_______________________________
AGREEMENT OF MERGER
BY AND AMONG
PATAPSCO BANCORP, INC.,
THE PATAPSCO BANK
AND
PN FINANCIAL, INC.
________________________
AND
________________________
NORTHFIELD BANCORP, INC.
AND
NORTHFIELD FEDERAL SAVINGS BANK
DATED AS OF MAY 16, 2000
_______________________________
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Agreement") is dated as of May
16, 2000, by and among PATAPSCO BANCORP, INC., a Maryland
corporation ("Patapsco"), THE PATAPSCO BANK, a Maryland
commercial bank and wholly owned subsidiary of Patapsco
("Bank"), and PN FINANCIAL, INC., a Maryland corporation and
wholly owned subsidiary of Patapsco ("New Sub"); and NORTHFIELD
BANCORP, INC., a Maryland corporation ("Company"), and
NORTHFIELD FEDERAL SAVINGS BANK, a Federally chartered savings
bank and wholly owned subsidiary of Company ("Savings").
WHEREAS, Patapsco, a bank holding company, with its
principal office in Dundalk, Maryland, owns all of the issued
and outstanding capital stock of Bank, with its principal office
in Dundalk, Maryland, and Bank owns all the issued and
outstanding capital stock of New Sub;
WHEREAS, Company, a non-diversified, unitary savings and
loan holding company, with its principal office in Baltimore,
Maryland, owns all of the issued and outstanding capital stock
of Savings, with its principal office in Baltimore, Maryland;
WHEREAS, Patapsco and Company desire to combine their
respective holding companies and bank subsidiaries;
WHEREAS, the parties have determined that it would be
desirable and in their respective best interests, including the
best interests of their respective shareholders, for (i) New Sub
to merge with and into Company (the "Company Merger"), pursuant
to which each of the issued and outstanding shares of common
stock of Company ("Company Common Stock") shall be automatically
by operation of law converted into the right to receive (a)
$12.50 in cash (the "Cash Consideration") and (b) 0.2400 shares
of Patapsco's Series A Noncumulative Convertible Perpetual
Preferred Stock, $.01 par value per share, (the "Preferred
Stock") (Articles Supplementary for the Preferred Stock are
attached as Exhibit A) (such cash and the 0.2400 shares of
Preferred Stock (the "Preferred Stock Consideration") are
collectively referred to herein as the "Merger Consideration"),
and the issued and outstanding shares of New Sub common stock
shall be converted by operation of law into an equal number of
newly issued shares of Company Common Stock all of which shall
be owned by Bank, (ii) immediately following the Company Merger,
the Company shall be liquidated into Patapsco (the
"Liquidation") and (iii) immediately following the Liquidation,
Savings shall be merged with and into the Bank (the "Bank
Merger");
WHEREAS, the Boards of Directors of Patapsco and the
Company (at meetings duly called and held) have determined that
this Agreement and the transactions contemplated hereby are in
the best interests of Patapsco and the Company, respectively,
and their respective stockholders and have approved this
Agreement; and
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WHEREAS, as a condition and inducement to Patapsco's, the
Bank's and New Sub's willingness to enter into this Agreement,
Patapsco has entered into a separate Voting Agreement (attached
as Exhibit B) with each of the directors and executive officers
of the Company providing that each such person shall vote, or
cause to be voted, all shares of Company Common Stock which such
person beneficially owns for approval of the Company Merger as
contemplated herein.
NOW THEREFORE, in consideration of the premises and mutual
promises hereinafter set forth, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound,
do hereby agree as follows:
ARTICLE I
THE COMPANY MERGER AND RELATED MATTERS
1.1 The Company Merger. At the Effective Time (as defined
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in Section 1.2 hereof), New Sub shall be merged with and into
Company pursuant to the provisions herein. The Company Merger
shall be effected in accordance with any and all applicable
provisions of the Maryland General Corporation Law (the "MGCL").
Company shall thereafter continue as the surviving corporation
under the name of "Northfield Bancorp, Inc." Company after the
Effective Time is sometimes referred to in this Agreement as the
"Surviving Corporation." At and after the Effective Time:
(1) The separate existence of New Sub shall
cease.
(2) The Articles of Incorporation and the
Bylaws of Company in effect immediately prior to the
Company Merger shall continue as the Articles of
Incorporation and Bylaws of the Surviving Corporation
after the Company Merger.
(3) The directors and executive officers of
the Company immediately prior to the Effective Time
shall, as of the such Effective Time, submit their
written resignation and the directors and executive
officers of the Company immediately following the
Company Merger, until their successors shall be duly
elected and qualified, shall be such persons as are
appointed by the Bank.
(4) From and after the Effective Time, the
Company Merger shall have the effects as set forth in
Section 3-114 of the MGCL.
1.2 Effective Time of the Company Merger. As soon as
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practicable after each of the conditions set forth in Article V
hereof have been satisfied or waived, New Sub and Company will
file, or cause to be filed, articles of merger with the Maryland
Department of Assessments and Taxation (the "Department"), which
articles of merger shall be in the form required by and executed
in accordance with the applicable provisions of the MGCL and, to
the extent applicable, the
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Financial Institutions Article of the Annotated Code of
Maryland. The Company Merger shall become effective at the time
the articles of merger are accepted by the Department or at such
time as is set forth in the articles of merger (the "Effective
Time"), which shall be immediately following the Closing (as
defined in Section 1.11) and on the same day as the Closing if
practicable.
1.3 Conversion of Shares. The manner and basis of the
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conversion of the respective outstanding shares of capital stock
of Company and New Sub and the consideration which the
respective record holders thereof shall be entitled to receive
pursuant to the Company Merger shall be as follows:
(a) Company Common Stock.
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(i) At the Effective Time each share of Company
Common Stock issued and outstanding immediately prior to the
Effective Time (except Objecting Shares (as defined in
Section 1.4) and shares referred to in subparagraph (ii) of
this Section 1.3(a)), shall automatically by virtue of the
effectiveness of the Company Merger and without the
necessity of any action on the part of the holder thereof,
be canceled and converted into the right to receive the
Merger Consideration. After the Effective Time, the holders
of certificates representing shares of Company Common Stock
shall cease to have any rights as stockholders of the
Company, except the right to receive the Merger
Consideration as provided herein and except with respect to
rights applicable to Objecting Shares.
(ii) Any shares of Company Common Stock which
are owned or held by Company or any of its subsidiaries
(except shares held in any 401(k) plan or employee stock
ownership plan of the Company or any of its subsidiaries or
other shares held in a fiduciary or similar capacity
including any shares held in a grantor trust associated with
any of Company's or Savings' Employee Plans or Benefit
Arrangements (as such terms are defined in Section 2.13
hereof)) or by Patapsco or any of Patapsco's subsidiaries
(other than in a fiduciary or similar capacity) at the
Effective Time shall cease to exist, and the certificates
for such shares shall as promptly as practicable be canceled
and no Merger Consideration shall be issued or exchanged
therefor.
(iii) If the holders of Patapsco common stock
shall have received or shall have become entitled to
receive, without payment therefor, during the period
commencing on the date hereof and ending with the Effective
Time, additional shares of common stock or other securities
for their stock by way of a stock split, stock dividend,
reclassification, combination of shares or similar corporate
rearrangement ("Stock Adjustment"), then the amount and/or
characteristics of the Preferred Stock to be exchanged at
the Effective Time for Patapsco common stock shall be
proportionately adjusted to take into account such Stock
Adjustment.
