactions contemplated hereby (a "Company Material Adverse Effect"). The
Company has all requisite corporate power and authority (i) to carry on its
business as now conducted, (ii) to own, lease and operate its assets, properties
and business and (iii) to execute and deliver this Agreement and perform the
terms of this Agreement. The Company is duly registered as a bank holding
company under the BHCA. The Company has in effect all federal, state, local and
foreign governmental, regulatory and other authorizations, franchises, permits
and licenses (collectively, "Authorizations") necessary for it to own or lease
its properties and assets and to carry on its business as now conducted. The
Company has heretofore furnished to Sterling a complete and correct copy of its
Articles of Incorporation and bylaws, as amended or restated to the date hereof.
Such Articles of Incorporation and bylaws, as amended, are in full force and
effect and the Company is not in violation of any of the provisions of its
Articles of Incorporation or bylaws.
Section 5.02 Company Common Stock.
(a) The authorized capital stock of the Company consists of 5,000,000
shares of Company Common Stock, par value $1.00 per share, and 1,000,000 shares
of Company Preferred Stock, par value $1.00 per share. As of the date hereof,
(i) 1,807,500 shares of Company Common Stock were issued and outstanding, (ii)
zero (0) shares of Company Common Stock were held by the Company in its
treasury, (iii) 192,500 shares of Company Preferred Stock were reserved for
issuance pursuant to stock options granted and outstanding under the Company's
Nonqualified Stock Option Plan and options issued outside of any plan, and (iv)
zero (0) shares of Company Preferred Stock were issued and outstanding. All of
the issued and outstanding shares of Company Common Stock are, and all shares of
the Company Common Stock which may be issued upon the exercise or conversion of
the Company Options will be, when issued, duly authorized, validly issued and
fully paid and nonassessable. None of the outstanding shares of Company Common
Stock has been, nor will any shares of the Company Common Stock which may be
issued upon the exercise or conversion of the Company Options be issued, in
violation of any preemptive rights or any provision of the Company's Articles of
Incorporation or bylaws. As of the date of this Agreement, no shares of Company
Common Stock have been reserved for any purpose except as set forth above or in
Section 5.02 of the Company Disclosure Schedule.
(b) Except as set forth in Section 5.02(a) above or Section 5.02 of the
Company Disclosure Schedule, there are no (i) equity securities of the Company
outstanding, (ii) outstanding
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options, warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of the capital stock of the Company or contracts, commitments,
understandings or arrangements by which the Company is or may be bound to issue
additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock, (iii)
outstanding notes, bonds, debentures or other indebtedness of the Company having
the right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which shareholders of the Company have the
right to vote, or (iv) outstanding stock appreciation rights or other rights to
redeem for cash any options, warrants or other securities of the Company. There
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may be bound to transfer any shares of
the capital stock of any Subsidiary of the Company, and there are no agreements,
understandings or commitments relating to the right of the Company or any of its
Subsidiaries to vote or to dispose of any such shares.
(c) Except as set forth in Section 5.02 of the Company Disclosure
Schedule, there are no securities required to be issued by the Company under any
Company Stock Plan, dividend reinvestment or similar plan.
(d) Except as set forth in Section 5.02 of the Company Disclosure
Schedule, there are no voting trusts, proxies or other agreements, commitments
or understandings of any character to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound with respect to the voting of any shares of capital stock of the Company
or any of its Subsidiaries. There are no agreements, arrangements or commitments
with any character pursuant to which any Person is or may be entitled to cause
the Company or any of its Subsidiaries to file a registration statement under
the Securities Act or which otherwise relate to the registration of any
securities of the Company or any of its Subsidiaries.
(e) There are no restrictions applicable to the payment of dividends on
any shares of the Company Common Stock except pursuant to the TBCA and
applicable banking laws and regulations and all dividends and distributions
declared prior to the date hereof have been fully paid.
Section 5.03 Subsidiaries. Section 5.03 of the Company Disclosure
Schedule contains a complete list of the Company's Subsidiaries. All of the
outstanding shares of each Subsidiary are owned by the Company and no equity
securities are or may be required to be issued by reason of any options,
warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of any Subsidiary, and there are no contracts, commitments,
understandings or arrangements by which any Subsidiary is bound to issue
additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock. All of the
shares of capital stock of each Subsidiary are duly authorized, validly issued,
fully paid and nonassessable and are owned by the Company free and clear of any
claim, lien, pledge or encumbrance of whatsoever kind ("Liens"). Each Subsidiary
(i) is duly organized, validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated or organized, (ii) is duly
qualified to do business and in good standing in all jurisdictions (whether
federal, state, local or foreign) where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and in which the
failure to be so qualified would have a Company Material Adverse Effect, (iii)
has all requisite
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corporate power and authority to own or lease its properties and assets and to
carry on its business as now conducted, and (iv) has in effect all
Authorizations necessary for it to own or lease its properties and assets and to
carry on its business as now conducted. The Company has heretofore furnished to
Sterling a complete and correct copy of each of its Subsidiaries' certificates
or articles of incorporation and bylaws, or equivalent organizational documents,
as amended or restated to the date hereof. Such certificates or articles or
incorporation and bylaws, as amended, and equivalent organizational documents of
Subsidiary are in full force and effect. None of the Subsidiaries is in
violation of any provision of its certificate or articles of incorporation or
bylaws or equivalent organizational documents. Except for the capital stock of
its Subsidiaries, the Company does not own, directly or indirectly, any capital
stock or other ownership interests in any corporation, limited liability
company, partnership, joint venture or other entity.
Section 5.04 Authorization of Merger and Related Transactions.
(a) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby (including, without limitation, the
consummation of the Merger) have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of the Company,
including unanimous approval of the Merger by the Company Board, subject to the
approval of the Merger by the shareholders of the Company to the extent required
by applicable law. The only shareholder approval required for the approval of
the Merger is the approval of two-thirds of the outstanding shares of Company
Common Stock. This Agreement, subject to any requisite shareholder approval
hereof with respect to the Merger, represents a valid and legally binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as such enforcement may be limited by the Remedies Exception.
(b) Neither the execution and delivery of this Agreement by the
Company, the consummation by the Company of the transactions contemplated hereby
nor compliance by the Company with any of the provisions hereof will (i)
conflict with or result in a breach of any provision of the Articles of
Incorporation or bylaws of the Company or the comparable documents of any of its
Subsidiaries, (ii) constitute or result in a breach or violation of any term,
condition or provision of, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give rise to
any right of termination, cancellation or acceleration with respect to, or
result in the creation of any Lien upon, any property or assets of the Company
or any of its Subsidiaries pursuant to any note, bond, mortgage, indenture,
license, agreement, lease or other instrument or obligation to which any of them
is a party or by which any of them or any of their properties or assets may be
subject or (iii) subject to receipt of the requisite approvals referred to in
Section 9.01 of this Agreement, violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company or its Subsidiaries or any
of their properties or assets.
(c) Other than consents, authorizations, approvals or exemptions
required from the Commissioner, the FDIC, or the Federal Reserve Board and the
filing of articles of merger in accordance with the TBCA, no notice to, filing
with, authorization of, exemption by, or consent or approval of any governmental
body, authority or other Person is necessary for the consummation by the Company
of the Merger, the resulting change of control of its Subsidiaries, and the
other transactions contemplated by this Agreement.
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Section 5.05 Financial Statements and Regulatory Reports.
(a) The Company (i) has delivered to Sterling copies of the audited
consolidated balance sheets and the related audited consolidated statements of
income, shareholders' equity and cash flows (including related notes and
schedules) of the Company and its consolidated Subsidiaries as of and for the
periods ended December 31, 1998 and December 31, 1999, together with the report
thereof of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, ▇.▇., and of the unaudited balance
sheet and the related unaudited statement of income, as of and for the twelve
(12) months ended December 31, 2000 (the "Company Financial Statements"), and
(ii) has furnished Sterling with a true and complete copy of each material
report filed by the Company with the Federal Reserve Board or by any of its
Subsidiaries with any Regulatory Authorities from and after January 1, 1997
(each a "Regulatory Reporting Document"), which are all the material documents
that the Company or any of its Subsidiaries was required to file with the
Regulatory Authorities since such date and all of which complied when filed in
all material respects with all applicable laws and regulations.
(b) The Company Financial Statements (as of the dates thereof and for
the periods covered thereby) (i) are in accordance with the books and records of
the Company and its Subsidiaries, which are complete and accurate in all
material respects and which have been maintained in accordance with good
business practices, and (ii) present fairly the consolidated financial position
and the consolidated results of operations, changes in shareholders' equity and
cash flows of the Company and its Subsidiaries as of the dates and for the
periods indicated, in accordance with GAAP, subject in the case of unaudited
interim financial statements for the twelve (12) months ended December 31, 2000
to normal recurring year-end adjustments and except for the absence of certain
footnote information in such unaudited interim financial statements. Neither
▇▇▇▇▇▇, Donnelley & ▇▇▇▇▇▇▇▇▇, ▇.▇., nor any other firm of independent certified
public accountants has prepared or delivered to the Company any management
letters that express any material concerns or issues regarding the Company's
internal controls, accounting practices or financial conditions since January 1,
1997.
Section 5.06 Absence of Undisclosed Liabilities. Except as set forth in
Section 5.06 of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries has any obligations or liabilities (contingent or otherwise) in
an amount equal to, or in excess of, $50,000, in the aggregate, except
obligations and liabilities (i) which are fully accrued or reserved against in
the consolidated balance sheet of the Company and its Subsidiaries as of
December 31, 2000, included in the Company Financial Statements or reflected in
the notes thereto, or (ii) which were incurred after December 31, 2000, in the
ordinary course of business consistent with past practice and have been fully
accrued and reserved for on the books of the Company as of the date hereof.
Since December 31, 2000, neither the Company nor any of its Subsidiaries has
incurred or paid any obligation or liability which would have a Company Material
Adverse Effect.
Section 5.07 Tax Matters. Except as set forth in Section 5.07 of the
Company Disclosure Schedule:
(a) All Tax Returns required to be filed by or on behalf of the Company
or any of its Subsidiaries have been timely filed, or requests for extensions
have been timely filed, granted and have not expired, all such Tax Returns filed
are complete and accurate in all material respects and
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all Taxes payable by or with respect to the Company and its Subsidiaries for the
periods covered by such Tax Returns have been timely paid in full or are
adequately reserved for in accordance with GAAP on the December 31, 2000
financial statements included in the Company Financial Statements. With respect
to the periods for which Tax Returns have not been filed, the Company and its
Subsidiaries have established adequate reserves determined in accordance with
GAAP for the payment of all Taxes.
(b) No deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any of its Subsidiaries that are not adequately
provided for on the Company Financial Statements and no request for waivers of
the time to assess any such Taxes has been granted or are pending. Neither the
Company nor any Subsidiary is involved in any audit examination, deficiency or
refund litigation or matter in controversy with respect to any Taxes. All Taxes
due with respect to completed and settled examinations or concluded litigation
have been paid or adequately reserved for.
(c) Neither the Company nor any of its Subsidiaries has executed an
extension or waiver of any statute of limitations on the assessment or
collection of any Tax due that is currently in effect.
(d) Adequate provision for any Taxes due or to become due for the
Company and any of its Subsidiaries for any period or periods through and
including December 31, 2000, has been made, in accordance with GAAP, and is
reflected on the December 31, 2000 financial statements included in the Company
Financial Statements. Deferred Taxes of the Company and its Subsidiaries have
been provided for in the Company Financial Statements in accordance with GAAP.
None of the assets or properties of the Company or any of its Subsidiaries is
subject to any material Tax lien, other than such liens for Taxes which are not
due and payable, which may thereafter be paid without penalty or the validity of
which are being contested in good faith by appropriate proceedings and for which
adequate provisions are being maintained in accordance with GAAP.
(e) The Company and its Subsidiaries have collected and withheld all
Taxes which they have been required to collect or withhold and have timely
submitted all such collected and withheld amounts to the appropriate
authorities. The Company and its Subsidiaries are in compliance with the back-up
withholding and information reporting requirements under (i) the Code, and (ii)
any state, local or foreign laws, and the rules and regulations, thereunder.
(f) Neither the Company nor any of its Subsidiaries has made any
payments, is obligated to make any payments, or is a party to any contract,
agreement or other arrangement that could obligate it to make any payments that
would not be deductible under Section 280G of the Code.
(g) No consent has been filed under Section 341(f) of the Code with
respect to the Company or any of its Subsidiaries; neither the Company nor any
of its Subsidiaries owns any interest in an entity or arrangement characterized
as a partnership for United States federal income tax purposes; none of the
assets of the Company or any of its Subsidiaries is required to be treated as
being owned by some other person pursuant to Section 168(f)(8) of the Code;
neither the Company nor any of its Subsidiaries is a United States real property
holding company under
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Section 897 of the Code; and no debt of the Company or any of its Subsidiaries
is "corporate acquisition indebtedness" within the meaning of Section 279(b) of
the Code.
Section 5.08 Allowance for Credit Losses. Each allowance for credit
losses shown in the consolidated balance sheets of the Company and its
Subsidiaries as of December 31, 2000, and included in the Company Financial
Statements, complies in all material respects with GAAP.
Section 5.09 Other Regulatory Matters. Neither the Company nor any of
its Subsidiaries has taken or agreed to take any action or has any knowledge of
any fact or circumstance that would materially impede or delay receipt of any
approval referred to in Section 9.01(b).
Section 5.10 Properties. Except as set forth in Section 5.10 of the
Company's Disclosure Schedule, the Company and its Subsidiaries have good and
indefeasible title, free and clear of all Liens except Permitted Liens, to all
their properties and assets whether tangible or intangible, real, personal or
mixed, including, without limitation, all the properties and assets reflected in
the Financial Statements except for those properties and assets disposed of for
fair market value in the ordinary course of business and consistent with prudent
banking practices since the date of the Financial Statements. All buildings, and
all fixtures, equipment and other property and assets which are material to its
business on a consolidated basis, held under leases or subleases by any of the
Company or its Subsidiaries are held under valid instruments enforceable in
accordance with their respective terms, subject to the Remedies Exception. All
of the Company's and its Subsidiaries' equipment in regular use has been well
maintained and is in good, serviceable condition, reasonable wear and tear
excepted, except where a failure to so maintain or to be in such condition would
not have a Company Material Adverse Effect.
Section 5.11 Compliance with Laws. Except as set forth in Section 5.11
of the Company Disclosure Schedule:
(a) Each of the Company and its Subsidiaries is in compliance with all
laws, rules, regulations, policies, guidelines, reporting and licensing
requirements and orders applicable to its business or to its employees
conducting its business, and with its internal policies and procedures, except
for failures to comply which will not result in a Company Material Adverse
Effect.