(b) New Sub Common Stock. Each share of common stock
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of New Sub issued and outstanding immediately prior to the
Effective Time shall, automatically by virtue of the
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effectiveness of the Company Merger and without necessity of any
action on the part of the holder thereof, be canceled and
converted into an equal number of newly issued shares of common
stock of the Surviving Corporation.
1.4 Objecting Shares. Any shares of Company Common Stock
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held by a holder who files a written objection to the Company
Merger and becomes entitled to obtain payment for the fair value
of such shares of Company Common Stock pursuant to the
applicable provisions of the MGCL shall be herein called
"Objecting Shares." Subject to any contrary provisions of the
MGCL, any Objecting Shares shall not, after the Effective Time,
be entitled to vote for any purpose or receive any dividends or
other distributions and shall not be entitled to receive the
Merger Consideration, and the holder thereof ceases to have any
rights of a stockholder with respect to the Objecting Shares
except the right to receive payment of their fair value;
provided however, that shares of Company Common Stock held by an
objecting stockholder who subsequently withdraws a demand for
payment, fails to comply fully with the requirements of the
MGCL, or otherwise fails to establish the right of such
stockholder to be paid the fair value of such stockholders'
shares under the MGCL shall be deemed to be converted into the
right to receive the Merger Consideration pursuant to the terms
and conditions referred to above. All negotiations with respect
to payment for Objecting Shares shall be handled by Patapsco.
Patapsco shall be obligated to pay the holders of any Objecting
Shares in accordance with the provisions of the MGCL.
1.5 Right to Revise the Structure of the Transaction. With
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the prior written consent of the Company, which consent shall
not be unreasonably withheld, Patapsco, Bank and New Sub may
revise the structure of the corporate reorganization
contemplated by this Agreement in order to achieve tax benefits
or for any other reason; provided, however, that the Company
shall not have the obligation to consent to any revision to the
structure of the reorganization which (i) changes the form or
amount of the consideration payable hereunder, (ii) would
unreasonably impede or delay consummation of the transactions
contemplated herein or (iii) would result in treatment for
Federal income tax purposes of receipt by a shareholder of
Company of the Merger Consideration set forth herein as a
taxable dividend. Patapsco, Bank and New Sub may propose any
revision by giving written notice to Company and Savings in the
manner provided in Section 8.4 of this Agreement, which notice
shall be in the form of an amendment to this Agreement.
1.6 Exchange of Shares for the Merger Consideration
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(a) The parties hereto agree that the Bank will act
as the exchange agent (the "Exchange Agent") for the exchange by
Company stockholders of their shares of Company Common Stock for
the Merger Consideration.
(b) Patapsco has reserved, or will reserve prior to
the Effective Time, for issuance a sufficient number of shares
of its Preferred Stock for the purpose of issuing its shares to
the Company's stockholders in accordance with this Article I.
Patapsco also has reserved or will reserve prior to the
Effective Time, for issuance a sufficient number of shares of
its common
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stock for the purpose of issuing shares of its common stock to
holders of Preferred Stock who elect to convert their shares of
Preferred Stock into Patapsco common stock. Immediately prior
to the Effective Time, Patapsco shall make available for
exchange or conversion, by transferring to the Exchange Agent
for the benefit of the holders of Company Common Stock: (i)
such number of whole shares of Preferred Stock as shall be
issuable in connection with the payment of the aggregate
Preferred Stock Consideration, and (ii) such funds as may be
payable in connection with the aggregate Cash Consideration and
as may be payable in lieu of fractional shares of Preferred
Stock as provided in Section 1.7(c) hereof. After the Effective
Time, holders of certificates theretofore evidencing outstanding
shares of Company Common Stock (other than Objecting Shares or
as provided in Section 1.3(a)(ii)), upon surrender of such
certificates to the Exchange Agent, shall be entitled to receive
certificates representing the number of whole shares of
Preferred Stock into which shares of Company Common Stock
theretofore represented by the certificates so surrendered shall
have been converted, as provided in Section 1.3 hereof, cash
payable for the Cash Consideration, and cash payments in lieu of
fractional shares as provided in Section 1.7(c) hereof. As soon
as practicable after the Effective Time, but not more than five
(5) business days thereafter, the Exchange Agent will send a
notice and transmittal form as prepared by Patapsco and
reasonably satisfactory to the Company, to each Company
shareholder of record at the Effective Time whose Company Common
Stock shall have been converted into the Merger Consideration
advising such shareholder of the effectiveness of the Company
Merger and the procedure for surrendering to the Exchange Agent
outstanding certificates formerly evidencing Company Common
Stock in exchange for the Merger Consideration. Upon surrender,
each certificate evidencing Company Common Stock shall be
canceled. The Exchange Agent shall pay for each share of
Company Common Stock to the Company shareholders who submit
their stock certificates pursuant to these instructions (i)
an amount equal to 100% of the Cash Consideration plus any cash
in lieu of a fractional share of Preferred Stock and (ii) the
Preferred Stock Consideration, within five (5) business days
following receipt of the stock certificate(s). Cash
consideration shall be paid by check. Preferred Stock
Consideration shall be evidenced by a stock certificate duly and
validly executed and issued in accordance with the requirements
of the MGCL. Such checks and certificates for shares of
Preferred Stock shall be sent by first class mail.
(c) All payments to Company shareholders pursuant to
clause (b) of this Section 1.6 shall be sent to the
shareholder's address as shown on the stock records of the
Company, or to such other address as a shareholder may specify
in a written instruction submitted with the shareholder's stock
certificates.
(d) All shares of Preferred Stock and cash for the
Cash Consideration and in lieu of any fractional share of
Preferred Stock issued and paid upon the surrender for exchange
of Company Common Stock in accordance with the above terms and
conditions shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company
Common Stock. No interest will be paid or accrued on the Cash
Consideration payable upon surrender of such certificates.
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(e) If payment for Company Common Stock is to be
made, or any new certificate for Preferred Stock is to be
issued, in the name other than that in which the certificate
surrendered in exchange thereof is registered, it shall be a
condition of the issuance therefor that the certificate
surrendered in exchange shall be properly endorsed and otherwise
in proper form for transfer and that the person requesting such
transfer pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance of a new certificate for
shares of Preferred Stock in any name other than that of the
registered holder of the certificate surrendered, or establish
to the satisfaction of the Exchange Agent that such tax has been
paid or is not payable.
(f) In the event any certificate for Company Common
Stock shall have been lost, stolen or destroyed, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed
certificate, upon the making of an affidavit of that fact by the
holder thereof, the Cash Consideration, the Preferred Stock
Consideration and cash in lieu of a fractional share of
Preferred Stock as may be required pursuant hereto; provided,
however, that Patapsco may, in its reasonable discretion and as
a condition precedent to the issuance thereof, require the owner
of such lost, stolen or destroyed certificate to deliver a bond
in such sum as it may reasonably direct as indemnity against any
claim that may be made against Patapsco, the Company, the
Exchange Agent or any other party with respect to the
certificate alleged to have been lost, stolen or destroyed.