(b) Neither the Company nor any of its Subsidiaries has received any
notification or communication from any agency or department of any federal,
state or local government, including the Federal Reserve Board, the FDIC, the
Commissioner, the SEC and the staffs thereof (collectively, the "Regulatory
Authorities") (i) asserting that since January 1, 1997, the Company or any of
its Subsidiaries is not in substantial compliance with any of the statutes,
regulations, or ordinances which such agency, department or Regulatory Authority
enforces, or the internal policies and procedures of the Company or its
Subsidiaries, (ii) threatening to revoke any license, franchise, permit or
governmental authorization which is material to the Condition of the Company or
any of its Subsidiaries, (iii) requiring or threatening to require the Company
or any of its Subsidiaries, or indicating that the Company or any of its
Subsidiaries may be required, to enter into a cease and desist order, agreement
or memorandum of understanding or any other agreement restricting or limiting or
purporting to restrict or limit in any manner the operations of the Company or
any of its Subsidiaries, including, without limitation, any restriction on the
payment of dividends, or (iv) directing, restricting or limiting, or purporting
to direct, restrict or limit in any
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manner the operations of the Company or any of its Subsidiaries,
including, without limitation, any restriction on the payment of dividends (any
such notice, communication, memorandum, agreement or order described in this
sentence being herein referred to as a "Regulatory Agreement"). Neither the
Company nor any Subsidiary has received or been made aware of any complaints or
inquiries under the Community Reinvestment Act, the Fair Housing Act, the Equal
Credit Opportunity Act or any other state or federal anti-discrimination fair
lending law and, to the knowledge of the Company and its Subsidiaries, there is
no fact or circumstance that would form the basis of any such complaint or
inquiry.
(c) Since January 1, 1997, neither the Company nor any of its
Subsidiaries has been a party to any effective Regulatory Agreement.
(d) Neither the Company nor any of its Subsidiaries is required by
Section 32 of the Federal Deposit Insurance Act to give prior notice to a
federal banking agency of the proposed addition of an individual to the Company
Board or the employment of an individual as a senior executive officer.
Section 5.12 Employee Benefit Plans. Except as set forth in Section
5.12 of the Company Disclosure Schedule:
(a) The Company has delivered to Sterling prior to the execution of
this Agreement true and complete copies (and, in the case of each material plan,
financial data with respect thereto) of all pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership, severance pay,
vacation, bonus or other incentive plans, all other employee programs,
arrangements or agreements, all material medical, vision, dental or other health
plans, all life insurance plans and all other material employee benefit plans or
fringe benefit plans, including, without limitation, all "employee benefit
plans" as that term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), whether or not terminated, and trust
agreements and insurance contracts under or with respect to which the Company or
any of its Subsidiaries has or could have any liability, contingent, secondary
or otherwise (collectively, the "Company Benefit Plans"). Any of the Company
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "Company ERISA
Plan." Any of the Company Benefit Plans pursuant to which the Company is or may
become obligated to, or obligated to cause any of its Subsidiaries or any other
Person to, issue, deliver or sell shares of capital stock of the Company or any
of its Subsidiaries, or grant, extend or enter into any option, warrant, call,
right, commitment or agreement to issue, deliver or sell shares, or any other
interest in respect of capital stock of the Company or any of its Subsidiaries,
is referred to herein as a "Company Stock Plan." No Company Benefit Plan is or
has been a multi-employer plan within the meaning of Section 3(37) of ERISA. The
Company has set forth in Section 5.12 of the Company Disclosure Schedule (i) a
list of all of the Company Benefit Plans, (ii) a list of the Company Benefit
Plans that are Company ERISA Plans, (iii) a list of the Company Benefit Plans
that are Company Stock Plans and (iv) a list of the number of shares covered by,
exercise prices for, and holders of, all stock options granted and available for
grant under Company Stock Plans.
(b) From their inception, all the Company Benefit Plans have been and
are in compliance with the applicable terms of ERISA and the Code and any other
applicable laws, rules
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and regulations, including the terms of such plans, the breach or violation of
which, individually or in the aggregate, could reasonably be expected to result
in a Company Material Adverse Effect.
(c) All liabilities (contingent or otherwise) under any Company Benefit
Plan are fully accrued or reserved against in the Company Financial Statements
in accordance with GAAP. No Company ERISA Plan is or has ever been subject to
Title IV of ERISA or Section 412 of the Code.
(d) Neither the Company nor any of its Subsidiaries has any obligations
for retiree health or other welfare benefits under any Company Benefit Plan or
otherwise. There are no restrictions on the rights of the Company or its
Subsidiaries to unilaterally amend or terminate any such Company Benefit Plan at
any time without incurring any material liability thereunder.
(e) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, golden parachute or
otherwise) becoming due to any person under any Company Benefit Plan or
otherwise, (ii) increase any benefits otherwise payable under any Company
Benefit Plan or (iii) result in any acceleration of the time of payment or
vesting of any such benefits. No amounts payable under any Company Benefit Plan
will be nondeductible pursuant to either Section 280G or 162(m) of the Code.
(f) Neither the Company, any Subsidiary, nor any plan fiduciary of any
Company Benefit Plan has engaged in any transaction in violation of Section 406
of ERISA (for which transaction no exemption exists under Section 408 of ERISA)
or in any "prohibited transaction" as defined in Section 4975(c)(1) of the Code
(for which no exemption exists under Section 4975(c)(2) or 4975(d) of the Code).
(g) All Company Benefit Plans, related trust agreements or annuity
contracts (or any other funding instruments), are legally valid and binding and
in full force and effect and there are no written agreements or, to the
Company's knowledge, any oral agreements, regarding increases in benefits
(whether expressed or implied) under any of these plans, nor, to the Company's
knowledge, any obligations, commitments, or understanding to continue any of
these plans (whether expressed or implied) except as required by Section 4980B
of the Code and Sections 601-608 of ERISA.
(h) There are no claims pending with respect to, or under, any Company
Benefit Plan other than routine claims for plan benefits, and there is no
litigation pending, or to the knowledge of the Company or any Subsidiary, any
disputes or litigation threatened with respect to any such plans.
Section 5.13 Commitments and Contracts. Except as set forth in Section
5.13 of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party or subject to, or has amended or waived any rights
under, any of the following (whether written or oral, express or implied):
(a) any employment contract or understanding (including any
understandings or obligations with respect to severance or termination pay
liabilities or fringe benefits) with any Employee, including in any such
person's capacity as a consultant (other than those which either
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(i) are terminable at will by the Company or such Subsidiary without requiring
any payment by the Company, (ii) do not involve payments with a present value of
more than $10,000 individually or $50,000 in the aggregate by the Company or
such Subsidiary during the remaining term thereof without giving effect to
extensions or renewals of the existing term thereof which may be made at the
election or with the consent or concurrence of the Company, or (iii) which were
approved by the Company Board prior to December 31, 2000 and which have been
previously disclosed to Sterling;
(b) any labor contract or agreement with any labor union;
(c) any contract not made in the usual, regular and ordinary course of
business containing non-competition covenants which limit the ability of the
Company or any of its Subsidiaries to compete in any line of business or which
involve any restriction of the geographical area in which the Company or any of
its Subsidiaries may carry on its business (other than as may be required by law
or applicable Regulatory Authorities);
(d) any other contract or agreement for which the Company or any
Subsidiary was or is required to obtain the approval of any Regulatory Authority
prior to becoming bound or to consummating the transactions contemplated
thereby;
(e) any lease, sublease, license, contract and agreement which
obligates or may obligate the Company or any Subsidiary for an amount in excess
of $5,000 annually or which have a current term of one year or longer; provided,
however, that the foregoing shall not include (i) loans made by, repurchase
agreements made by, bankers acceptances of, agreements with Bank customers for
trust services, or deposits by the Company and any of its Subsidiaries, and (ii)
any lease, sublease, license, contract or agreement which may be terminated by
the Company, without penalty, upon thirty (30) day's or less prior written
notice;
(f) any contract requiring the payment of any penalty, termination or
other additional amounts as "change of control" payments or otherwise as a
result of the transactions contemplated by this Agreement, or providing for the
vesting or accrual of benefits or rights upon a "change of control" or otherwise
as a result of the transactions contemplated by this Agreement;
(g) any agreement with respect to (i) the acquisition of any bank, bank
branch or other assets or stock of another financial institution or any other
Person or (ii) the sale of one or more bank branches;
(h) any outstanding interest rate exchange or other derivative
contracts; or
(i) any buy back, recourse or guaranty obligation with respect to
participation loans sold by the Company or any Subsidiary which create
contingent or direct liabilities of the Company or any of its Subsidiaries.
Section 5.14 Material Contract Defaults. Except as set forth in Section
5.14 of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is, or has received any notice or has any knowledge that any party
is, in breach, violation or default in any respect under any contract,
agreement, commitment, arrangement, lease, insurance policy or other instrument
to which the Company or any of its Subsidiaries is a party or by which the
Company or
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any of its Subsidiaries or the assets, business or operations thereof may be
bound or affected or under which it or its respective assets, business or
operations receives benefits, except for those breaches, violations or defaults
which would not have, individually or in the aggregate, a Company Material
Adverse Effect; and there has not occurred any event that with the lapse of time
or the giving of notice or both would constitute such a default.
Section 5.15 Legal Proceedings. Except as set forth in Section 5.15 of
the Company Disclosure Schedule, there are no claims or charges filed with, or
proceedings or investigations by, Regulatory Authorities or actions or suits
instituted or pending or, to the knowledge of the Company's management,
threatened against the Company or any of its Subsidiaries, or against any
property, asset, interest or right of any of them, that might reasonably be
expected to result in a judgment in excess of $10,000 or that might reasonably
be expected to threaten or impede the consummation of the transactions
contemplated by this Agreement. Neither the Company nor any of its Subsidiaries
is a party to any agreement or instrument or is subject to any charter or other
corporate restriction or any Law or Order that, individually or in the
aggregate, might reasonably be expected to have a Company Material Adverse
Effect or might reasonably be expected to threaten or impede the consummation of
the transactions contemplated by this Agreement.
Section 5.16 Absence of Certain Changes or Events.
(a) Since January 1, 1997, except (i) as disclosed in any Regulatory
Reporting Document filed since January 1, 1997 and prior to the date hereof or
(ii) as set forth in Section 5.16 of the Company Disclosure Schedule, neither
the Company nor any of its Subsidiaries has (A) incurred any liability which has
had a Company Material Adverse Effect, (B) suffered any change in its Condition
which would have a Company Material Adverse Effect, other than changes after the
date hereof which affect the banking industry as a whole, (C) failed to operate
its business, in all material respects, in the ordinary course consistent with
past practice and prudent banking practices or (D) changed any accounting
practices.
(b) Except as set forth in Section 5.16 of the Company Disclosure
Schedule, since December 31, 2000, neither the Company nor any of its
Subsidiaries has:
(i) entered into any agreement, commitment or transaction
other than in the ordinary course of business consistent with prudent
banking practices;
(ii) incurred, assumed or become subject to, whether directly
or by way of any guaranty or otherwise, any obligations or liabilities
(absolute, accrued, contingent or otherwise) other than in the ordinary
course of business and consistent with prudent banking practices;
(iii) permitted or allowed any of its property or assets to
become subject to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind (other than Permitted
Liens) other than in the ordinary course of business and consistent
with prudent banking practices;
(iv) except in the ordinary course of business consistent with
prudent banking practices, canceled any debts, waived any claims or
rights, or sold, transferred or otherwise disposed of any its
properties or assets;
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(v) except for regular salary increases granted in the
ordinary course of business consistent with prior practice, granted any
increase in compensation or paid or agreed to pay or accrue any bonus,
percentage compensation, service award, severance payment or like
benefit to or for the credit of any director, officer, employee or
agent, or entered into any employment or consulting contract or other
agreement with any director, officer or employee or adopted, amended or
terminated any Company Benefit Plan;
(vi) directly or indirectly declared, set aside or paid any
dividend or made any distribution in respect with capital stock, or
redeemed, purchased or otherwise acquired any shares of its capital
stock or other of its securities, except for dividends paid to the
Company by its Subsidiaries;
(vii) organized or acquired any capital stock or any other
equity securities or acquired any equity or ownership interest in any
Person (except for settlement of indebtedness, foreclosure or the
exercise of creditors' remedies or in a fiduciary capacity, the
ownership of which does not expose the Company or its Subsidiaries to
any liability from the business, operations or liabilities of such
Person);
(viii) except for the transactions contemplated by this
Agreement or as otherwise permitted hereunder, entered into any
transaction, or entered into, modified or amended any contract or
commitment, other than in the ordinary course of business and
consistent with prudent banking practices; or
(ix) agreed, whether in writing or otherwise, to take any
action the performance of which would change the representations
contained in this Section 5.16(b) in the future so that any such
representation would not be true in all material respects as of the
Closing.
Section 5.17 Reports. Except as set forth in Section 5.17 of the
Company Disclosure Schedule, since January 1, 1997, the Company and each of its
Subsidiaries have filed on a timely basis all reports and statements, together
with all amendments required to be made with respect thereto (collectively
"Reports"), that they were required to file with any Regulatory Authority. No
Regulatory Reporting Document with respect to periods beginning on or after
January 1, 1997, contained any information that was false or misleading with
respect to any material fact or omitted to state any material fact necessary in
order to make the statements therein not misleading.
Section 5.18 Insurance. The Company and each of its Subsidiaries are
presently insured, and during each of the past four calendar years have been
insured, for reasonable amounts against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured. To the knowledge of the Company's management, the policies of fire,
theft, liability (including directors and officers liability insurance) and
other insurance set forth in Section 5.18 of the Company Disclosure Schedule and
maintained with respect to the assets or businesses of the Company and its
Subsidiaries provide adequate coverage against all pending or threatened claims,
and the fidelity bonds in effect as to which any of the Company or any of its
Subsidiaries is a named insured are sufficient for their purpose. Except as set
forth in Section 5.18 of the Company Disclosure Schedule, there have been no
claims under such fidelity bonds within the last four calendar years and neither
the Company nor its Subsidiaries have knowledge of any facts which would form
the basis of a claim under such bonds.
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Section 5.19 Labor. No material work stoppage involving the Company or
its Subsidiaries is pending or, to the knowledge of the Company's management,
threatened. Neither the Company nor any of its Subsidiaries is involved in, or,
to the knowledge of the Company's management, threatened with or affected by,
any labor or other employment-related dispute, arbitration, lawsuit or
administrative proceeding. Employees of the Company and its Subsidiaries are not
represented by any labor union, and, to the knowledge of the Company's
management, no labor union is attempting to organize employees of the Company or
any of its Subsidiaries.
Section 5.20 Material Interests of Certain Persons. Except as set forth
in Section 5.20 of the Company Disclosure Schedule, no officer or director of
the Company, or any "associate" (as such term is defined in Rule 14a-1 under the
Exchange Act) of any such officer or director, has any interest in any contract
or property (real or personal), tangible or intangible, used in or pertaining to
the business of the Company or any of its Subsidiaries.
Section 5.21 Registration Obligations. Neither the Company nor any of
its Subsidiaries is under any obligation, contingent or otherwise, presently in
effect or which will survive the Merger by reason of any agreement to register
any of its securities under the Securities Act.
Section 5.22 Brokers and Finders. Except as set forth in Section 5.22
of the Company Disclosure Schedule (which shall identify the broker or finder
and amount of compensation payable), neither the Company nor any of its
Subsidiaries nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder's fees, and no other broker
or finder has acted directly or indirectly for the Company or any of its
Subsidiaries in connection with this Agreement or the transactions contemplated
hereby. To the extent identified in Section 5.22 of the Company Disclosure
Schedule, the fee payable by the Company to any such broker or finder shall be
calculated on an hourly basis (as set forth in Section 5.22 of the Company
Disclosure Schedule) and shall not be determined or based, in any manner, upon
the amount of the Merger Consideration.
Section 5.23 State Takeover Laws. The transactions contemplated by this
Agreement are exempt from any applicable charter or contractual provision
containing change of control or anti-takeover provisions and, to the knowledge
of the Company, from any applicable state takeover law.
Section 5.24 Environmental Matters. Except as set forth in Section 5.24
of the Company Disclosure Schedule:
(a) To the knowledge of the Company or any of its Subsidiaries, after
due inquiry, the Company, its Subsidiaries and any Property (as herein defined)
owned or operated by any of them have been and are in compliance with all
applicable Environmental Laws. There is no present event, condition or
circumstance, or to the knowledge of the Company or any Subsidiary, any past
event, condition or circumstance (i) that could interfere with the conduct of
the business of the Company or its Subsidiaries in any manner now conducted
relating to such entities' compliance with Environmental Laws, (ii) that could
constitute a violation of, or serve as the basis of liability pursuant to, any
Environmental Law, or (iii) relating to the compliance with any Environmental
Law which would have a Company Material Adverse Effect.
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(b) The Company, its Subsidiaries and its Properties have not been, and
are not now subject to any actual or, to the knowledge of the Company or any
Subsidiary, potential or threatened claim or proceeding pursuant to any
Environmental Law and neither the Company nor any Subsidiary have received any
notice from any Person of any actual or alleged violation, or liability pursuant
to, any Environmental Law.
(c) There is no Controlled Property (as herein defined) for which the
Company or any Subsidiary is, or to its knowledge was, required to obtain any
permit, license or authorization under any Environmental Law.
(d) Neither the Company nor any Subsidiary has generated any Hazardous
Substances for which it was required under any Environmental Law to execute any
Hazardous Disposal Manifest.
(e) To the knowledge of the Company or any of its Subsidiaries, after
due inquiry, there are no underground or above ground storage tanks on or under
any Property nor any Hazardous Substances (at, in, on, under or emanating from
any Property) in any quantity or concentration exceeding any standard or limit
established pursuant to applicable Environmental Law.
(f) To the knowledge of the Company or any Subsidiary, there is no
asbestos containing material ("ACM") present in any Controlled Property except
non-friable ACM which can be managed in place in compliance with Environmental
Law without air monitoring, removal or encapsulation which is managed under and
in compliance with an operations and maintenance program.
(g) For purposes of this Section 5.24, "Property" includes (i) any
property (whether real or personal) which the Company or any of its Subsidiaries
currently or in the past has leased, operated, owned or managed in any manner
including, without limitation, any property acquired by foreclosure or deed in
lieu thereof (a "Controlled Property") and (ii) property now held as security
for a loan or other indebtedness by the Company or any of its Subsidiaries or
property currently proposed as security for loans or other credit the Company or
any of its Subsidiaries is currently evaluating to extend or has committed to
extend ("Collateral Property"). With respect to any Collateral Property, the
representations of this Section 5.24 shall be limited to the knowledge of the
Company and its Subsidiaries. With respect to any past conditions, events, facts
or circumstances concerning any Controlled Property which conditions, events,
facts or circumstances existed or occurred prior to the earliest date of any
leasehold interest, operation, ownership or management of such Controlled
Property by the Company or any of its Subsidiaries, the representations of this
Section 5.24 shall be limited to the knowledge of the Company and its
Subsidiaries.
Section 5.25 Loans. Each loan reflected as an asset in the Financial
Statements is the legal, valid and binding obligation of the obligor of each
loan, enforceable in accordance with its terms, subject to the Remedies
Exception; provided, however, that no representation or warranty is made as to
the collectability of such loans. The Company's Subsidiaries do not have in
their portfolios any loan exceeding their legal lending limit, and except as
disclosed in Section 5.25 of
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the Company Disclosure Schedule, to the knowledge of the Company and its
Subsidiaries, there are no significant delinquent, substandard, doubtful, loss,
nonperforming or problem loans.
Section 5.26 Fiduciary Responsibilities. The Company and its
Subsidiaries have performed in all material respects all of their respective
duties as a trustee, custodian, guardian or as an escrow agent in a manner which
complies in all respects with all applicable laws, regulations, orders,
agreements, instruments and common law standards.
Section 5.27 Patents, Trademarks and Copyrights.
(a) Except as set forth in Section 5.27 of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries require the use of any
material patent, patent application, trademark (whether registered or
unregistered), trademark application, trade name, service ▇▇▇▇, copyright, or
material trade secret for the business or operations of the Company or its
Subsidiaries. The Company and/or its Subsidiaries own or are licensed or
otherwise have the right to use the items listed in Section 5.27 of the Company
Disclosure Schedule.
(b) The Company and/or its Subsidiaries own all right, title and
interest in and to, or hold valid licenses or sub-licenses to use, all of the
computer software used by the Company and/or its Subsidiaries in their
respective operations, free and clear of any liens, claims or encumbrances of
any kind or nature (excluding the rights of the owner or licensor in the case of
software licensed or sub-licensed by the Company and/or its Subsidiaries from
others). Except as specified on in Section 5.27 of the Company Disclosure
Schedule, all computer software owned by the Company or its Subsidiaries was
developed by the Company or the respective Subsidiary entirely through its own
efforts and for its own account. The use by the Company and/or its Subsidiaries
of computer software licensed to the Company from third parties (including the
sublicensing of such licensed software to customers) does not violate the terms
of the respective license agreements with respect to such licensed software.
(c) No director, officer or employee of the Company or any Subsidiary
owns, directly or indirectly, in whole or in part, any computer software or
other intellectual property right which the Company is using or which is
necessary for the business of the Company or any Subsidiary as now conducted.
Section 5.28 Company Action. The Company Board, at a meeting duly
called and held on February 28, 2001, unanimously (i) determined, based upon
such factors as the Company Board considered material and the opinion of The
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Company, Inc., its financial advisor, that the Merger is fair
to and in the best interests of the Company and its shareholders, (ii) approved
this Agreement and the Merger in accordance with the TBCA, (iii) resolved to
recommend approval and adoption of this Agreement and the Merger and the other
transactions contemplated hereby by the Company's shareholders and (iv) directed
that this Agreement and the Merger be submitted to the Company's shareholders
for approval.
Section 5.29 Dissenting Shareholders. The Company and its Subsidiaries
have no knowledge of any plan or intention on the part of any Company
shareholder to exercise any appraisal rights under the TBCA or otherwise make
written demand for payment of the fair value of any Company Common Stock in the
manner provided in the TBCA.
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Section 5.30 Pooling of Interests.
(a) All information, documents, and statements provided by the Company
through Deloitte & Touche, LLP for purposes of delivery of a letter to Sterling
confirming the availability of pooling-of-interest accounting for the Merger
were true, correct and complete to the knowledge of the Company.
(b) Neither the Company nor any of its Subsidiaries has taken or agreed
to take any action that would prevent Sterling from accounting for the business
combination to be affected by the Merger as a pooling-of-interest.
Section 5.31 Company Indebtedness. The Company has delivered to
Sterling true and complete copies of all loan documents (the "Company Loan
Documents") related to all Company Indebtedness and any indebtedness of the Bank
and the Company's other Subsidiaries, other than deposits, and made available to
Sterling all material correspondence concerning the status of such indebtedness.
Section 5.32 Statements True and Correct. None of the information
supplied or to be supplied by the Company for inclusion in the registration
statement on Form S-4, or other appropriate form, to be filed with the SEC by
Sterling under the Securities Act in connection with the transactions
contemplated by this Agreement (the "Registration Statement"), or the proxy
statement to be used by the Company to solicit any required approval of its
shareholders as contemplated by this Agreement (the "Proxy Statement") will, in
the case of the Proxy Statement, when it is first mailed to the shareholders of
the Company, contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made therein, in
light of the circumstances under which such statements are made, not misleading,
or, in the case of the Registration Statement, when it becomes effective or at
the Effective Time, be false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements
therein not misleading, or, in the case of the Proxy Statement or any amendment
thereof or supplement thereto, at the time of the meeting of the shareholders of
the Company to be held pursuant to Section 8.03 of this Agreement, including any
adjournments thereof (the "Company Shareholders' Meeting"), be false or
misleading with respect to any material fact or omit to state any material fact
necessary to correct any statement or remedy any omission in any earlier
communication with respect to the solicitation of any proxy for the Company
Shareholders' Meeting. The Proxy Statement, insofar as it relates to information
supplied by the Company for inclusion therein, will comply as to form in all
material respects with the applicable provisions of the Securities Laws. All
documents that the Company is responsible for filing with any Regulatory
Authority in connection with the transactions contemplated hereby will comply as
to form in all material respects with the provisions of applicable law. The
information which is deemed to be set forth in the Company Disclosure Schedule
by the Company for the purposes of this Agreement is true and accurate in all
material respects.
Section 5.33 Representations Not Misleading. No representation or
warranty by the Company in this Agreement, nor any statement, summary, exhibit
or schedule furnished to Sterling by the Company or any of its Subsidiaries
under and pursuant to this Agreement contains or will contain any untrue
statement or material fact or omit to state a material fact necessary to make
the
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statements contained herein or therein, in light of the circumstances in which
they are made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF STERLING
Sterling represents and warrants to the Company as follows:
Section 6.01 Organization, Standing and Authority.
(a) Sterling is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas. Sterling is duly qualified
to do business and in good standing in all jurisdictions where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and in which the failure to be duly qualified would have a material
adverse effect on the Condition of Sterling and its Subsidiaries taken as a
whole or on the ability of Sterling or the Merger Sub to consummate the
transactions contemplated hereby (a "Sterling Material Adverse Effect").
Sterling has all requisite corporate power and authority to carry on its
business as now conducted and to own, lease and operate its assets, properties
and business, and to execute and deliver this Agreement and perform the terms of
this Agreement. Sterling is duly registered as a bank holding company under the
BHCA. Sterling has in effect all Authorizations necessary for it to own or lease
its properties and assets and to carry on its business as now conducted, except
for those Authorizations the absence of which, either individually or in the
aggregate, would not have a Sterling Material Adverse Effect.
Section 6.02 Sterling Capital Stock.
(a) The authorized capital stock of Sterling consists of 50,000,000
shares of Sterling Common Stock and 1,000,000 shares of preferred stock, par
value $1.00 per share, issuable in series. As of the date hereof, there were
outstanding approximately 26,269,949 shares of Sterling Common Stock, 1,000
shares of Series F Convertible Preferred Stock and 39,000 shares of Series H
Convertible Preferred Stock and no other shares of capital stock of any class.
(b) At the Effective Time, the shares of Sterling Common Stock issued
pursuant to the Merger will be duly authorized, validly issued, fully paid and
nonassessable, and not issued in violation of any preemptive rights.
Section 6.03 Authorization of Merger and Related Transactions.
(a) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action in respect thereof on the part of Sterling, to
the extent required by applicable law. This Agreement represents a valid and
legally binding obligation of Sterling, enforceable against Sterling in
accordance with its terms except as such enforcement may be limited by the
Remedies Exception.
(b) Neither the execution and delivery of this Agreement by Sterling,
the consummation by Sterling of the transactions contemplated hereby nor
compliance by Sterling
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with any of the provisions hereof will (i) conflict with or result in a breach
of any provision of Sterling's Articles of Incorporation or bylaws, (ii)
constitute or result in a breach or violation of any term, condition or
provision of, or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any Lien upon any property or assets of Sterling pursuant to any
note, bond, mortgage, indenture, license, agreement, lease or other instrument
or obligation to which it is a party or by which it or any of its properties or
assets may be subject, and that would, individually or in the aggregate, have a
Sterling Material Adverse Effect or (iii) subject to receipt of the requisite
approvals referred to in Section 9.01(b) of this Agreement, violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Sterling or
any of its properties or assets.
Section 6.04 Financial Statements. Sterling has delivered to the
Company copies of the audited consolidated balance sheets and the related
audited consolidated statements of income, consolidated statements of
shareholders' equity and consolidated statements of cash flows (including
related notes and schedules) of Sterling and its consolidated Subsidiaries as of
and for the periods ended December 31, 1998 and December 31, 1999, and its
unaudited consolidated balance sheet at September 30, 2000, and the related
unaudited consolidated statements of income, shareholders' equity and cash flows
for the nine months then ended and included in its annual report filed on Form
10-K for the year ended December 31, 1999 and its quarterly report filed on Form
10-Q for the quarter ended September 30, 2000, respectively, filed by Sterling
pursuant to the Exchange Act and the rules and regulations of the SEC
promulgated thereunder (collectively, the "Sterling Financial Statements") and
the press release containing unaudited financial information for the year ended
December 31, 2000. The Sterling Financial Statements (as of the dates thereof
and for the periods covered thereby) (A) are in accordance with the books and
records of Sterling and its consolidated Subsidiaries, which are complete and
accurate in all material respects and; which have been maintained in accordance
with good business practices, and (B) present fairly the consolidated financial
position and the consolidated statements of income, changes in shareholders'
equity and cash flows of Sterling and its Subsidiaries as of the dates and for
the periods indicated, in accordance with GAAP, subject in the case of unaudited
interim financial statements to normal recurring year-end adjustments and except
for the absence of certain footnote information in the unaudited interim
financial statements.
Section 6.05 Sterling SEC Reports. Since January 1, 1997, Sterling has
filed on a timely basis all reports and statements, together with all amendments
required to be made with respect thereto, that as an issuer it is required to
file with the SEC pursuant to the Exchange Act (the "Sterling SEC Reports").
Such Sterling SEC Reports did not, as of their respective dates (or if amended
by a filing prior to the date hereof, then as of the date of such amendment)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent superseded by a Sterling SEC Report filed
subsequently and prior to the date hereof.
Section 6.06 Regulatory Matters. Neither Sterling nor any of its
Subsidiaries has taken or agreed to take any action or has any knowledge of any
fact or circumstance that would materially impede or delay receipt of any
approval referred to in Section 9.01(b).
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Section 6.07 Legal Proceedings. There are no claims or charges filed
with, or proceedings or investigations by, Regulatory Authorities or actions or
suits instituted or pending or, to the knowledge of Sterling's management,
threatened against Sterling or any of its Subsidiaries, or against any property,
asset, interest or right of any of them, that might reasonably be expected to
threaten or impede the consummation of the transactions contemplated by this
Agreement. Neither Sterling nor any of its Subsidiaries is a party to any
agreement or instrument or is subject to any charter or other corporate
restriction or any Law or Order that, individually or in the aggregate, might
reasonably be expected to have a Sterling Material Adverse Effect or might
reasonably be expected to threaten or impede the consummation of the
transactions contemplated by this Agreement.