1.7 No Fractional Shares. Notwithstanding any term or
--------------------
provision hereof, no fractional shares of Preferred Stock, and
no certificates or scrip therefor, or other evidence of
ownership thereof, will be issued in exchange for any shares of
Company Common Stock; no dividend or distribution with respect
to Preferred Stock shall be payable on or with respect to any
fractional share interests; and no such fractional share
interest shall entitle the owner thereof to vote or to any other
rights of a shareholder of Patapsco. In lieu of such fractional
share interest, any holder of Company Common Stock who would
otherwise be entitled to a fractional share of Preferred Stock
will, upon surrender of his certificate or certificates
representing Company Common Stock outstanding immediately prior
to the Effective Time, be paid the applicable cash value of such
fractional share interest, which shall be equal to the product
of the fraction multiplied by $25.00. For the purposes of
determining any such fractional share interests, all shares of
Preferred Stock received by each holder of Company Common Stock
shall be combined so as to calculate the maximum number of whole
shares of Preferred Stock issuable to such Company stockholder
in the Company Merger.
1.8 Status of Certificates. At and after the Effective
----------------------
Time, until surrendered as provided in this Section 1.6 hereof,
each outstanding certificate which, prior to the Effective Time,
represented Company Common Stock (other than shares cancelled at
the Effective Time pursuant to Section 1.3(a)(ii) hereof and
except any Objecting Shares, which Objecting Shares will
evidence only the rights specified in Section 1.4 hereof) will
be deemed for all corporate purposes to evidence ownership of
the number of whole shares of Preferred Stock into which the
shares of Company Common Stock formerly represented thereby were
converted and the right to receive cash payable for the Cash
Consideration and in lieu of any fractional interest and shall
not be
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deemed to confer upon the holder thereof any voting, dividend or
other rights of a shareholder of the Surviving Corporation.
However, until such outstanding certificates formerly
representing Company Common Stock are so surrendered or the
procedures in Section 1.6(f) are complied with, no dividend or
distribution payable to holders of record of Preferred Stock
shall be paid to any holder of such outstanding
certificates, but upon surrender of such outstanding
certificates by such holder there shall be paid to such holder
any dividends, without interest, theretofore paid with respect
to such whole share of Preferred Stock, but not paid to such
holder, and the amount of any cash, without interest, payable to
such holder for the Cash Consideration and in lieu of a
fractional share pursuant to Section 1.7 hereof. After the
Effective Time, there shall be no further registration or
transfer on the records of the Surviving Corporation of shares
of Company Common Stock (except the shares of common stock of
the Surviving Corporation issued pursuant to Section 1.3(b)
hereof), and if a certificate formerly representing such shares
is presented to Patapsco, it shall be forwarded to the Exchange
Agent for cancellation and exchange for the Merger
Consideration.
1.9 Shareholders' Meeting. The Company shall, at the
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earliest practicable date, hold a meeting of its shareholders
(the "Company Shareholders' Meeting") to submit for shareholder
approval this Agreement and the Company Merger and all related
matters necessary to the consummation of the transactions
contemplated hereby.
1.10 Registration Statement; Prospectus/Proxy Statement.
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(a) For the purposes (i) of registering the Preferred
Stock to be issued to holders of Company Common Stock in
connection with the Company Merger with the Securities and
Exchange Commission ("SEC") and with applicable state securities
authorities, and (ii) of holding the Company Shareholders'
Meeting, the parties hereto shall cooperate in the preparation
of an appropriate registration statement (such registration
statement, together with all and any amendments and supplements
thereto, being herein referred to as the "Registration
Statement"), including the prospectus/proxy statement satisfying
all applicable requirements of applicable state laws, and of the
Securities Act of 1933, as amended (the "1933 Act") and the
Securities Exchange Act of 1934, as amended (the "1934 Act")
and the rules and regulations thereunder (such prospectus/proxy
statement, together with any and all amendments or supplements
thereto, being herein referred to as the "Prospectus/Proxy
Statement").
(b) Patapsco shall furnish such information concerning
Patapsco and the Patpasco Subsidiaries (as defined in Section
3.1 hereof) as is necessary in order to cause the Prospectus/
Proxy Statement, insofar as it relates to such corporations, to
comply with Section 1.10(a) hereof. Patapsco agrees promptly to
advise the Company if at any time prior to the Company
Shareholders' Meeting any information provided by Patapsco
in the Prospectus/Proxy Statement becomes incorrect or
incomplete in any material respect and to provide the
information needed to correct such inaccuracy or omission.
Patapsco shall promptly file such supplemental information as
may be necessary in order to cause such Prospectus/Proxy
Statement, insofar as it relates to Patapsco and the Patapsco
Subsidiaries, to comply with Section 1.10(a).
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(c) The Company shall furnish Patapsco with such
information concerning the Company and the Company Subsidiaries
(as defined in Section 2.1 hereof) as is necessary in order to
cause the Prospectus/Proxy Statement, insofar as it relates to
such corporations, to comply with Section 1.10(a) hereof. The
Company agrees promptly to advise Patapsco if at any time prior
to the Company Shareholders' Meeting any information provided by
the Company in the Prospectus/Proxy Statement becomes incorrect
or incomplete in any material respect and to provide Patapsco
with the information needed to correct such inaccuracy or
omission. The Company shall furnish Patapsco with such
supplemental information as may be necessary in order to cause
the Prospectus/Proxy Statement, insofar as it relates to the
Company and the Company Subsidiaries, to comply with Section
1.10(a).
(d) Patapsco shall prepare and file the Registration
Statement with the SEC and applicable state securities agencies
as soon as practicable but not later than 60 days following the
date of this Agreement. Patapsco shall use all reasonable
efforts to cause the Registration Statement to become effective
under the 1933 Act and applicable state securities laws at the
earliest practicable date. The Company authorizes Patapsco to
utilize in the Registration Statement the information concerning
the Company and the Company Subsidiaries provided to Patapsco
for the purpose of inclusion in the Prospectus/Proxy Statement.
The Company shall have the right to review and comment on the
Registration Statement and to approve the form of proxy
statement included in the Registration Statement. Patapsco
shall advise the Company promptly when the Registration
Statement has become effective and of any supplements or
amendments thereto, and Patapsco shall furnish Company with
copies of all such documents. Prior to the Effective
Time or the termination of this Agreement, each party shall
consult with the other with respect to any material (other than
the Prospectus/Proxy Statement) that might constitute a
"prospectus" relating to the Company Merger within the meaning
of the 1933 Act.
(e) The Company shall consult with Patapsco in order
to determine whether any directors, officers or shareholders of
the Company may be deemed to be "affiliates" of Company
("affiliated persons") within the meaning of Rule 145 of the SEC
promulgated under the 1933 Act. All shares of Preferred Stock
issued to such Company affiliated persons in connection with the
Company Merger shall bear a legend upon the face thereof stating
that transfer of the securities is or may be restricted by the
provisions of the 1933 Act, and notice shall be given to
Patapsco's transfer agent of such restriction, provided that
such legend shall be removed by delivery of a substitute
certificate without such legend if such Company affiliated
person shall have delivered to Patapsco a copy of a letter from
the staff of the SEC or an opinion of counsel, in form and
substance satisfactory to Patapsco, to the effect that
such legend is not required for purposes of the 1933 Act, and,
in any event, at any time after the expiration of two years from
the Effective Time unless, in the opinion of the counsel for
Patapsco, such person was an "affiliate" of Patapsco within the
meaning of Rule 145 within three months prior to the expiration
of such two year period. So long as shares of such Preferred
Stock bear such legend, no transfer of such Preferred Stock
shall be allowed unless and until the transfer agent is provided
with such information as may reasonably be requested by counsel
for Patapsco to assure that such transfer will not violate
applicable provisions of the 1933 Act, or rules, regulations or
policies of the SEC.