Section 6.08 Compliance with Laws.
(a) Each of Sterling and its Subsidiaries is in compliance with all
laws, rules, regulations, policies, guidelines, reporting and licensing
requirements and orders applicable to this business or to its employees
conducting its business, and with its internal policies and procedures, except
for failures to comply which would not reasonably be expected to cause or result
in a material adverse effect on Sterling or its Subsidiaries, taken as a whole.
(b) Since January 1, 1997, neither Sterling nor any of its Subsidiaries
has received or been a party to any Regulatory Agreement. Neither Sterling nor
any of its Subsidiaries has received or been made aware of any complaints or
inquiries under the Community Reinvestment Act, the Fair Housing Act, the Equal
Credit Opportunity Act or any other state or federal anti-discrimination fair
lending law and, to the knowledge of Sterling and its Subsidiaries, there is no
fact or circumstance that would form the basis of any such complaint or inquiry.
(c) Neither Sterling nor any of its Subsidiaries is required by Section
32 of the Federal Deposit Insurance Act to give prior notice to a federal
banking agency of the proposed addition of an individual to its Board of
Directors or the employment of an individual as a senior executive officer.
Section 6.09 Sterling Employee Benefit Plans. For purposes of this
Section 6.09, the term "Sterling Plan" means all employee benefit plans as
defined in Section 3(3) of ERISA, to which Sterling contributes, sponsors, or
otherwise has any obligations.
(a) No Sterling Plan is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
(b) Each Sterling Plan is and has been in all material respects
operated and administered in accordance with its provisions and applicable law,
including, if applicable, ERISA and the Code, except to the extent any such
failure would not reasonably be expected to cause or result in a material
adverse effect on Sterling or its Subsidiaries, taken as a whole.
(c) Each Sterling Plan intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the Internal Revenue
Service stating that the Sterling Plan is tax qualified under Section 401(a) of
the Code and, except for matters that may be remedied without liability or that
would not reasonably be expected to result in a material adverse effect on
Sterling or its Subsidiaries, taken as a whole, Sterling knows of no event since
the date of
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such determination letter that would result in any such Sterling Plan not being
qualified within the meaning of Section 401(a) of the Code or any such related
Sterling Plan trust not being exempt from taxation under Section 501(a) of the
Code.
(d) All contributions, premium payments and other payments required to
be made in connection with the Sterling Plans as of the date of this Agreement
have been made, except to the extent any such failure would not reasonably be
expected to cause or result in a material adverse effect on Sterling or its
Subsidiaries, taken as a whole.
(e) No Sterling Plan is subject to Title IV of ERISA, Section 301 or
ERISA or Section 412 of the Code.
Section 6.10 Representations Not Misleading. No representation or
warranty by Sterling in this Agreement, nor any statement, summary, exhibit or
schedule furnished to the Company by Sterling or any of its Subsidiaries under
and pursuant to this Agreement contains or will contain any untrue statement or
material fact or omit to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading.
Section 6.11 Statements True and Correct. None of the information
supplied or to be supplied by Sterling for inclusion in the Registration
Statement or the Proxy Statement will, in the case of the Proxy Statement, when
it is first mailed to the shareholders of the Company, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which such statements are made, not misleading or, in the case of the
Registration Statement, when it becomes effective or at the Effective Time, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading,
or, in the case of the Proxy Statement or any amendment thereof or supplement
thereto, at the time of the Company Shareholders' Meeting, be false or
misleading with respect to any material fact or omit to state any material fact
necessary to correct any statement or remedy any omission in any earlier
communication with respect to the solicitation of any proxy for the Company
Shareholders' Meeting. All documents that Sterling is responsible for filing
with any Regulatory Authority in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable law, including applicable provisions of the Securities Laws.
Section 6.12 Brokers and Finders. Neither Sterling nor any of its
Subsidiaries nor any of their respective officers, directors or employees has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder's fees and no broker or
finder has acted directly or indirectly for Sterling or any of its Subsidiaries
in connection with this Agreement or the transactions contemplated hereby.
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ARTICLE VII
CONDUCT OF THE COMPANY'S BUSINESS
Section 7.01 Conduct of Business Prior to the Effective Time. During
the period from the date of this Agreement until the earlier of the Effective
Time or the termination of this Agreement, and except as otherwise contemplated
by this Agreement, the Company shall, and shall cause each of its Subsidiaries
to:
(i) operate and conduct its business in the usual, regular and
ordinary course, consistent with past practice and prudent banking
practices;
(ii) preserve intact the Company's and each of its
Subsidiaries' corporate existence, business organization, assets,
licenses, permits, authorizations, and business opportunities;
(iii) comply with all material contractual obligations
applicable to business operations of the Company and/or its
Subsidiaries;
(iv) maintain all of its properties and assets in good repair,
order and condition, reasonable wear and tear excepted, and maintain
the insurance coverages described in Section 5.18 or obtain comparable
insurance coverages from reputable insurers, which, in respect to
amounts, types and risks insured, are adequate for the business
conducted by the Company and its Subsidiaries and consistent with the
existing insurance coverages;
(v) in good faith and in a reasonable manner (a) cooperate
with Sterling in satisfying the conditions in this Agreement, (b)
assist Sterling in obtaining as promptly as possible all consents,
approvals, authorizations and rulings, whether regulatory, corporate or
otherwise, as are necessary to carry out and consummate the
transactions contemplated by this Agreement, (c) upon the written
request of Sterling, furnish information concerning the Company and its
Subsidiaries not previously provided to Sterling required for inclusion
in any filings or applications that may be necessary in that regard,
and (d) perform all acts and execute and deliver all documents
necessary to cause the transactions contemplated by this Agreement to
be consummated at the earliest date that is reasonably possible;
(vi) timely file all Reports required to be so filed by the
Company or any of its Subsidiaries with any Regulatory Authority and to
the extent permitted by applicable law, promptly thereafter deliver to
Sterling copies of all such Reports required to be so filed;
(vii) comply in all material respects with all applicable laws
and regulations, domestic and foreign;
(viii) promptly notify Sterling upon obtaining knowledge of
any default, event of default or condition with which the passage of
time or giving of notice would constitute a default or an event of
default under the Company Loan Documents and promptly notify and
provide copies to Sterling of any material written communications
concerning the Company Loan Documents;
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(ix) within thirty (30) days after the execution of this
Agreement, the Company shall obtain from the Company's accountants and
deliver to Sterling a letter stating that the Company is eligible to
participate in a pooling-of-interests transaction (the "Pooling
Letter");
(x) promptly give written notice to Sterling upon the
Company's obtaining knowledge of any event or fact that would cause any
of the representations or warranties of the Company contained in this
Agreement to be untrue or misleading in any material respect or which
would otherwise cause a Company Material Adverse Effect; and
(xi) use its best efforts to maintain current customer
relationship and preserve intact its business organization, employees,
advantageous business relationships and retain the services of its
officers and Employees.
Section 7.02 Forbearances. During the period from the date of this
Agreement to the earlier of the Effective Time or the termination of this
Agreement, the Company shall not, and shall not permit any of its Subsidiaries
to, without the prior written consent of Sterling (and the Company shall provide
Sterling with prompt notice of any events referred to in this Section 7.02
occurring after the date hereof):
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than short-term
indebtedness incurred to refinance short-term indebtedness and indebtedness of
the Company or any of its Subsidiaries to the Company or any of its
Subsidiaries; it being understood and agreed that incurrence of indebtedness in
the ordinary course of business shall include, without limitation, the creation
of deposit liabilities, purchases of federal funds, and sales of certificates of
deposit), assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other Person, or make any loan or advance
other than in the ordinary course of business consistent with past practice and
prudent banking practices;
(b) adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend or make any other distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, grant any stock options or stock awards, or grant
any Person any right to acquire any shares of its capital stock; or issue any
additional shares of capital stock (except upon exercise and conversion of
Company Options, as provided in Section 3.03 and Section 8.06), or any
securities or obligations convertible into or exchangeable for any shares of its
capital stock;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties or assets to any Person, or cancel, release or assign any
indebtedness to such Person or any claims held by any such Person, except in the
ordinary course of business consistent with past practice and prudent banking
practices or pursuant to contracts or agreements in force at the date of this
Agreement;
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(d) make any material investment (other than trades in investment
securities in the ordinary course) either by purchase of stock or securities,
contributions to capital, property transfers, or purchase of any property or
assets of any other Person;
(e) enter into, terminate or fail to exercise any material right under,
any contract or agreement involving annual payments in excess of $10,000 and
which cannot be terminated without penalty upon 30 days' notice, or make any
change in, or extension of (other than automatic extensions) any of its leases
or contracts involving annual payments in excess of $10,000 and which cannot be
terminated without penalty upon 30 days' notice;
(f) modify the terms of any Company Benefit Plan (including any
severance pay plan) or increase or modify in any manner the compensation or
fringe benefits of any of its Employees or pay any pension or retirement
allowance not required by any existing plan or agreement to any such Employees,
or become a party to, amend or commit itself to any pension, retirement,
profit-sharing or welfare benefit plan or agreement or employment agreement with
or for the benefit of any Employee other than routine adjustments in
compensation and fringe benefits in the ordinary course of business consistent
with past practice or accelerate the vesting of any stock options or other
stock-based compensation;
(g) settle any claim, action or proceeding involving the payment of
money damages in excess of $10,000;
(h) amend its Articles of Incorporation or its bylaws;
(i) fail to maintain its Regulatory Agreements (except for such
existing matters as disclosed in Section 5.11 of the Company Disclosure
Schedule), material Authorizations or to file in a timely fashion all federal,
state, local and foreign Tax Returns;
(j) make any capital expenditures of more than $10,000 individually or
$50,000 in the aggregate;
(k) fail to maintain or administer each Company Benefit Plan in
accordance with applicable Law or timely make all contributions or accruals
required thereunder in accordance with GAAP;
(l) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue at any time prior to the Effective Time, or in any of
the conditions to the Merger set forth in Article IX not being satisfied or in a
violation of any provision of this Agreement, except, in every case, as may be
required by applicable law;
(m) change any methods or policies of accounting from those used in the
Company Financial Statements;
(n) take or cause or permit to be taken any action, whether before or
after the Effective Time, which would disqualify the Merger as a tax-free
reorganization within the meaning of Section 368 of the Code (subject to
required recognition of gain or loss with respect to cash paid for fractional
shares pursuant hereto);
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(o) take or cause or permit to be taken any action, whether before or
after the Effective Time which would disqualify the Merger from receiving
pooling-of-interest accounting treatment; or
(p) agree, or make any commitment, to take, in writing or otherwise,
any of the actions described in clauses (a) through (o) of this Section 7.02.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.01 Access and Information.
(a) During the period from the date of this Agreement through the
Effective Time:
(i) the Company shall, and shall cause its Subsidiaries to,
afford Sterling and its accountants, counsel and other representatives
full access during normal business hours to the properties, books,
contracts, Tax Returns, Reports, commitments and records of the Company
and its Subsidiaries at any time, and from time to time, for the
purpose of conducting any review or investigation reasonably related to
this Agreement or the Merger, and the Company and its Subsidiaries will
cooperate fully with all such reviews and investigations provided that
Sterling provides the Company with reasonable notice of Sterling's
on-site visits and that Sterling does not unreasonably interfere with
the business operations of the Company during the course of such
visits; and
(ii) Sterling shall upon reasonable notice make personnel and
copies of the Sterling SEC Reports and other information reasonably
related to Sterling's operations or financial performance available to
the Company and its advisors for purposes of any review or report to
the Company Board in evaluating the Merger.
(b) During the period from the date of this Agreement through the
Effective Time, the Company shall furnish to Sterling (i) all Reports which are
filed after the date hereof promptly upon the filing thereof, (ii) a copy of
each Tax Return filed by it after the date hereof, and (iii) monthly and other
interim financial statements in the form prepared by the Company for its
internal use. During this period, the Company shall notify Sterling promptly of
any material change in the Condition of the Company or any of its Subsidiaries.
(c) During the period from the date of this Agreement through the
Effective Time, the Company shall provide Sterling such additional information
as Sterling may request from time to time regarding the loans, credit facilities
and/or collateral therefor as may be specified by Sterling. The Company shall
also make available to Sterling its loan files, correspondence and other records
regarding any such specified loans, credit facilities and/or collateral.
(d) Notwithstanding the foregoing provisions of this Section 8.01, no
investigation by any party hereto made heretofore or hereafter shall affect the
representations and warranties of the other parties which are contained herein
and each such representation and warranty shall survive such investigation.
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(e) Sterling agrees that it will keep confidential any information
furnished to it by the Company in connection with the transactions contemplated
by this Agreement which is reasonably designated as confidential at the time of
delivery, except to the extent that such information (i) was already known to
Sterling and was received from a source other than the Company or any of its
Subsidiaries, directors, officers, employees or agents, (ii) thereafter was
lawfully obtained from another source or was publicly disclosed by the Company
or its agent or representative, or (iii) is required to be disclosed to any
Regulatory Authority, or is otherwise required to be disclosed by law. Sterling
agrees not to use such confidential information, and to implement safeguards and
procedures that are reasonably designed to prevent such confidential information
from being used, for any purpose other than in connection with the transactions
contemplated by this Agreement. Upon any termination of this Agreement, Sterling
will return to the Company or will destroy all documents furnished Sterling for
its review and all copies of such documents made by Sterling. The Company agrees
to keep confidential, in accordance with the provisions of this Section 8.01(e),
any information furnished to it by Sterling in connection with the transactions
contemplated by this Agreement that is reasonably designated as confidential at
the time of delivery. The Company agrees not to use any such confidential
information, and to implement safeguards and procedures that are reasonably
designed to prevent such confidential information from being used, for any
purpose other than in connection with the transactions contemplated by this
Agreement. Upon any termination of this Agreement, the Company will return to
Sterling or will destroy all documents containing any such confidential
information furnished to the Company for its review and all copies of such
documents made by the Company.
Section 8.02 Registration Statement and Proxy Statement.
(a) As promptly as practicable, Sterling and the Company shall
cooperate with each other and exercise their best efforts to prepare and file
with the SEC the Registration Statement, in which the Proxy Statement will be
included as a prospectus. The parties hereto agree to provide the information
necessary for inclusion in the Registration Statement and Proxy Statement. Each
of the parties will use its respective best efforts to have the Registration
Statement declared effective as promptly as practicable after it is filed.
(b) After the date of the filing of the Registration Statement with the
SEC, each of the parties agree promptly to notify the other and to correct any
information furnished by such party that shall have become false or misleading
in any material respect and to cooperate with the other to take all steps
necessary to file with the SEC and have declared effective or cleared by the SEC
any amendment or supplement to the Registration Statement so as to correct such
information and to cause the Proxy Statement as so corrected to be disseminated
to the Company's Shareholders.
(c) Sterling shall take all action required to be taken under any
applicable state Blue Sky or securities laws in connection with the issuance of
the Sterling Common Stock pursuant to this Agreement.
Section 8.03 Company Shareholder's Meeting. The Company, acting through
the Company Board, shall, in accordance with applicable law, duly call, give
notice of, convene and hold a special meeting of its shareholders as soon as
practicable for the purpose of approving and adopting this Agreement and
approving the Merger. The Company Shareholders' Meeting shall be held as soon as
practicable following the date upon which the Registration Statement becomes
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effective. Subject to the fiduciary duties of the Company Board under applicable
law as determined by such directors in good faith after consultation with and
based upon the advice of outside counsel, the Company shall include in the Proxy
Statement of the Company for use in connection with the Company Shareholders'
Meeting, the recommendation of the Company Board that the Company shareholders
vote in favor of the approval and adoption of the Merger, this Agreement and the
consummation of the transactions contemplated hereby. The Company agrees to use
its best efforts to obtain the approval and adoption of the Merger and this
Agreement by the Company shareholders. The Company (i) acknowledges that a
breach of its covenant contained in this Section 8.03 to convene a meeting of
its shareholders and call for a vote thereat with respect to the approval of
this Agreement, the Merger and the transactions contemplated hereby and thereby
will result in irreparable harm to Sterling which will not be compensable in
monetary damages and (ii) agrees that such covenant shall be specifically
enforceable and that specific performance and injunctive relief shall be a
remedy properly available to Sterling for a breach of such covenant.
Section 8.04 Filing of Regulatory Approvals. As soon as reasonably
practicable, Sterling and the Company shall file all notices and applications to
the applicable Regulatory Authorities which ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ necessary or
appropriate to complete the transaction contemplated herein, including the Bank
Merger. Sterling and the Company each agree to deliver to the other copies of
all non-confidential portions of any such applications. The Company shall
cooperate, and shall cause its Subsidiaries, accountants, counsel and other
representatives to cooperate, with Sterling and its accountants, counsel and
other representatives, in connection with the preparation by Sterling of any
applications and documents required to obtain the Approvals which cooperation
shall include providing all information, documents and appropriate
representations as may be necessary in connection therewith and, when requested
by Sterling, preparing and filing regulatory applications.
Section 8.05 Press Releases. Prior to the public dissemination of any
press release or other public disclosure of information about this Agreement,
the Merger or any other transaction contemplated hereby, the parties to this
Agreement shall mutually agree as to the form and substance of such release or
disclosure, except as otherwise provided by applicable law or by rules of the
Nasdaq.
Section 8.06 Company Options.
(a) As soon as practicable after the execution of this Agreement, the
Company shall notify each holder of a Company Option of the execution of this
Agreement and the terms and conditions contained herein requiring the exercise
of the Company Options. The Company shall use its best efforts to cause each
Company Option to either be (i) exercised into shares of Company Common Stock,
or (ii) terminated prior to the Effective Time as more specifically provided in
Section 3.03.
(b) With respect to any Company Options, the Company shall not permit
any holder of the Company Options to exercise such Company Option by any means
other than the payment of the exercise price thereof in cash, unless the Company
is contractually obligated to do so. With respect to any such holder, the
Company shall use its best efforts to encourage such holder to exercise such
Company Option by payment in cash.
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(c) The Company shall, in accordance with the terms thereof, cause all
Company Stock Plans (including, without limitation, the Company's Nonqualified
Stock Option Plan), to be terminated at and as of the Effective Time and without
further action by any party.
Section 8.07 Miscellaneous Agreements and Consents. Subject to the
terms and conditions of this Agreement, each of the parties hereto agrees to use
its respective commercially reasonable efforts to satisfy, or cause to be
satisfied, all conditions to their respective obligations under this Agreement
and to take, or cause to be taken, all action, and to do, or cause to be done,
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this Agreement
as expeditiously as reasonably practicable, including, without limitation, using
their respective commercially reasonable efforts to lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby. Sterling and
the Company shall, and shall cause each of their respective Subsidiaries to, use
their commercially reasonable efforts to obtain consents of all third parties
and Regulatory Authorities necessary or, in the reasonable opinion of Sterling
or the Company, desirable for the consummation of the transactions contemplated
by this Agreement including the Merger and the Bank Merger. While this Agreement
is in effect, neither Sterling nor the Company shall take any actions, or omit
to take any actions, which would cause this Agreement to become unenforceable in
accordance with its terms. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of Sterling shall be deemed to have
been granted authority in the name of the Company to take all such necessary or
desirable action.
Section 8.08 Affiliates Letters. Within thirty (30) days of the
execution of this Agreement, the Company shall deliver to Sterling a letter
identifying all persons who are then "affiliates" of the Company for purposes of
Rule 145 under the Securities Act. Within ten (10) days of any person becoming
an affiliate of the Company after the Company's delivery of the letter referred
to above, the Company shall provide to Sterling an updated letter identifying
all persons who are then "affiliates." The Company shall cause each person so
identified to deliver to Sterling prior to the Effective Time a written
agreement substantially in the form attached hereto as Annex B (an "Affiliate
Letter"). For a period of not less than two years after the date hereof (or such
shorter period of time as may be applicable for such "affiliates" to sell shares
of Sterling Common Stock in accordance with Rule 144 of the Securities Act),
Sterling will continue to file in a timely manner all securities reports
required to be filed by it pursuant to Section 13 and Section 15(d) of the
Exchange Act.
Section 8.09 Indemnification.
(a) Sterling shall indemnify, defend and hold harmless the directors,
officers, employees, and agents of the Company and its Subsidiaries (each, an
"Indemnified Party") against all losses, expenses (including reasonable
attorneys' fees), claims, damages or liabilities and amounts paid in settlement
arising out of actions or omissions or alleged acts or omissions occurring at or
prior to the Effective Time (including the transactions contemplated by this
Agreement) to the full extent permitted under the TBCA and by the Company's
Articles of Incorporation and bylaws as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of any
proceeding to the full extent permitted by the TBCA
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upon receipt of any undertaking required by the TBCA, except that the right to
indemnification shall not arise in those instances in which the party seeking
indemnification has participated in the breach of any covenant or agreement
contained herein or knowingly caused any representation or warranty of the
Company contained herein to be false or inaccurate in any respect and the claim
arises principally from such breach or the falsity or inaccuracy of such
representation or warranty. Without limiting the foregoing, in any case in which
a determination by Sterling is required to effectuate any indemnification,
Sterling shall direct, at the election of the Indemnified Party, that the
determination shall be made by independent counsel mutually agreed upon between
Sterling and the Indemnified Party.
(b) Sterling shall use its commercially reasonable efforts (and the
Company shall cooperate prior to the Effective Time in these efforts) to
maintain in effect for a period of four years after the Effective Time the
Company's existing directors' and officers' liability insurance policy (provided
that Sterling may substitute therefor (i) policies of at least the same coverage
and amounts containing terms and conditions which are substantially no less
advantageous in the aggregate or (ii) with the consent of the Company given
prior to the Effective Time, any other policy) with respect to claims arising
from facts or events which occurred prior to the Effective Time and covering
persons who are currently covered by such insurance; provided, however, that
Sterling shall not be obligated to make premium payments for such four-year
period in respect of such policy (or coverage replacing such policy) which
exceed, for the portion related to the Company's directors and officers, 100% of
the annual premium payments on the Company's current policy in effect as of the
date of this Agreement (the "Maximum Amount"). If the amount of the premiums
necessary to maintain or procure such insurance coverage exceeds the Maximum
Amount, Sterling shall use its commercially reasonable efforts to maintain the
most advantageous policies of directors' and officers' liability insurance
obtainable for a premium equal to the Maximum Amount.
(c) If Sterling shall consolidate with or merge into any other person
and shall not be the continuing or surviving person of such consolidation or
merger or shall transfer all or substantially all of its assets to any person,
then and in each case, proper provision shall be made so that the successors and
assigns of Sterling shall assume the obligations set forth in this Section 8.09.
(d) The provisions of this Section 8.09 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, and his or her
heirs and representatives.
(e) Sterling shall pay all expenses, including reasonable attorneys'
fees, that may be incurred by any Indemnified Party in successfully enforcing
the indemnity and other obligations provided for in this Section 8.09 if
Sterling has been finally determined to have acted in bad faith in refusing such
indemnity. The Indemnified Party shall pay all expenses, including reasonable
attorneys' fees, incurred by Sterling if the indemnification or other
obligations provided in this Section 8.09 are denied by a court of competent
jurisdiction by final and nonappealable order.
Section 8.10 Certain Change of Control Matters. From and after the date
hereof, the Company shall take all action necessary so that none of the
execution and delivery of this Agreement, the consummation of the Merger or the
consummation of the other transactions contemplated hereby will increase any
benefits otherwise payable under any Company Benefit Plan.
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Section 8.11 Employee Benefits. As soon as practicable following the
Effective Time, Sterling shall provide generally to officers and employees of
the Company and its Subsidiaries employee benefits, including without limitation
health and welfare benefits, life insurance and vacation arrangements, on terms
and conditions which when taken as a whole are substantially similar, in the
good faith opinion of Sterling, to those provided from time to time by Sterling
and its Subsidiaries to their similarly situated officers and employees. In that
regard, such officers and employees of the Company shall be credited under the
employee benefit plans of Sterling for their years of "eligibility service" and
"vesting service" earned under the Company Benefit Plans as if such service had
been earned with Sterling. Such officers and employees of the Company shall be
credited with "benefit service" under the employee benefit plans of Sterling
only with respect to their period of employment with Sterling and its
Subsidiaries after the Effective Time in accordance with the terms and
conditions of such employee benefit plans. As of the Effective Time, the
employees and their dependents, if any, previously covered as of the Effective
Time under the Company's health insurance plan shall be covered under Sterling's
health insurance plan and, to the extent possible under the terms of Sterling's
then current health insurance plan, will not be subject to any pre-existing
condition limitations or exclusions, except those excluded under Sterling's
health insurance plan. The Company's employees shall not be required to satisfy
the deductible and employee payments required by Sterling's comprehensive
medical and/or dental plans for the calendar year of the Effective Time to the
extent of amounts previously credited during such calendar year under comparable
plans maintained by the Company. Nothing in this Agreement shall operate or be
construed as requiring Sterling or any of its Subsidiaries to continue to
maintain or to terminate any Company Benefit Plan or any employee benefit plan
of Sterling or to limit in any way Sterling's ability to amend any such plan.
Section 8.12 Certain Actions. No party shall take any action which
would adversely affect or delay the ability of either Sterling or the Company to
obtain any necessary approvals of any Regulatory Authority or other governmental
authority required for the transactions contemplated hereby or to perform its
covenants and agreements under this Agreement.
Section 8.13 No Solicitation.
(a) Neither the Company nor any of its Subsidiaries shall, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to initiate, solicit,
encourage (including by way of furnishing information), or take any other action
to facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Acquisition Proposal (as defined
herein), or enter into or maintain or continue discussions or negotiate with any
person in furtherance of such inquiries or to obtain an Acquisition Proposal, or
agree to or endorse any Acquisition Proposal, and the Company shall notify
Sterling orally (within one business day) and in writing (as promptly as
practicable), in reasonable detail, as to any inquiries and proposals which it
or any of its Subsidiaries or any of their respective representatives or agents
may receive; provided, however, that (i) the Company may furnish or cause to be
furnished confidential and non-public information concerning the Company and its
businesses, properties or assets to a third party (subject to execution by such
third party of a confidentiality agreement containing confidentiality provisions
substantially similar to those of the letter agreement entered into between the
Company and Sterling dated January 17, 2001), (ii) following the execution of
such a confidentiality agreement, the Company may engage
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in discussions or negotiations with a third party executing such an agreement,
(iii) following receipt of an Acquisition Proposal, the Company may take and
disclose to its shareholders a position with respect to such Acquisition
Proposal, including, if such Acquisition Proposal is a tender offer, the Company
Board may take and disclose to the Company's shareholders a position
contemplated by Rule 14e-2 under the Exchange Act, and/or (iv) following receipt
of an Acquisition Proposal, the Company Board may withdraw or modify its
recommendation referred to in Section 5.28, but in each case referred to in the
foregoing clauses (i) through (iv) only to the extent that the Company Board
shall conclude in good faith (on the basis of advice from outside counsel) that
such action is required in order for the Company Board to satisfy its fiduciary
obligations under applicable law; provided, further, that the Company Board
shall not take any of the foregoing actions referred to in clauses (i) through
(iv) until after reasonable notice to and consultation with Sterling with
respect to such action and that the Company Board shall continue to consult with
Sterling after taking such action and, in addition, if the Company Board
receives an Acquisition Proposal or any request for confidential and non-public
information or for access to the properties, books or records of the Company or
any Subsidiary for the purpose of making, or in connection with, an Acquisition
Proposal, then the Company shall promptly inform Sterling as provided above of
the terms and conditions of such proposal or request and the identity of the
person making it. As used herein, the term "Acquisition Proposal" means: (x) any
proposal, inquiry or offer from any person relating to, or any agreement to
engage in, any acquisition or purchase of a significant amount of the assets of
the Company and its Subsidiaries on a consolidated basis, or any equity interest
in the Company or any of its Subsidiaries or any take-over bid or tender offer
(including an issuer bid or self-tender offer) or exchange offer, merger, plan
of arrangement, reorganization, consolidation, business combination, sale of
substantially all of the assets, sale of securities, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any of
its Subsidiaries (other than the transactions contemplated by this Agreement) or
any other transaction the consummation of which would or could reasonably be
expected to impede, interfere with, prevent or materially delay the consummation
of the Merger or which would or could reasonably be expected to materially
dilute the benefits to Sterling of the transactions contemplated hereby or (y)
any public announcement of, or written communication to the Company of, any
proposal, plan or intention to do any of the foregoing. The Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. "Acquisition Transaction" means the transaction(s) by
which an Acquisition Proposal is consummated. Nothing in this Section 8.13 shall
(A) permit the Company to terminate this Agreement or (B) permit the Company or
any of its Subsidiaries to enter into any written agreement with respect to an
Acquisition Proposal during the term of this Agreement (it being agreed that
during the term of this Agreement neither the Company nor any of its
Subsidiaries shall enter into any written agreement with any person that
provides for, or in any way facilitates, an Acquisition Proposal, other than a
confidentiality agreement in the form referred to above), it being understood
that Section 10.01 sets forth the rights of the Company to terminate this
Agreement.
(b) Without limiting the foregoing, it is understood that any violation
of the restrictions set forth in the first sentence of Section 8.13(a) by any
employee, officer or director or authorized employee, agent or representative of
the Company or any of its Subsidiaries (including, without limitation, any
investment banker, financial advisor, attorney or accountant or other
representative retained by the Company or any of its Subsidiaries) or otherwise
shall be deemed to be a breach of Section 8.13(a) by the Company.