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1.11 Cooperation; Regulatory Approvals. The parties shall
---------------------------------
cooperate and use reasonable best efforts to complete the
transactions contemplated hereunder at the earliest practicable
date. Each party shall cause each of their affiliates and
subsidiaries to cooperate in the preparation and submission by
them, as promptly as reasonably practicable, of such
applications, petitions, and other documents and materials as
any of them may reasonably deem necessary or desirable to the
Office of Thrift Supervision ("OTS"), Federal Deposit Insurance
Corporation ("FDIC"), Board of Governors of the Federal Reserve
System ("FRB"), the Commissioner of Financial Regulation of the
State of Maryland ("Commissioner"), Federal Trade Commission
("FTC"), Department of Justice ("DOJ"), SEC, the Department,
other regulatory authorities, holders of the voting shares of
common stock of Patapsco and the Company, and any other persons
for the purpose of obtaining any approvals or consents necessary
to consummate the transactions contemplated by this Agreement.
At the date hereof, none of the parties is aware of any reason
that the Governmental Approvals (as such term is defined in
Section 5.1(c) herein) required to be obtained by it would not
be obtained in a timely manner.
1.12 Closing. If (i) Company shareholder approvals have
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been received, and (ii) all conditions of this Agreement have
been satisfied or waived, a closing (the "Closing") shall take
place as promptly as practicable thereafter at the principal
office of Patapsco or at such other place as the parties hereto
may mutually agree at which the parties hereto will exchange
certificates, opinions, letters and other documents as required
hereby and will make the filings described in Section 1.2
hereof. Such Closing will take place as soon as practicable as
agreed by the parties, provided, however, that the Closing shall
be no more than thirty (30) days after the satisfaction or
waiver of all conditions and/or obligations contained in Article
V of this Agreement.
1.13 Closing of Transfer Books. At the Effective Time, the
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transfer books for Company Common Stock shall be closed and no
transfer of shares of Company Common Stock shall thereafter be
made on such books.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY AND SAVINGS
Company and Savings represent and warrant to Patapsco, the
Bank and New Sub that, except as disclosed in Section A or
another section of Schedule I attached hereto and except that
Savings does not make any representation or warranty regarding
the Company:
2.1 Organization, Good Standing, Authority, Insurance, Etc.
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The Company is a corporation organized, validly existing and in
good standing under the laws of the State of Maryland. Section
2.1 of Schedule I lists each "subsidiary" of the Company and
Savings within the meaning of Section 10(a)(1)(G) of Home
Owners' Loan Act ("HOLA"), (individually a "Company Subsidiary"
and collectively the "Company Subsidiaries") (unless otherwise
noted herein all references to a "Company Subsidiary" or to the
"Company Subsidiaries" shall include Savings). Each of the
Company Subsidiaries is organized, validly existing, and in good
standing
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under the laws of the respective jurisdiction under which it is
organized, as set forth in Section 2.1 of Schedule I. The
Company and each Company Subsidiary has all requisite power and
authority and is duly qualified and licensed to own, lease and
operate its properties and conduct its business as it is now
being conducted. The Company has delivered to Patapsco a true,
complete and correct copy of the articles of incorporation,
charter, or other organizing document and of the bylaws, as in
effect on the date of this Agreement, of Company and each
Company Subsidiary. The Company and each Company Subsidiary is
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which qualification is
necessary under applicable law, except to the extent that any
failures to so qualify would not, in the aggregate, have a
material adverse effect on the business, financial condition
or results of operations of the Company and the Company
Subsidiaries, taken as a whole. Savings is a member in good
standing of the Federal Home Loan Bank of Atlanta and all
eligible accounts issued by Savings are insured by the Savings
Association Insurance Fund ("SAIF") to the maximum extent
permitted under applicable law. Savings is a "domestic
building and loan association" as defined in Section 7701(a)(19)
of the Internal Revenue Code of 1986, as amended (the "Code")
and is a "qualified thrift lender" as defined in Section 10(m)
of the HOLA and the rules and regulations thereunder. The
Company is registered as a savings and loan holding company
under the HOLA.
Other than immaterial omissions, the minute books of the
Company and the Company's Subsidiaries contain complete and
accurate records of all meetings and other corporate actions
held or taken by their respective shareholders and Boards of
Directors (including the committees of such Boards).
2.2 Capitalization. The authorized capital stock of the
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Company consists of (i) 8,000,000 shares of common stock, par
value $.01 per share, of which 475,442 shares were issued and
outstanding as of the date of this Agreement, and (ii) 2,000,000
shares of Preferred Stock, par value $.01 per share, of which no
shares were outstanding as of the date of this Agreement. All
outstanding shares of Company Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive
rights. Other than with respect to the Employee Plans described
in Section 2.13 herein, as of the date of this Agreement, there
are no options, convertible securities, warrants, or other
rights (preemptive or otherwise) to purchase or acquire any of
the Company's capital stock from the Company and no oral or
written agreement, contract, arrangement, understanding, plan or
instrument of any kind (collectively, "Stock Contract") to which
the Company or any of its affiliates is subject with respect to
the issuance, voting (other than the Voting Agreement
contemplated herein) or sale of issued or unissued shares of the
Company's capital stock.
2.3 Ownership of Subsidiaries. All the outstanding shares
-------------------------
of the capital stock of the Company Subsidiaries are validly
issued, fully paid, nonassessable and owned beneficially and of
record by the Company or a Company Subsidiary free and clear of
any lien, claim, charge, restriction or encumbrance
(collectively, "Encumbrance"). There are no options,
convertible securities, warrants, or other rights (preemptive or
otherwise) to purchase or acquire any capital stock of any
Company Subsidiary and no contracts to which the Company or any
of its affiliates
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is subject with respect to the issuance, voting or sale of
issued or unissued shares of the capital stock of any of the
Company Subsidiaries. Neither the Company nor any Company
Subsidiary owns any material investment in any of the capital
stock or other equity securities (including securities
convertible or exchangeable into such securities) of or profit
participations in any "company" (as defined in Section
10(a)(1)(C) of the HOLA) other than the Federal Home Loan Bank
of Atlanta, Savings and NFS Service Corporation.
2.4 Financial Statements and Reports.
--------------------------------
(a) No registration statement, proxy statement,
schedule or report filed by the Company with the SEC under the
1933 Act or the 1934 Act ("SEC Reports"), on the date of
effectiveness in the case of such registration statements, or on
the date of filing in the case of such reports or schedules, or
on the date of mailing in the case of such proxy statements, and
except as revised, amended or modified by a subsequently filed
document, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
Company and the Company Subsidiaries have timely filed all
reports and documents required to be filed by them with the SEC,
the OTS, or the FDIC under various securities and banking laws
and regulations for the last five years (or such shorter period
as they may have been subject to such filing requirements),
except to the extent that all failures to so file, in the
aggregate, would not have a material adverse effect on the
business, financial condition or results of operations of the
Company and the Company Subsidiaries, taken as a whole. All
such documents, as finally revised, modified or amended by any
subsequently filed amendment, complied in all material respects
with applicable requirements of law and, as of their respective
date or the date as amended, and, with respect to reports and
documents filed with banking regulatory agencies, were accurate
in all material respects. Except to the extent stated therein,
all financial statements (including any notes thereto) and
schedules included in the documents referred to in the preceding
sentences of this Section 2.4(a) (or to be included in similar
documents to be filed after the date hereof) (i) are or will be
(with respect to financial statements in respect of periods
ending after December 31, 1999) in accordance with the Company's
books and records and those of any of the Company Subsidiaries,
and (ii) present (and in the case of financial statements in
respect of periods ending after December 31, 1999, will present)
fairly the consolidated statement of financial condition and the
consolidated statements of income, stockholders' equity and cash
flows of the Company and the Company Subsidiaries as of the
dates and for the periods indicated in accordance with generally
accepted accounting principles applied on a basis consistent
(except as disclosed in the notes to such financial statements)
with prior periods (except for the omission of notes to
unaudited statements, year end adjustments to interim results
and changes to generally accepted accounting principles). The
consolidated financial statements of the Company at December 31,
1999 and for the three years then ended and the consolidated
financial statements for all periods thereafter up to the
Closing reflect or will reflect, or reserve or will reserve
against on the balance sheet, as the case may be, all
liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due and
regardless of when asserted), as of their respective dates, of
the Company and the Company
11
Subsidiaries required to be reflected in such financial
statements according to generally accepted accounting principles
and in the opinion of Company management contain or will contain
adequate reserves for losses on loans and properties acquired in
settlement of loans, taxes and all other material accrued
liabilities and for all reasonably anticipated material losses,
if any, as of such dates. To the Company's knowledge, there
exists no set of circumstances that could reasonably be expected
to result in any liability or obligation material to the Company
or the Company Subsidiaries, taken as a whole, except as
disclosed in such consolidated financial statements at December
31, 1999 or for transactions effected or actions occurring or
omitted to be taken after December 31, 1999 (i) in the ordinary
course of business, or (ii) as permitted or contemplated by this
Agreement.
(b) The Company has delivered to Patapsco each SEC
Report it has ever filed, used or circulated through the date of
this Agreement and will promptly deliver each such SEC Report
filed, used or circulated after the date hereof, each in the
form (including exhibits and any amendments thereto) filed with
the SEC (or, if not so filed, in the form used or circulated),
including, without limitation, its Annual Reports on Form 10-KSB
and its Quarterly Reports on Form 10-QSB.
(c) Except (i) as disclosed in Section 2.4 of
Schedule I, (ii) as reflected, noted or adequately reserved
against in the financial statements referred to in this Section
2.4, or (iii) for deposits incurred in the ordinary course of
business consistent with past practice, Company and the Company
Subsidiaries do not have any material liabilities (whether
accrued, absolute, contingent or otherwise).
2.5 Absence of Changes.
------------------
(a) Since December 31, 1999 and through the date
hereof, there has been no material adverse change in the
business, properties, financial condition, results of operations
or assets of the Company and the Company Subsidiaries, taken as
a whole. Since December 31, 1999 and through the date hereof,
there has been no occurrence, event or development of any nature
existing or, to the Company's knowledge, threatened, which may
reasonably be expected to have a material adverse effect upon
the business, properties, financial condition, operations or
assets of the Company or any Company Subsidiary, taken as a
whole. Without limiting the foregoing, except as set forth in
Section 2.5 of Schedule I and except as contemplated by this
Agreement, since December 31, 1999, to the date hereof:
(i) The Company has not issued, sold, granted,
conferred or awarded any of its equity securities, or options to
acquire its equity securities, or any corporate debt securities
which would be classified under generally accepted accounting
principles as long-term debt on the consolidated balance sheets
of the Company; (ii) the Company has not effected any stock
split or adjusted, combined, reclassified or otherwise changed
its capitalization; (iii) neither the Company nor any Company
Subsidiary has discharged or satisfied any material lien or paid
any material obligation or liability (absolute or contingent),
other than in the ordinary course of business; (iv)
12
neither the Company nor any Company Subsidiary has sold,
assigned, transferred, leased, exchanged, or otherwise disposed
of any of its material properties or assets; (v) except as
required by contract or law, neither the Company nor any Company
Subsidiary has (A) increased the rate of compensation of, or
paid any bonus to, any of its directors, officers, or other
employees, except that the Company and Savings increased the
salaries of employees in January and February 2000 to the levels
set forth in Section 2.5 of Schedule I, (B) entered into any
new, or amended or supplemented any existing employment,
management, consulting, deferred compensation, severance, or
other similar contract, (C) entered into, terminated, or
substantially modified any of the Employee Plans (as defined in
Section 2.13 hereafter) or (D) agreed to do any of the
foregoing; (vi) neither the Company nor any Company Subsidiary
has suffered any material damage, destruction, or loss, whether
as a result of fire, explosion, earthquake, accident, casualty,
labor trouble, requisition, or taking of property by any
regulatory authority, flood, windstorm, embargo, riot, act of
God, or the enemy, or other casualty or event, and whether or
not covered by insurance; and (vii) neither the Company nor any
Company Subsidiary has canceled or compromised any debt, except
for debts of $5,000 or less, individually or in the aggregate,
charged off or compromised in accordance with the past practice
of the Company and Company Subsidiaries.
(b) Since December 31, 1999 to the date hereof, each
of the Company and the Company Subsidiaries has owned and
operated their respective assets, properties and businesses in
the ordinary course of business and consistent with past
practice, other than in connection with this Agreement or the
transactions contemplated by this Agreement.
(c) Except as contemplated by Section 4.2(b) herein,
since December 31, 1999 to the date hereof, the Company has not
declared, set aside, made or paid any dividend or other
distribution in respect of Company Common Stock.
2.6 Prospectus/Proxy Statement. At the time the
--------------------------
Prospectus/ Proxy Statement is mailed to the shareholders of the
Company for the solicitation of proxies for the approvals
referred to in Section 1.9 hereof and at all times subsequent to
such mailings up to and including the time of such approval,
such Prospectus/Proxy Statement (including any supplements
thereto), with respect to all information set forth therein
relating to the Company (including the Company Subsidiaries),
its shareholders and representatives, Company Common Stock and
all other transactions contemplated hereby, will:
(a) Comply in all material respects with applicable
provisions of the 1933 Act, the 1934 Act and the rules and
regulations under such Acts; and
(b) Not contain any statement which, at the time and
in light of the circumstances under which it is made, is false
or misleading with respect to any material fact or which omits
to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to
correct any statement in any earlier communication with respect
to
13
the solicitation of a proxy for the Company Shareholders'
Meeting which has become false or misleading.
2.7 No Broker's or Finder's Fees. Except as set forth in
----------------------------
Section 2.7 of Schedule I (which shall also include a copy of
any engagement agreement), no agent, broker, investment banker,
person or firm acting on behalf or under authority of the
Company or any of the Company Subsidiaries is or will be
entitled to any broker's or finder's fee or any other commission
or similar fee directly or indirectly in connection with the
Company Merger or any other transaction contemplated hereby.
2.8 Litigation and Other Proceedings. Except as set forth
--------------------------------
in Section 2.8 of Schedule I and except for matters which would
not have a material adverse effect on the business, financial
condition or results of operations of the Company and the
Company Subsidiaries taken as a whole, neither the Company nor
any Company Subsidiary is a defendant in, nor is any of its
property subject to, any pending, or, to the knowledge of the
Company, threatened, claim, action, suit, investigation, or
proceeding, or subject to any judicial order, judgment or
decree.
2.9 Compliance with Law.
-------------------
(a) The Company and the Company Subsidiaries are in
compliance in all material respects with all laws and
regulations applicable to their respective business or
operations or with respect to which compliance is a condition of
engaging in the business thereof, except to the extent that
noncompliance would not have a material adverse effect on the
business, financial condition or results of operations of the
Company and the Company Subsidiaries, taken as a whole, and
neither the Company nor any Company Subsidiary has received
notice from any federal, state or local government or
governmental agency of any material violation of, and does not
know of any material violations of, any of the above.