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Section 8.14 Termination Fee. To compensate Sterling for entering into
this Agreement, taking actions to consummate the transactions contemplated
hereunder and incurring the costs and expenses related thereto and other losses
and expenses, including foregoing the pursuit of other opportunities by
Sterling, the Company and Sterling agree as follows:
(a) Provided that neither Sterling nor Merger Sub shall be in material
breach of its obligations under this Agreement (which breach has not been cured
promptly following receipt of written notice thereof by the Company specifying
in reasonable detail the basis of such alleged breach), the Company shall pay to
Sterling the sum of $2,000,000 (the "Termination Fee"), plus reasonable
out-of-pocket expenses, not in excess of $500,000 (including, without
limitation, amounts paid or payable to banks and investment bankers, fees and
expenses of counsel and printing expenses) (such expenses are hereinafter
referred to as the "Expenses") incurred by Sterling or any of its Affiliates in
connection with or arising out of the transactions contemplated by this
Agreement, regardless of when those expenses are incurred, if this Agreement is
terminated (i) by the Company under the provisions of Section 10.01(e), (ii) by
either Sterling or the Company under the provisions of Section 10.01(f) due to
the failure of the Company's shareholders to approve and adopt this Agreement
and the Merger, if at the time of such failure to so approve and adopt this
Agreement and the Merger there shall exist an Acquisition Proposal with respect
to the Company and, within nine months of the termination of this Agreement, the
Company enters into a definitive agreement with any third party with respect to
any Acquisition Proposal with respect to the Company or (iii) by Sterling under
the provisions of Section 10.01(g). Sterling shall provide the Company with an
itemization of Expenses.
(b) Any payment required by clauses (i) and (iii) of paragraph (a) of
this Section 8.14 shall become payable within two Business Days after
termination of this Agreement or, in the case of reimbursement to Sterling of
the Expenses, promptly after (but in no event later than three Business Days
following) delivery to the Company of the itemization of Expenses. Any payment
of the Termination Fee required by clause (ii) of paragraph (a) of this Section
8.14 shall become payable within two (2) Business Days of the Company's entry
into the definitive agreement referred to in clause (ii) provided, however, that
any payment of Expenses required by such clause (ii) shall be payable upon the
termination of this Agreement.
(c) The Company acknowledges that the agreements contained in this
Section 8.14 are an integral part of the transactions contemplated in this
Agreement, and that, without these agreements, Sterling would not enter into
this Agreement; accordingly, if the Company fails to promptly pay the
Termination Fee or Expenses when due, the Company shall in addition thereto pay
to Sterling all costs and expenses (including fees and disbursements of counsel)
incurred in collecting such Termination Fee or Expenses, as the case may be,
together with interest on the amount of the Termination Fee or Expenses (or any
unpaid portion thereof) from the date such payment was required to be made until
the date such payment is received by Sterling at the prime rate as reported in
The Wall Street Journal as in effect from time to time during such period.
Section 8.15 Accruals. At the request of Sterling, the Company shall,
consistent with GAAP, immediately prior to the Closing establish and take such
reserves and accruals as Sterling shall reasonably request; provided, however,
that no such adjustment shall constitute or deemed to be a breach, violation or
failure to satisfy any representation, warranty, covenant, condition or other
provision or constitute grounds for termination of this Agreement. No adjustment
shall
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require any prior filing with or approval from any governmental agency or
regulatory authority or violate any law, rule or regulation applicable to the
Company or any Subsidiary.
Section 8.16 Certain Agreements. Neither the Company nor any Subsidiary
(nor any of their agents or representatives) will waive any provision of any
confidentiality or standstill or similar agreement to which it is a party
without the prior written consent of Sterling, unless the Company Board or the
board of directors of such Subsidiary concludes in good faith (based upon advice
from outside counsel) that waiving such provision is necessary or appropriate in
order for such board of directors to act in a manner which is consistent with
its fiduciary obligations under applicable law. The Company will immediately
advise Sterling of the termination or waiver of any confidentiality or
standstill or similar agreement to which it is a party by the other party or
parties to such agreement.
Section 8.17 Release Agreements. The Company shall use its best
efforts, on behalf of Sterling and pursuant to the request of Sterling, to cause
each Person identified in Section 8.17 of the Company Disclosure Schedule to
execute and deliver to Sterling a written release and waiver satisfactory in
form and substance to Sterling in its sole discretion and in substantially the
form attached hereto as Annex C (the "Release Agreements") prior to the
Effective Time, providing for, among other things, the release of the Company,
Bank, Sterling and the Surviving Corporation and their respective affiliates
from any and all claims, known and unknown, that such Person has or may have
against any of the foregoing through the Effective Time.
Section 8.18 Financial Statements. No later than March 30, 2001, the
Company shall deliver to Sterling a copy of the audited consolidated balance
sheets and the related audited consolidated statements of income, shareholders'
equity and cash flows (including related notes and schedules) of the Company and
its consolidated subsidiaries for the periods ended December 31, 1999 and
December 31, 2000 (the "2000 Financial Statements"). The 2000 Financial
Statements shall be considered as part of the Company Financial Statements for
all purposes of this Agreement and upon delivery of the 2000 Financial
Statements, the Company shall provide a certificate signed by the chairman,
chief executive officer, president or other duly authorized officer of the
Company confirming the applicability and accuracy of the representations and
warranties contained in Section 5.05 as to the 2000 Financial Statements.
Section 8.19 NASDAQ Listing. Sterling shall use its commercially
reasonable efforts to have the shares of Sterling Common Stock to be issued to
the holders of the Company Common Stock in the Merger included for quotation on
the NASDAQ prior to the Effective Time.
Section 8.20 Post-Closing Actions. None of the parties shall take, or
permit any of their Subsidiaries or Affiliates to take, any action after the
Closing that would disqualify the Merger as a reorganization within the meaning
of Section 368(a) of the Code.
Section 8.21 Delivery of Company Disclosure Schedule.
(a) The parties acknowledge that this Agreement is being executed
without the Company having delivered to Sterling the Company Disclosure Schedule
required by this Agreement. The Company agrees to deliver the Company Disclosure
Schedule to Sterling as soon as possible following the execution of this
Agreement but in no event later than five business days
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following the date of this Agreement. Following delivery of the Company
Disclosure Schedule, the Company shall not have the right to amend the Company
Disclosure Schedule except in accordance with Section 8.23 below. For all
purposes of this Agreement, the representations and warranties of the Company
shall be deemed to be made on the date the Company delivers the Company
Disclosure Schedule to Sterling in accordance with this Section 8.21 rather than
on the date of this Agreement.
(b) Sterling shall have three business following the date of its
receipt of the Company Disclosure Schedule to review same. No later than three
business days following the date of Sterling's receipt of the Company Disclosure
Schedule, Sterling shall notify the Company whether (i) Sterling elects to
terminate this Agreement pursuant to Section 10.4, (ii) Sterling objects to
certain disclosures contained in the Company Disclosure Schedule, or (iii)
Sterling accepts the Company Disclosure Schedule. If Sterling objects to any
disclosure contained in the Company Disclosure Schedule, the Company shall,
within one business day of its receipt of such objection, notify Sterling
whether the Company will remedy such matter and delete such exception. If the
Company notifies Sterling that the Company is unwilling to delete such
disclosure item, Sterling shall have one additional business day after receipt
of such notification to either terminate this Agreement pursuant to Section 10.4
or accept such disclosure.
Section 8.22 Combined Report. Conditioned upon the Company's prompt
delivery of such financial information as may be requested by Sterling, Sterling
agrees to publish the combined financial results of Sterling and the Company
covering 30 days of post-combination operations without undue delay, but in no
event later than 30 days after the last day of the first full month of combined
operations of Sterling and the Company, and thereupon to notify the shareholders
of the Company who have been designated "affiliates" and have executed an
Affiliate Letter pursuant to Section 8.08 hereof, of the occurrence of the
publication of such results.
Section 8.23 Notification; Updated Disclosure Schedules. The Company
shall give prompt notice to Sterling, and Sterling shall give prompt notice to
the Company, of (i) any representation or warranty made by it in this Agreement
becoming untrue or inaccurate in any respect, including, without limitation, as
a result of any change in the Company Disclosure Schedule, or (ii) the failure
by it to comply with or satisfy in any material respect any covenant, condition
or agreement to be complied with or satisfied by it under this Agreement;
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
Section 8.24 Future Board Representation As soon as practicable after
the Effective Time, and subject to the Articles of Incorporation, as amended,
and bylaws of Sterling and Sterling Bank, Sterling shall increase the size of
its executive committee, and cause the size of the board of directors of
Sterling Bank to be increased, by one and shall appoint or nominate for election
to the vacancies created thereby H. ▇▇▇▇ ▇▇▇▇▇ to serve as a director of
Sterling Bank for the remaining term thereof.
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ARTICLE IX
CONDITIONS TO MERGER
Section 9.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger and the
other transactions contemplated hereby shall be subject to the fulfillment or
waiver at or prior to the Effective Time of the following conditions:
(a) The Company shareholders shall have approved and adopted all
matters relating to this Agreement, the Merger and the transactions contemplated
hereby and as required under the TBCA and the Company's Articles of
Incorporation at the Company Shareholders' Meeting.
(b) This Agreement, the Merger, the Bank Merger and the other
transactions contemplated hereby shall have been approved by the Federal Reserve
Board, the Commissioner, the FDIC and any other Regulatory Authorities whose
approval is required for consummation of the transactions contemplated hereby
and all applicable waiting periods shall have expired. No such approval or
consent shall be conditioned or restricted in any manner (including requirements
relating to the disposition of assets) which in the good faith judgment of
Sterling would so adversely impact the economic or business benefits of the
transactions contemplated by this Agreement that, had such condition or
restriction been known, it would not have entered into this Agreement.
(c) Neither Sterling, the Merger Sub nor the Company shall be subject
to any litigation which seeks any order, decree or injunction of a court or
agency of competent jurisdiction to enjoin or prohibit the consummation of the
Merger or the other transactions contemplated by this Agreement.
(d) The Registration Statement shall have been declared effective at
the Effective Time and no stop orders suspending such effectiveness shall have
been issued, no action, suit, proceeding or investigation by the SEC to suspend
such effectiveness shall have been initiated and be continuing, and all
necessary approvals under state's securities laws relating to the issuance or
trading of the Sterling Common Stock to be issued in the Merger shall have been
received. The shares of Sterling Common Stock issuable pursuant to the Merger
shall have been approved for listing on the NASDAQ.
(e) Deloitte & Touche LLP, independent public accountants for Sterling,
shall have delivered a letter, dated the Closing Date, addressed to Sterling, in
form and substance reasonably satisfactory to Sterling to the effect that the
Merger will qualify for pooling-of-interest accounting treatment if consummated
in accordance with this Agreement. Sterling shall have also received the Pooling
Letter from ▇▇▇▇▇▇, Donnelley & ▇▇▇▇▇▇▇▇▇, ▇.▇. contemplated by Section 7.01
above.
(f) ▇▇▇▇▇▇, Donnelley & ▇▇▇▇▇▇▇▇▇, ▇.▇., independent public accountants
for the Company, shall have delivered a letter, dated the Closing Date,
addressed to the Company, affirming the accuracy of the Pooling Letter.
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Section 9.02 Conditions to Obligations of The Company to Effect the
Merger. The obligations of the Company to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Effective Time of the following
additional conditions:
(a) Representations and Warranties. The representations and warranties
of Sterling set forth in Article VI hereof shall be true and correct in all
respects as of the date of this Agreement and as of the Effective Time (as
though made on and as of the Effective Time except to the extent such
representations and warranties are by their express provisions made as of a
specified date) and the Company shall have received a certificate signed by the
chairman, president or other duly authorized officer of Sterling to that effect.
(b) Performance of Obligations. Sterling and Merger Sub shall have
performed in all material respects all obligations required to be performed by
it under this Agreement prior to the Effective Time, and the Company shall have
received a certificate signed by the chairman, president or other duly
authorized officer of Sterling to that effect and as to the absence of
litigation as described in Section 9.01(c).
(c) Material Adverse Change. Prior to the Closing, there shall not have
occurred any material adverse change in the financial condition, business,
operations or properties of Sterling or any of its Subsidiaries, taken as a
whole, nor shall any event have occurred which, with the lapse of time, may
cause or create any material or adverse change in the financial condition,
business, operations or properties of Sterling and its Subsidiaries, taken as a
whole, in the reasonable and good faith judgment of the Company Board; provided,
however, that a decrease in the market price of Sterling Common Stock as quoted
on Nasdaq in and of itself shall not be deemed to be a material adverse change.
The Company shall receive a certificate signed by the chief executive officer,
president, or other duly authorized officer of Sterling to that effect.
(d) Tax Opinion. The Company shall have received an opinion of
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, counsel to the Company, in form and substance
reasonably satisfactory to the Company to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code and no
gain or loss will be recognized by the shareholders of the Company to the extent
that they receive Sterling Common Stock solely in exchange for their Company
Common Stock in the Merger. The parties to this Agreement agree to make such
reasonable representations as requested by such counsel for the purpose of
rendering such opinion.
(e) Opinion of Counsel. The Company shall have received an opinion of
▇▇▇▇▇▇▇ & ▇▇▇▇▇ L.L.P., counsel for Sterling, addressed to the Company and in
form reasonably satisfactory to it as to the validity of the approvals of the
Merger by the board of directors of Sterling and by the board of directors and
shareholder of the Merger Sub.
(f) Opinion of Financial Advisor. The Company shall have received a
written opinion from The ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Company, Inc. dated as of the date of
this Agreement and reaffirmed as of the date of the Proxy Statement that the
Merger Consideration is fair to the Company shareholders from a financial point
of view.
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Section 9.03 Conditions to Obligations of Sterling and Merger Sub to
Effect the Merger. The obligations of Sterling and Merger Sub to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following additional conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in Article V hereof shall be true and correct in all
respects as of the date the Company delivers the Company Disclosure Schedule
pursuant to Section 8.21 above and as of the Effective Time (as though made on
and as of the Effective Time except to the extent such representations and
warranties are by their express provisions made as of a specified date) and
Sterling and Merger Sub shall have received a certificate signed by the
chairman, chief executive officer, president or other duly authorized officer of
the Company to that effect.
(b) Performance of Obligations. The Company shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Time, and Sterling and Merger Sub shall have
received a certificate signed by the chairman and chief executive officer,
president or other duly authorized officer of the Company to that effect and as
to the absence of litigation as described in Section 9.01(c).
(c) Material Adverse Change. Prior to the Closing, there shall not have
occurred any material adverse change in the Condition of the Company and any of
its Subsidiaries, taken as a whole, nor shall any event have occurred which,
with the lapse of time, may cause or create any material adverse change in the
Condition of the Company and any of its Subsidiaries, taken as a whole, in the
reasonable and good faith judgment of the Board of Directors of Sterling, and
Sterling shall have received a certificate signed by the chairman, chief
executive officer, president or other duly authorized officer of the Company to
that effect.
(d) Opinion of Counsel. Sterling shall have received an opinion of
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, L.L.P., counsel for the Company, addressed to Sterling
and in form reasonably satisfactory to it as to the validity of the approvals of
the Merger by the Company Board and the shareholders of the Company.
(e) Opinion of Tax Counsel. Sterling shall have received an opinion of
▇▇▇▇▇▇▇ & ▇▇▇▇▇ L.L.P., counsel to Sterling, in form and substance reasonably
satisfactory to Sterling, to the effect that, based on the facts,
representations and assumptions set forth in such opinion, the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code and
such opinion shall have not been withdrawn. The parties to this Agreement agree
to make such reasonable representations as requested by such counsel for the
purpose of rendering such opinion.
(f) Dissenting Shares. The number of Dissenting Shares shall not exceed
ten percent (10%) of the total issued and outstanding shares (as of the
Effective Time) of Company Common Stock.
(g) Release Agreements. Sterling shall have received Release
Agreements, substantially in the form of Annex C, executed and delivered by each
Person identified in Section 8.17 of the Company Disclosure Schedule.
(h) Company Indebtedness. The outstanding Company Indebtedness as of
the Closing Date shall not exceed $2,000,000.
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(i) Affiliate Agreements. Each person who is an "affiliate" (for
purposes of Rule 145 under the Securities Act and for pooling-of-interest
accounting treatment) of the Company at the time this Agreement is submitted to
the approval of the shareholders of the Company shall deliver to Sterling an
Affiliate Letter.
(j) Company Options. All of the Company Options shall have been fully
and completely exercised or terminated and the Company Stock Plan shall have
been terminated.
(k) Noncompete Agreements. Sterling shall have received Noncompete
Agreements executed and delivered by each of the Key Company Officials.
(l) 2000 Financial Statements. Sterling shall have received the 2000
Financial Statements and officer's certificate as described in Section 8.18.
ARTICLE X
TERMINATION
Section 10.01 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement, the Merger and
the transactions contemplated hereby by the shareholders of the Company, this
Agreement may be terminated and the Merger may be abandoned at any time prior to
the Effective Time:
(a) by mutual consent of the Board of Directors of Sterling and the
Company; or
(b) by the Company Board or the Board of Directors of Sterling if (i)
the Federal Reserve, the FDIC or the Commissioner has denied approval of the
Merger or the Bank Merger and such denial has become final and nonappealable or
has approved the Merger subject to conditions that in the judgment of Sterling
would restrict it or its Subsidiaries or Affiliates in their respective spheres
of operations and business activities after the Effective Time or (ii) the
Effective Time does not occur by August 31, 2001, provided, however, that the
right to terminate this Agreement under clause (ii) of this Section 10.01(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure of the
Effective Time to occur prior to such date; or
(c) by Sterling (if it is not in breach of any of its obligations
hereunder) pursuant to notice in the event of a breach or failure by the Company
that would cause a failure of the conditions in Section 9.03, which breach or
failure has not been, or cannot be, cured within 30 days after written notice of
such breach is given to the Company; or
(d) by the Company (if it is not in breach of any of its obligations
hereunder) pursuant to notice in the event of a breach or failure by Sterling
that would cause a failure of the conditions in Section 9.02, which breach or
failure has not been, or cannot be, cured within 30 days after written notice of
such breach is given to Sterling; or
(e) by the Company if (i) there shall not have been a breach of any
covenant or agreement on the part of the Company under this Agreement and (ii)
prior to the Effective Time, the Company shall have received a bona fide
Acquisition Proposal and the Company Board
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determines in its good faith judgment and in the exercise of its fiduciary
duties, based as to legal matters on the written opinion of independent legal
counsel and as to financial matters on the written opinion of an investment
banking firm of national reputation, that such alternative Acquisition Proposal
(if consummated pursuant to its terms) would result in an alternative
Acquisition Transaction that is more favorable to the Company shareholders than
the Merger ("Superior Proposal") and that the failure to terminate this
Agreement and accept such alternative Acquisition Proposal would be inconsistent
with the proper exercise of such fiduciary duties; provided, however, that
termination under this clause (ii) shall not be deemed effective until payment
of the Termination Fee and Expenses required by Section 8.14; or
(f) by either Sterling or the Company, if the Merger and this Agreement
shall fail to receive the requisite vote for approval and adoption at the
Company Shareholders' Meeting; or
(g) by Sterling if the Company Board shall have (i) resolved to accept
a Superior Proposal, or (ii) recommended to the shareholders of the Company that
they tender their shares in a tender or exchange offer commenced by a third
party or (iii) withdrawn or modified, in any manner that is adverse to Sterling,
its recommendation or approval of this Agreement or the Merger or recommended to
the Company shareholders acceptance or approval of any alternative Acquisition
Proposal, or shall have resolved to do the foregoing.
Section 10.02 Effect of Termination. In the event of the termination
and abandonment of this Agreement pursuant to Section 10.01, this Agreement
shall become void and have no effect, except that (i) the provisions of this
Section 10.02 and Section 8.01(e), Section 8.14 and Section 11.01 shall survive
any such termination and abandonment; and (ii) no party shall be relieved or
released from any liability arising out of an intentional breach of any
provision of this Agreement.
Section 10.03 Non-Survival of Representations, Warranties and
Covenants. Except for ARTICLE III and ARTICLE IV and Section 8.09, Section 8.20,
and Section 11.01, none of the respective representations, warranties,
obligations, covenants and agreements of the parties shall survive the Effective
Time.
Section 10.04 Termination Relating to Company Disclosure Schedule. In
addition to the foregoing, Sterling shall have the absolute right, at its sole
discretion, to terminate this Agreement based upon its review of the matters
disclosed in the Company Disclosure Schedule in accordance with the provisions
of Section 8.21 above. In the event of the termination of this Agreement by
Sterling pursuant to this Section 10.04 and Section 8.21, this Agreement shall
become void and have no effect, except that the provisions of Section 8.01(e)
and Section 11.01 shall survive any such termination and abandonment.
ARTICLE XI
GENERAL PROVISIONS
Section 11.01 Expenses. Except as provided in Section 8.14, each party
hereto shall bear its own expenses incident to preparing, entering into and
carrying out this Agreement and consummating the Merger, Sterling shall pay all
printing expenses and filing fees incurred in
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connection with this Agreement, the Registration Statement and the Proxy
Statement; provided that the Company shall pay all expenses relating to the
mailing of the Proxy Statement.
Section 11.02 Entire Agreement; Parties in Interest. Except as
otherwise expressly provided herein, this Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated hereunder and supersedes all prior arrangements or understandings
with respect thereto, written or oral. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors. Other than Section 8.09, nothing in this
Agreement, expressed or implied, is intended to confer upon any individual,
corporation or other entity (including, without limitation, any employee or
shareholder of the Company), other than Sterling, Merger Sub and the Company or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
Section 11.03 Amendments.
(a) To the extent permitted by law, this Agreement may be amended by a
subsequent writing signed by Sterling and the Company; provided however, that
the provisions hereof relating to the amount of the Merger Consideration shall
not be amended after the Company Shareholders' Meeting without any requisite
approval of the holders of the issued and outstanding shares of Company Common
Stock entitled to vote thereon.
(b) The parties hereto agree to enter into an amendment of this
Agreement for the purpose of adding Merger Sub as a party hereto, which
amendment shall be made prior to the Closing Date. As a condition to the
Company's entry into any such amendment, Merger Sub shall deliver to the Company
a certificate setting forth representations and warranties similar to those set
forth in Section 6.01, Section 6.02, Section 6.03 insofar as they relate to
Merger Sub.
Section 11.04 Waivers. Prior to or at the Effective Time, each of
Sterling and the Company shall have the right to waive any default in the
performance of any term of this Agreement by the other, to waive or extend the
time for the compliance or fulfillment by any other party of any and all of such
other party's obligations under this Agreement and to waive any or all of the
conditions precedent to its obligations under this Agreement, except any
condition which, if not satisfied, would result in the violation of any law or
applicable governmental regulation.
Section 11.05 No Assignment. Except as provided in Section 2.04, none
of the parties hereto may assign any of its rights or delegate any of its
obligations under this Agreement to any other person or entity without the prior
written consent of the other parties to this Agreement; provided, however, that
Sterling may assign its rights and obligations or those of Merger Sub to any
direct or indirect, wholly-owned subsidiary of Sterling, but no such assignment
shall relieve Sterling of its obligations hereunder if such assignee does not
perform such obligations.
Section 11.06 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by courier, by facsimile transmission, or by registered or certified mail,
postage prepaid to the persons at the addressees set forth below (or at such
other address as may be provided hereunder), and shall be deemed to have been
delivered as of the date so delivered:
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Company: Lone Star Bancorporation, Inc
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: H. ▇▇▇▇ ▇▇▇▇▇, Chairman
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Bracewell & ▇▇▇▇▇▇▇▇▇, L.L.P.
Suite 2900, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Sterling: Sterling Bancshares, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chairman
▇▇▇▇▇▇▇ ▇. ▇▇▇, Senior Vice President
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ & ▇▇▇▇▇ L.L.P.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Section 11.07 Specific Performance. The parties hereby acknowledge and
agree that the failure of either party to fulfill any of its covenants and
agreements hereunder, including the failure to take all such actions as are
necessary on its part to cause the consummation of the Merger, will cause
irreparable injury for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of the other
party's obligations and to the granting by any such court of the remedy of
specific performance hereunder.
Section 11.08 Governing Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the state of Texas
applicable to contracts executed and to be performed in that state. All actions
and proceedings arising out of or relating to this Agreement shall be heard and
determined in any state or federal court sitting in Houston, ▇▇▇▇▇▇ County,
Texas.
Section 11.09 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to constitute an original but
all of which together shall constitute one and the same instrument.
Section 11.10 Captions. The captions contained in this Agreement are
for reference purposes only and are not part of this Agreement.
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Section 11.11 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Merger is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
Merger be consummated as originally contemplated to the fullest extent possible.
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IN WITNESS WHEREOF, Sterling and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
STERLING BANCSHARES, INC.
BY: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chairman
LONE STAR BANCORPORATION, INC.
BY: /s/ H. ▇▇▇▇ ▇▇▇▇▇
---------------------------------------
H. ▇▇▇▇ ▇▇▇▇▇, Chairman
[Signature page to Agreement and Plan of Merger]
59
ANNEX A
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is entered into
effective as of this 1st day of March, 2001 between Sterling Bancshares, Inc., a
Texas corporation ("Sterling"), and _______________________________ (the "Key
Company Official").
WHEREAS, simultaneously with the execution of this Agreement, Sterling
and Lone Star Bancorporation, Inc., a Texas corporation ("Lone Star"), have
entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which Lone Star will merge with and into a to-be-formed subsidiary of
Sterling (the "Merger Sub") at the Effective Time; and
WHEREAS, Sterling has required, as a condition to its execution of the
Merger Agreement, the Key Company Official to execute and deliver this
Agreement; and
WHEREAS, the Key Company Official, for the consideration set forth
below, has agreed to, and does hereby enter into this Agreement on the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing and the premises,
representations, and mutual covenants hereinafter set forth, the parties do
hereby agree as follows:
1. Defined Terms. Capitalized terms used herein but not otherwise
defined shall have the meaning set forth in the Merger Agreement.
2. Consideration. In consideration of the covenants and agreements of
the Key Company Official contained herein, Sterling hereby agrees to pay the Key
Company Official as follows:
(a) Upon the execution of this Agreement, Sterling shall
and does hereby pay to the Key Company Official the
sum of $1,000.
(b) Upon the Closing of the Merger, Sterling shall pay
and deliver to the Key Company Official the
following:
(i) An amount equal to the Key Company
Official's base salary for one month in
effect at the time of Closing; and
(ii) An incentive stock option agreement issued
pursuant to Sterling's 1994 Incentive Stock
Option Plan granting to the Key Company
Official an option to acquire not less than
that number of shares of Sterling Common
Stock equal to the amount payable to the Key
Company Official pursuant to clause (i). For
example, if the Key Company Official
receives $5,000 pursuant to clause (i)
above, he will be granted an incentive stock
option to purchase not less than 5,000
shares of Sterling Common Stock. The
exercise price for the incentive stock
option to be granted pursuant to this clause
(ii) shall be the closing price per share of
Sterling Common Stock on
60
the Nasdaq National Market on the date of
grant. The date of grant shall be the
Effective Time of the merger. The options
shall vest 25% per annum over a period of
four years, shall have a term of 10 years
and shall otherwise be subject to the terms
and conditions of Sterling's 1994 Incentive
Stock Option Plan.
3. Non-Competition. The Key Company Official acknowledges that in the
course of his employment with Lone Star and/or its subsidiaries, he has become
familiar with certain proprietary information of Lone Star which is being
acquired by Sterling. The Key Company Official acknowledges that in the course
of his future employment with the Sterling Entities (as herein defined), he will
be provided access to and become familiar with the trade secrets and proprietary
information of the Sterling Entities including, without limitation, the
Confidential Information (as herein defined). In consideration for the payments
set forth above and other valuable consideration to be received by the Key
Company Official in connection with the Merger, the Key Company Official
covenants and agrees that from the Closing Date and for the Applicable Period
(as hereinafter defined) after the Closing Date, he shall not:
(a) directly or indirectly, own, manage, operate, control,
invest or acquire an equity interest in any entity located or conducting
business in ▇▇▇▇▇▇ County, Texas or any of its contiguous counties (the
"Territory") which competes with the business currently conducted by Sterling,
Sterling Bancorporation, Inc., Sterling Bank, the Merger Sub, Lone Star, Lone
Star Bank or any of their respective Affiliates (each, a "Sterling Entity," and
together, the "Sterling Entities");
(b) engage in or carry on, either directly or indirectly,
whether for himself or as an employee, officer, director, agent, consultant
proprietor, partner, stockholder, member, joint venturer, investor, or other
paid participant in any business within the Territory which competes with the
business currently conducted by any Sterling Entity;
(c) request any customer or borrower of any Sterling Entity or
any other person which has a business relationship with any Sterling Entity to
curtail, cancel, or otherwise discontinue its business or relationship with any
such Sterling Entity; or
(d) directly or indirectly denigrate or in any manner
undertake to discredit any of the Sterling Entities or any person or operation
associated with any Sterling Entity.
Notwithstanding the foregoing, nothing contained in this Agreement
shall prohibit the Key Company Official from owning not more than one percent
(1%) of any corporation the securities of which are traded on a national
securities market and which is engaged in a business which is in competition
with any Sterling Entity.
4. Non-Solicitation. From the Closing Date and for the Applicable
Period after the Closing Date, the Key Company Official covenants and agrees not
to directly or indirectly solicit the employment of the executive officers or
key employees of the Sterling Entities; provided, however, that this Agreement
shall not prohibit (a) any advertisement or general solicitation that
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61
is not specifically targeted at such officers or employees, or (b) soliciting
the employment of any such officer or employee who has been terminated by any
Sterling Entity.