(b) The Company and each of its Subsidiaries have all
material permits, licenses, certificates of authority, orders
and approvals of, and have made all material filings,
applications and registrations with, all federal, state and
local governmental or regulatory bodies that are required in
order to permit them to carry on their respective business as
they are presently conducted, except to the extent that failure
to have any such permit, license, certificate of authority,
order or approval, or failure to make any filing, application or
registration would not have a material adverse effect on the
business, financial condition or results of operations of the
Company and the Company Subsidiaries, taken as a whole.
2.10 Corporate Actions.
-----------------
(a) The Boards of Directors of the Company and
Savings have duly authorized their respective officers to
execute and deliver this Agreement and to take all action
necessary to consummate the Company Merger and the other
transactions contemplated hereby. The Board of Directors of the
Company has by appropriate resolutions made the provisions of
Article XIII of
14
the Company's Articles of Incorporation inapplicable to this
Agreement and the Company Merger and has authorized and directed
the submission for shareholders' approval of this Agreement,
together with the Company Merger and any other action requiring
such approvals.
(b) To the extent permitted by applicable law, the
Company's Board of Directors has taken or will take all
necessary action to exempt this Agreement, the Company Merger,
and the transactions contemplated hereby and thereby from, (i)
any applicable state takeover laws, (ii) any Maryland laws
limiting or restricting the voting rights of shareholders, (iii)
any Maryland laws requiring a shareholder approval vote in
excess of the vote normally required in transactions of similar
type not involving a "related person," "interested shareholder"
or person or entity of similar type, and (iv) any provision in
its or any of the Company Subsidiaries' articles/certificate of
incorporation, charter or bylaws requiring a shareholder
approval vote in excess of the vote normally required in
transactions of similar type not involving a "related person,"
interested shareholder" or person or entity of similar type.
2.11 Authority. Except as set forth in Section 2.11 of
---------
Schedule I, the execution, delivery and, subject to receipt of
the Governmental Approvals (as defined in Section 5.1(c)), and
the receipt of the approval of Company stockholders as
contemplated by Section 1.9 herein, performance of their
obligations under this Agreement by the Company and Savings and
the Bank Merger by Savings does not and will not violate or
conflict with any of the provisions of, or constitute a breach
or default under or give any person the right to terminate,
cancel or accelerate payment or performance under or result in
the creation of any Encumbrance upon any property or asset of
Company or Savings pursuant to (i) the articles of incorporation
or bylaws of the Company or the articles of incorporation,
charter or bylaws of any Company Subsidiary, (ii) any law, rule,
ordinance, or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which it
or any of the Company Subsidiaries is subject, except where the
non-compliance or violation of which would not have a material
adverse effect on the business, financial condition or results
of operations of the Company and the Company Subsidiaries
taken as a whole, (iii) any other material agreement, material
lease, material contract, note, mortgage, indenture, arrangement
or other obligation or instrument ("Contract") to which the
Company or any of the Company Subsidiaries is a party or is
subject or by which any of their properties or assets is bound,
except where the breach or default would not have a material
adverse effect on the business, financial condition or results
of operations of the Company and the Company Subsidiaries taken
as a whole, or (iv) any note, bond, mortgage, indenture, license
agreement or other instrument or obligation the effect of which
would have a material adverse effect on the business, financial
condition or results of operations of the Company and the
Company Subsidiaries taken as a whole. The parties acknowledge
that the consummation of the Company Merger and the other
transactions contemplated hereby is subject to various
regulatory approvals. The Company and Savings, as applicable,
have all requisite corporate power and authority to enter into
this Agreement and to perform their respective obligations
hereunder, except, with respect to this Agreement and the
Company Merger, the approval of the Company's shareholders of
this Agreement required under applicable law. Other than the
receipt of Governmental Approvals (as defined in Section
5.1(c)), the approval of shareholders of this
15
Agreement, the acceptance by the Department of the Articles of
Merger and the consents specified in Section 2.11 of Schedule I
with respect to the Contracts, no consents or approvals are
required on behalf of Company in connection with the
consummation of the transactions contemplated by this Agreement
and the Company Merger. This Agreement constitutes the valid
and binding obligation of the Company and Savings, as
applicable, and each is enforceable in accordance with its
terms, except as enforceability may be limited by applicable
laws relating to bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or creditors rights generally
and general principles of equity.
2.12 Labor Relations and Employment Arrangements. Neither
-------------------------------------------
the Company nor any Company Subsidiary is a party to or bound by
any collective bargaining agreement. The Company and each
Company Subsidiary enjoy good working relationships with their
employees and there are no labor disputes pending, or to the
knowledge of the President of the Company or Savings threatened,
that might materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business or
operations of the Company and Savings, taken as a whole. Except
as disclosed in Section 2.12(1) of Schedule I, there are no
employment, severance, consulting or other agreements, plans or
arrangements with any current or former directors, officers or
employees of Company or any Company Subsidiary which may not be
terminated without penalty (including any augmentation or
acceleration of benefits) on 30 days or less notice to such
person. Except as disclosed in Section 2.12(2) of Schedule I,
no payments to directors, officers or employees of the Company
or the Company Subsidiaries resulting from the transactions
contemplated hereby will cause the imposition of excise taxes
under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") or the disallowance of a deduction to the
Company or any Company Subsidiary pursuant to Sections 162
or 280G of the Code.
2.13 Employee Benefits.
-----------------
(a) Neither the Company nor any of the Company
Subsidiaries maintains any funded deferred compensation plans
(including profit sharing, pension, savings or stock bonus
plans), unfunded deferred compensation arrangements or employee
benefit plans as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"),
other than any plans ("Employee Plans") set forth in Section
2.13(1) of Schedule I (true and correct copies of which have
been delivered to Patapsco). None of Company or any of the
Company Subsidiaries has incurred or reasonably expects to incur
any liability to the Pension Benefit Guaranty Corporation except
for required premium payments which, to the extent due and
payable, have been paid. The Employee Plans intended to be
qualified under Section 401(a) of the Code are so qualified, and
Company is not aware of any fact which would materially
adversely affect the qualified status of such plans. Except as
set forth in Section 2.13(2) of Schedule I, neither the
Company nor any of the Company Subsidiaries (a) provides health,
medical, death or survivor benefits to any former employee or
beneficiary thereof, or (b) maintains any form of current
(exclusive of base salary and base wages) or deferred
compensation, bonus, stock option, stock appreciation right,
benefit, severance pay, retirement, incentive, group or
individual health insurance, welfare or similar plan or
arrangement for the benefit of any single or class of
16
directors, officers or employees, whether active or retired
(collectively "Benefit Arrangements"). With respect to each
Employee Plan and Benefit Arrangement of the Company or any
Company Subsidiary, Section 2.13(3) of Schedule I sets forth as
of the date of this Agreement any and all payments more than 30
days past due. Except as set forth in Section 2.13(4) of
Schedule I, no employee of Company or any Company Subsidiary has
any accrued but unused vacation or sick leave, and there is no
unused vacation or sick leave carried over from any year prior
to 2000.
(b) Except as set forth in Section 2.13(5) of
Schedule I, all Employee Plans and Benefit Arrangements which
presently are in effect were in effect for substantially all of
calendar year 1999 to date and there has been no material
amendment thereof (other than amendments required to comply with
applicable law) or no material increase in the cost thereof or
benefits payable thereunder on or after January 1, 2000.