5. Confidentiality. From the Closing Date and for the Applicable Period
after the Closing Date, the Key Company Official shall not disclose to any
person, or use or otherwise exploit for his own benefit or for the benefit of
any person other than a Sterling Entity, any Confidential Information (as
defined below). The Key Company Official shall have no obligation to keep
confidential any Confidential Information if and to the extent disclosure
thereof is specifically required by law, judicial or governmental order or other
legal process; provided, however, that in the event such disclosure is required,
the Key Company Official shall, to the extent reasonably practicable, provide
Sterling with reasonably prompt notice of such requirement, so that Sterling may
seek an appropriate protective order or waive compliance with this provision
with respect to such disclosure. For purposes of this Agreement, "Confidential
Information" shall mean any confidential information with respect to the conduct
or details of the business of Sterling and any Sterling Entity including,
without limitation, information relating to its commercial and retail banking
services, mortgage banking services, commercial and consumer loans, merchant
credit card services, its methods of operation, customer and borrower lists,
customer account information, deposits, outstanding loans, products (existing
and proposed), prices, fees, costs, plans, technology, inventions, trade
secrets, know-how, software, marketing methods, policies, personnel, suppliers,
competitors, markets or other specialized information or propriety matters of
the Sterling Entities. The term "Confidential Information" does not include, and
there shall be no obligation hereunder with respect to, information that (a) is
generally available to the public on the date of this Agreement or (b) becomes
generally available to the public other than as a result of a disclosure by the
Key Company Official in violation of this Agreement.
6. Applicable Period.
(a) The Applicable Period shall commence upon the Closing Date
and shall end on either:
(i) the later of (A) three years following the Closing
Date or (B) one year following the effective date of
the termination of the Key Company Official's
employment by any Sterling Entity if such termination
is the result of the Key Company Official's
resignation or other voluntary termination of
employment; or
(ii) the later of (A) two years following the Closing Date
or (B) one year following the effective date of the
termination of the Key Company Official's employment
if he is terminated by any Sterling Entity for
"Cause" (as herein defined); or
(iii) if any Sterling Entity terminates the employment of
the Key Company Official for any reason other than
for Cause, then the Applicable Period shall terminate
immediately.
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62
(b) For purposes of this Agreement "Cause" shall mean (A)
serious intentional misconduct on the part of the Key Company Official; (B)
fraud, misappropriation or embezzlement related to any of the Sterling Entities
on the part of the Key Company Official; (C) the conviction of the Key Company
Official of any felony or crime involving moral turpitude; (D) the willful and
continued failure by the Key Company Official to perform substantially the Key
Company Official's duties on behalf of any Sterling Entity, other than any such
failure resulting from the Key Company Official's incapacity due to physical or
mental illness, which failure continues unabated after a demand for substantial
performance is delivered to the Key Company Official by Sterling or other
applicable Sterling Entity that specifically identifies the manner in which the
Key Company Official has not substantially performed the Key Company Official's
duties. For purposes of this paragraph, any act or failure to act on the Key
Company Official's part shall be considered "willful" if done or omitted to be
done by the Key Company Official otherwise than in good faith and without
reasonable belief that the Key Company Official's action or omission was in the
best interest of the Sterling Entities.
7. Other Agreements.
(a) Subject to the immediately following sentence, the parties
to this Agreement further agree that to the extent the restrictive covenants
contained in Sections 3, 4 or 5 should be held by any court or other constituted
legal authority to be void or otherwise unenforceable in any particular area or
jurisdiction, then the parties shall consider this Agreement to be amended and
modified so as to eliminate therefrom that particular area or jurisdiction as to
which such restrictive covenant is so held to be void or otherwise
unenforceable, and, as to all other areas and jurisdictions covered by this
Agreement, the terms and provisions hereof shall remain in full force and effect
as originally written. The parties to this Agreement further agree that to the
extent any of the foregoing restrictive covenants should be held by any court or
other constituted legal authority to be effective in any particular area or
jurisdiction only if said covenant is modified to limit its duration or scope,
then the parties shall consider such covenant to be amended and modified with
respect to that particular area or jurisdiction so as to comply with the order
of any such court or other constituted legal authority, and, as to all other
jurisdictions or political subdivisions thereof, such covenant shall remain in
full force and effect as originally written.
(b) The Key Company Official acknowledges that each of the
restrictions set forth in Sections 3, 4 and 5 is reasonable as to duration and
geographic scope.
(c) The Key Company Official understands that the Sterling
Entities will not have an adequate remedy at law for the breach or threatened
breach by the Key Company Official of any one or more of the covenants set forth
in this Agreement and agrees that in the event of any such breach or threatened
breach, Sterling may, in addition to the other remedies which may be available
to it, file a suit in equity to enjoin the Key Company Official from the breach
or threatened breach of such covenants.
8. Termination. In addition to the provisions of Section 6(a)(iii)
above, this Agreement shall terminate and be of no further force and effect upon
the occurrence of the following:
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63
(a) the termination of the Merger Agreement pursuant to its
terms prior to the consummation of the transactions contemplated thereby, or
(b) a Change of Control of Sterling.
For purposes of this Agreement, a "Change of Control" occurs when any
"person," or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of more than 50% of the
total outstanding common stock of Sterling.
9. Notice. Any notice, or other communication provided or permitted in
this Agreement must be given in writing and may be served by depositing same in
the United States mail in certified or registered form, postage prepaid,
addressed to the party or parties to be notified with return receipt requested,
or by delivering the notice in person to such party or parties or by a
nationally recognized overnight service. Unless actual receipt is required by
any provision of this Agreement, notice deposited in the United States mail in
the manner herein prescribed shall be effective on dispatch. For purposes of
notice, the address of the Key Company Official shall be as follows:
-------------------------------
-------------------------------
-------------------------------
The address of Sterling and any Sterling Entity shall be:
Sterling Bancshares, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Sterling shall have the right from time to time and at any time to
change its address and shall have the right to specify as its address any other
address by giving at least ten (10) days written notice to the Key Company
Official. The Key Company Official shall have the right from time to time and at
any time to change his address and shall have the right to specify as his
address any other address by giving at least ten (10) days written notice to
Sterling.
10. Controlling Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Texas (without giving
effect to conflicts of laws principles thereof).
11. Entire Agreement. This Agreement contains the entire agreement of
the parties with respect to the subject matter hereof. The Agreement may not be
changed orally or by action or inaction, but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
12. Severability. If any provision of the Agreement is rendered or
declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by decree of a
5
64
court of last resort, the parties shall promptly meet and negotiate substitute
provisions for those rendered or declared illegal or unenforceable, but all
remaining provisions of this Agreement shall remain in full force and effect.
13. Benefit and Burden; Assignment. This Agreement may not be assigned
by either party without the consent of the other party hereto. This Agreement
shall be binding upon, and inure to benefit of, any permitted successors and
assigns.
14. Voluntary Agreement. The Key Company Official acknowledges that he
has been given an opportunity to review the terms of this Agreement, that he has
been given an opportunity to consult with counsel, or determined that such
consultation is not required, and that he has executed this Agreement
voluntarily.
15. Execution. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which shall constitute one
instrument.
EXECUTED to be effective as of the date first above written.
STERLING BANCSHARES, INC.
By:
-----------------------------------------------
Name: ▇. ▇▇▇▇▇▇ Bridgwater
Title: President
KEY COMPANY OFFICIAL
--------------------------------------------------
Printed Name:
6
65
ANNEX B
AFFILIATE LETTER FOR
AFFILIATES OF LONE STAR BANCORPORATION, INC.
_______________, 2001
STERLING BANCSHARES, INC.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed
to be an "affiliate" of Lone Star Bancorporation, Inc., a Texas corporation (the
"Company"), as the term "Affiliate" is defined for purposes of paragraphs (c)
and (d) of Rule 145 of the rules and regulations (the "Rules And Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"). Pursuant to the terms of the
Agreement and Plan of Merger dated as of March 1, 2001 (the "Merger Agreement"),
by and among Sterling Bancshares, Inc., a Texas corporation ("Sterling"), and
the Company, the Company will be merged with and into a to-be-formed subsidiary
of Sterling. Capitalized terms used but not defined herein shall have the same
meanings given to them in the Merger Agreement unless otherwise defined herein.
As a result of the Merger, I will receive shares (the "Shares") of
common stock, par value $1.00 per share, of Sterling ("Sterling Common Stock")
in exchange for shares owned by me of common stock, par value $1.00 per share of
the Company ("Company Common Stock").
I represent, warrant and covenant to Sterling that with respect to any
of the Shares:
1. I shall not make any sale, transfer or other disposition of the
Shares in violation of the Act or the Rules and Regulations.
2. I have carefully read this letter and the Merger Agreement and
discussed the requirements of such documents and other applicable limitations
upon my ability to sell, transfer or otherwise dispose of the Shares, to the
extent I felt necessary, with my counsel or counsel for the Company.
3. I have been advised that the issuance of the Shares to me pursuant
to the Merger has been registered with the Commission under the Act on a
Registration Statement on Form S-4. However, I have also been advised that,
because at the time the Merger was submitted for a vote of the shareholders of
the Company, (a) I may be deemed to have been an affiliate of the Company and
(b) distribution by me of the Shares has not been registered under the Act, I
may not sell, transfer or otherwise dispose of any of the Shares issued to me in
the Merger unless (x) such sale, transfer or other disposition is made in
conformity with the volume and other limitations of Rule 145 promulgated by the
Commission under the Act, (y) such sale, transfer or other disposition has been
registered under the Act, or (z) in the opinion of counsel
66
reasonably acceptable to Sterling, such sale, transfer or other disposition is
otherwise exempt from registration under the Act.
4. I understand that Sterling is under no obligation to register the
sale, transfer or other disposition of the Shares by me or on my behalf under
the Act or to take any other action necessary in order to make compliance with
an exemption from such registration available.
5. I understand that there will be placed on the certificates for the
Shares issued to me, or any substitutions therefor, a legend stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES."
6. I understand that unless a sale or transfer is made in conformity
with the provisions of Rule 145, or pursuant to an effective registration
statement under the Act, Sterling reserves the right to place the following
legend on the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
7. From and after the date that is 30 days prior to the Effective Time
(as defined in the Agreement) I will not offer to sell, sell or otherwise
dispose of, or in any other way reduce my risk relative to, any shares of
Sterling Common Stock in any case until an earnings statement containing at
least 30 days of post-Merger combined financial results of Sterling and the
Company has been issued in a manner satisfying the requirements of Commission
Accounting Release No. 135.
8. I will not take or fail to take any action reasonably likely to
cause the Merger not to (i) qualify as a tax-free reorganization under Section
368 of the Code, or (ii) be treated as a poolings of interest for accounting
purposes.
9. I further understand and agree that my representations, warranties,
covenants and agreements set forth herein are for the benefit of Sterling, the
Company and the Surviving Corporation (as defined in the Agreement) and will be
relied upon by such entities and their respective counsel and accountants.
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10. Execution of this letter should not be considered an admission on
my part that I am an "affiliate" of the Company as described in the first
paragraph of this letter, nor as a waiver of any rights I may have to object to
any claim that I am such an affiliate on or after the date of this letter.
Very truly yours,
--------------------------------
Name:
Agreed and accepted this _____ day of
_________________, 2001 by
STERLING BANCSHARES, INC.
By:
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Name:
---------------------------------------
Title:
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ANNEX C
RELEASE AGREEMENT
THIS RELEASE AGREEMENT ("Release") dated the _____ day of ___________,
2001, is executed by the undersigned (the "Releasor") and delivered to Lone Star
Bancorporation, Inc., a Texas corporation (the "Company"), Lone Star
Bancorporation of Delaware, Inc., a Delaware corporation ("LS Bancorporation"),
Lone Star Bank ("Lone Star Bank") and Sterling Bancshares, Inc., a Texas
corporation, ("Sterling").
WHEREAS, Sterling and the Company have entered into that certain
Agreement and Plan of Merger dated as of March 1, 2001 (the "Merger Agreement")
pursuant to which Sterling shall acquire the Company through the merger of the
Company with a to-be-formed subsidiary of Sterling (the "Merger Sub");
WHEREAS, Sterling has required as a condition to such acquisition and
the consummation of the merger (the "Merger") that the undersigned execute and
deliver this Release to confirm the absence of any claims by the undersigned
against the Company or its subsidiaries, including LS Bancorporation and Lone
Star Bank.
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned Releasor hereby agrees as follows:
Section 1. RELEASE. The Releasor, on his own behalf and on behalf of
his heirs, executors, administrators, agents, successors and assigns
(collectively, the "Releasor Persons") hereby irrevocably and unconditionally
releases, waives and forever discharges the Company, LS Bancorporation, Lone
Star Bank, Sterling and Merger Sub and their respective predecessors, parents,
subsidiaries, affiliates and other related entities, and all of their respective
past, present and future officers, directors, stockholders, affiliates, agents,
representatives, successors and assigns, other than the Releasor and any
Releasor Persons (collectively, the "Released Parties") from any and all
actions, causes of action, suits, debts, dues, sums of money, accounts, bonds,
bills, covenants, contracts, controversies, agreements, promises, variances,
trespasses, damages, judgments, executions, claims and demands of every type and
nature whatsoever, known and unknown, in law or equity (each a "Claim" and
collectively, the "Claims") relating to, arising out of or in connection with
the Company, LS Bancorporation, Lone Star Bank, their respective businesses
and/or assets, including any Claims arising of or resulting from the Releasor's
status, relationship, affiliation, rights, obligations and/or duties as a
director, officer, employee or security holder of the Company, LS
Bancorporation, and/or Lone Star Bank, for all periods through the time
immediately prior to the Effective Time; provided, however, that neither the
Company, LS Bancorporation nor Lone Star Bank shall be released from any of
their respective obligations or liabilities to the undersigned Releasor (i) in
respect of accrued and deferred compensation permitted by any agreement with the
Company, LS Bancorporation, Lone Star Bank or any other subsidiaries which have
been expressly scheduled and made a part of the Merger Agreement and (ii) as to
rights of indemnification pursuant to Section 8.09 of the Merger Agreement and
the articles or certificate of incorporation and bylaws of the Company, LS
Bancorporation, Lone Star Bank and their respective subsidiaries.
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The Releasor hereby represents and warrants that in his capacity as a
director, officer, employee or security holder of the Company, LS
Bancorporation, Lone Star Bank and/or their respective subsidiaries, as
applicable, the Releasor has no knowledge of any claims that the Releasor may
have against the Released Parties.
This Release shall terminate upon termination of the Merger Agreement
pursuant to the terms thereof but shall otherwise survive the consummation of
the Merger.
Section. 2. SUCCESSORS. This Release shall be binding upon the
undersigned Releasor, the Releasor Persons and their respective predecessors,
parents, subsidiaries, affiliates and other related parties and shall inure to
the benefit of the Released Parties and their respective successors and assigns.
Section 3. GOVERNING LAW. This Release shall be governed by and
construed in accordance with the laws of Texas, without giving effect to any
principles of contract of law.
Section 4. COUNTERPARTS. This Release may be executed in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Section 5. MODIFICATION. This Release may be modified only by written
instrument executed by the undersigned, the Company, LS Bancorporation, Lone
Star Bank and Sterling.
IN WITNESS WHEREOF, the undersigned Releasor has executed this Release
effective as of the date first above written.
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Signature
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Printed Name
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