(c) Each Company and Company Subsidiary Employee Plan
and Benefit Arrangement has been administered to date, and will
be administered until the Closing in all material respects, in
accordance with their terms and in compliance with the Code,
ERISA, and all other applicable rules and regulations. With
respect to each Employee Plan and Benefit Arrangement, Company
and the Company Subsidiary, as applicable (i) have, in a timely,
accurate, and proper manner, both filed all required government
reports and made all required employee communications, and (ii)
between the date of this Agreement and the Closing, will
complete and file all such required reports, except where the
failure to file reports or make communications would not have a
material adverse effect on the Company and the Company
Subsidiaries taken as a whole. No condition exists that could
constitute grounds for the termination of any Employee Plan
under Section 4042 of ERISA; no "prohibited transaction," as
defined in Section 406 of ERISA and Section 4975 of the Code,
has occurred with respect to any Employee Plan, or any other
employee benefit plan maintained by Company or any Company
Subsidiary which is covered by Title I of ERISA, which could
subject any person to liability under Title I of ERISA or to the
imposition of any tax under Section 4975 of the Code nor has any
Employee Plan subject to Part III of Subtitle B of Title I of
ERISA or Section 412 of the Code, or both, incurred any
"accumulated funding deficiency," as defined in Section 412 of
the Code, whether or not waived; nor has Company or any Company
Subsidiary failed to make any contribution or pay any amount due
and owing as required by the terms of any Employee Plan or
Benefit Arrangement. Neither Company nor any Company Subsidiary
has incurred or expects to incur, directly or indirectly, any
liability under Title IV of ERISA or otherwise arising in
connection with the termination of, or a complete or partial
withdrawal from, any plan covered or previously covered by Title
IV of ERISA which could constitute a liability of Patapsco, or
any of its affiliates at or after the Effective Time.
(d) Except as set forth in Section 2.13 of Schedule
I, Savings does not maintain a defined benefit pension plan that
holds equity securities.
(e) The schedule provided pursuant to Section 4.18
sets forth as of the date of this Agreement (i) the actuarial
present value, determined and prepared in accordance with GAAP
17
(based, where applicable, on the same actuarial assumptions as
those previously used for funding purposes, other than turnover
assumptions, and computed on the basis of a terminated plan), of
any accrued benefits or other obligations under a defined
benefit pension plan not listed elsewhere in this schedule,
including without limitation, premiums and contributions for
which the Company or any Company Subsidiary is or may be
directly or indirectly liable to present or former employees,
officers, directors, and their beneficiaries, (ii) the net fair
market value of the assets held in any fund, policy, or other
arrangement as of April 30, 2000, and (iii) the amount of any
contribution or other obligation paid, accrued, or payable, or
reasonably expected to be payable, between the date of this
Agreement and the Closing, including but not limited to
contributions by Company or Savings to Company's Employee Stock
Ownership Plan (the "Company ESOP") to repay its loan in
accordance with the ESOP loan documents, subject to applicable
tax law limitations.
2.14 Information Furnished. No statement contained in any
---------------------
schedule, certificate or other document furnished (whether prior
to or subsequent to the date of this Agreement) or to be
furnished in writing by or on behalf of the Company or Savings
to Patapsco pursuant to this Agreement contains or will contain
any untrue statement of a material fact or any material
omission. No information material to the Company Merger or the
Bank Merger and which is necessary to make the representations
and warranties not misleading has been withheld from Patapsco.
2.15 Property and Assets. The Company and the Company
-------------------
Subsidiaries have marketable title to all of their real property
reflected as being owned by the Company in the Company's
consolidated financial statements at December 31, 1999, referred
to in Section 2.4 hereof or in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1999, or acquired
subsequent thereto, free and clear of all Encumbrances, except
for (a) such items shown in such financial statements or in the
notes thereto, (b) liens for current real estate taxes not yet
delinquent, (c) imperfections of title, encumbrances and
easements, if any, as are not substantial in character, amount
or extent and do not materially detract from the value, or
interfere with the present or proposed use of, such property,
(d) property sold or transferred in the ordinary course of
business since the date of such financial statements, (e)
pledges or liens incurred in the ordinary course of business,
and (f) zoning laws and other land use restrictions that do not
impair the present or anticipated use of the property subject
thereto. Neither the Company nor any Company Subsidiary
leases as either lessor or lessee any interest in real property
except as set forth in Exhibit 2.15 of Schedule I. No consent
of the lessor of any material personal property lease is
required for consummation of the Company Merger except as set
forth in Section 2.15 of Schedule I. There has been no material
physical loss, damage or destruction, whether or not covered by
insurance, affecting the real properties of Company and the
Company Subsidiaries since December 31, 1999, except such loss,
damage or destruction which does not have a material adverse
effect on the Company and the Company Subsidiaries, taken as a
whole. Except as set forth in Section 2.15 of Schedule I, all
property and assets material to their business and currently
used by Company and the Company Subsidiaries are, in all
material respects, in good operating condition and repair,
normal wear and tear excepted.
18
2.16 Agreements and Instruments. Except as set forth in
--------------------------
Section 2.16 of Schedule I, neither the Company nor any Company
Subsidiary is a party to (a) any material agreement, arrangement
or commitment not made in the ordinary course of business, (b)
any agreement which involves annual payments in excess of $5,000
or has a remaining term of one year or more, in each case
whether or not in the ordinary course, (c) any agreement,
indenture or other instrument relating to the borrowing of money
by the Company or any Company Subsidiary or the guarantee by the
Company or any Company Subsidiary of any such obligation (other
than Federal Home Loan Bank advances with a maturity of one year
or less from the date of borrowing), (d) any agreements to make
loans or for the provision, purchase or sale of goods, services
or property between Company or any Company Subsidiary and any
director or officer of Company or Savings, or any member of the
immediate family or affiliate of any of the foregoing, (e) any
agreements with or concerning any labor or employee organization
to which Company or any Company Subsidiary is a party, (f) any
agreements between Company or any Company Subsidiary and any
five percent or more shareholder of Company, and (g) any
agreements, directives, orders, or similar arrangements
between or involving the Company or any Company Subsidiary and
any state or federal savings institution regulatory authority.
2.17 Material Contract Defaults. Neither the Company nor
--------------------------
any Company Subsidiary nor, to the knowledge of the Company and
Savings, the other party thereto, is in default in any material
respect under any contract, agreement, commitment, arrangement,
lease, insurance policy, or other instrument to which the
Company or a Company Subsidiary is a party or by which its
respective assets, business, or operations may be bound or
affected or under which it or its respective assets, business,
or operations receives benefits, and which default is reasonably
expected to have either individually or in the aggregate a
material adverse effect on the Company and any Company
Subsidiary, taken as a whole, 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.
2.18 Tax Matters.
-----------
(a) The Company and each of the Company Subsidiaries
have duly and properly filed all federal, state, local and other
tax returns required to be filed by them and have made timely
payments of all taxes due and payable, whether disputed or not;
the current status of audits of such returns by the Internal
Revenue Service ("IRS") and other applicable agencies is as set
forth in Section 2.18 of Schedule I; and there is no agreement
by the Company or any Company Subsidiary for the extension of
time or for the assessment or payment of any taxes payable.
Neither the IRS nor any other taxing authority is now asserting
or, to the knowledge of Company, threatening to assert any
deficiency or claim for additional taxes (or interest thereon or
penalties in connection therewith), nor is the Company aware of
any basis for any such assertion or claim. The Company and each
of the Company Subsidiaries have complied in all material
respects with applicable IRS backup withholding requirements and
have filed all appropriate information reporting returns for all
tax years for which the statute of limitations has not closed.
The Company and each Company Subsidiary have complied in all
material respects with all applicable state law sales and use
tax collection and reporting requirements.
19
(b) Adequate provision for any federal, state or
local taxes due or to become due for the Company or any of the
Company Subsidiaries for any period or periods through and
including December 31, 1999, has been made and is reflected on
the December 31, 1999 audited Company consolidated financial
statements and has been or will be made in accordance with
generally accepted accounting principles with respect to periods
ending after December 31, 1999.
2.19 Environmental Matters. Except as set forth in Section
---------------------
2.19 of Schedule I, to the Company's knowledge, neither the
Company nor any Company Subsidiary owns or leases any properties
affected by toxic waste, radon gas or other hazardous conditions
or constructed in part with the use of asbestos where such
hazardous condition or use of asbestos is not in compliance in
all material respects with all applicable environmental laws.
Neither the Company nor any Company Subsidiary has knowledge of,
nor has the Company or any Company Subsidiary received written
notice from any governmental or regulatory body of, any
condition, activity, practice or incident (i) which is
reasonably likely to interfere with or prevent compliance or
continued compliance with hazardous substance laws or any
regulation, order, decree, judgment or injunction, issued,
entered, promulgated or approved thereunder, or (ii) which may
give rise to any common law or legal liability, or otherwise
form the basis of any claim, action, suit, proceeding,
hearing or investigation based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant,
contaminant or chemical, or industrial, toxic or hazardous
substance or waste, the effect of which would have a material
adverse effect on the business, financial condition or results
of operations of the Company and the Company Subsidiaries taken
as a whole. There is no civil, criminal or administrative
claim, action, suit, proceeding, hearing or investigation
pending or, to Company's knowledge, threatened against Company
or any Company Subsidiary relating in any way to such hazardous
substance laws or any regulation, order, decree, judgment or
injunction issued, entered, promulgated or approved thereunder.
2.20 Loan Portfolio: Portfolio Management.
------------------------------------
(a) All evidences of indebtedness reflected as assets
in the consolidated statement of financial condition of Company
as of December 31, 1999, or acquired since such date, are
(except with respect to those assets which are no longer assets
of the Company or any Company Subsidiary) binding obligations of
the respective obligors named therein except as enforcement may
be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws affecting
the enforcement of creditors rights generally, and except that
the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before
which any proceeding may be brought, and the payment of no
material amount thereof (either individually or in the aggregate
with other evidences of indebtedness) is subject to any defenses
which have been threatened or asserted against the Company or
any Company Subsidiary. All such indebtedness which is secured
by an interest in real property is secured by a valid and
perfected mortgage lien having the priority specified in the
loan documents. All loans originated or purchased by Savings
were at the time entered into and
20
at all times since have been in compliance in all material
respects with all applicable laws (including, without
limitation, all consumer protection laws) and regulations.
Savings administers its loan and investment portfolios
(including, but not limited to, adjustments to adjustable
mortgage loans) in all material respects in accordance with all
applicable laws and regulations and the terms of applicable
instruments. The records of Savings regarding all loans
outstanding on its books are accurate in all material respects
and the risk classification system has been established in
accordance with the requirements of the OTS.
(b) Section 2.20 of Schedule I sets forth a list,
accurate and complete in all material respects, of the aggregate
amounts of loans, extensions of credit and other assets of
Savings and its subsidiaries that have been adversely
designated, criticized or classified by it as of December 31,
1999, separated by category of classification or criticism (the
"Asset Classification"); and no amounts of loans, extensions of
credit or other assets that have been adversely designated,
classified or criticized as of the date hereof by any
representative of any government entity as "Special Mention,"
"Substandard," "Doubtful," "Loss" or words of similar import are
excluded from the amounts disclosed in the Asset Classification,
other than amounts of loans, extensions of credit or other
assets that were charged off by it or any of the Company
Subsidiaries before the date hereof.
2.21 Real Estate Loans and Investments. Except as set forth
---------------------------------
in Section 2.21 of Schedule I and for real properties acquired
in settlement of loans, there are no facts, circumstances or
contingencies known to the Company or any Company Subsidiary
which exist which would require a material reduction under
generally accepted accounting principles in the present carrying
value of any of the real estate investments, joint ventures,
construction loans, other investments or other loans of the
Company or any Company Subsidiary (either individually or in the
aggregate with other loans and investments).
2.22 Derivatives Contracts. Neither the Company nor any of
---------------------
its Subsidiaries is a party to or has agreed to enter into an
exchange-traded or over-the-counter swap, forward, future,
option, cap, floor or collar financial contract or any other
contract not included on its Balance Sheet which is a
derivatives contract (including various combinations thereof)
(each, a "Derivatives Contract") or owns securities that are
identified in Thrift Bulletin No. 65 or otherwise referred to as
structured notes (each, a "Structured Note"), except for those
Derivatives Contracts and Structured Notes set forth in Section
2.22 of Schedule I, including a list, as applicable, of any of
its or any of its Subsidiaries' assets pledged as security for a
Derivatives Contract.
2.23 Insurance. The Company and the Company Subsidiaries
---------
have in effect insurance coverage which, in respect to amounts,
types and risks insured, is reasonably adequate for the business
in which the Company and the Company Subsidiaries are engaged.
A schedule of all insurance policies in effect as to the Company
and the Company Subsidiaries (the "Insurance Policies") is as
set forth on Section 2.23(1) of Schedule I (other than policies
pertaining to mortgage loans made in the ordinary course of
business). All Insurance Policies are in full force and effect,
all premiums with respect thereto covering all periods up to and
including the date of
21
this Agreement have been paid, such premiums covering all
periods from the date hereof up to and including the Effective
Date shall have been paid on or before the Effective Date, to
the extent then due and payable (other than retrospective
premiums which may be payable with respect to worker's
compensation insurance policies, adequate reserves for which are
reflected in the Company's financial statements). Neither the
Company nor any Company Subsidiary is in default with respect to
any such policy which default would have a material adverse
effect on the business, financial condition or results of
operations of the Company and the Company Subsidiaries taken as
a whole. Except as set forth in Section 2.23(2) of Schedule I,
the Insurance Policies will not in any way be affected by, or
terminated or lapsed, at any time prior to the Effective Time,
solely by reason of, the transactions contemplated by this
Agreement. Neither the Company nor any Company Subsidiary has
been refused any insurance with respect to any material
properties, assets or operations, nor has any coverage
been limited or terminated by any insurance carrier to which it
has applied for any such insurance or with which it has carried
insurance during the last three years.
2.24 Year 2000. (a) Company and Savings' computer hardware
---------
and software systems used for the storage and processing of data
(as used in this Section 2.24, "Systems") are Millennium
Compliant as required by all FFIEC Year 2000 compliance
guidelines; (b) to the Company's knowledge, none of Company's or
any Company Subsidiary's Systems, operations or business
functions will be materially adversely affected by the failure
of any third party with whom Company or Savings has consistent
dealings to be Millennium Compliant; and (c) Company and
Savings' have taken all necessary and appropriate action to
address and remedy any known deficiencies in Company's and
Savings' Systems from becoming Millennium Compliant. As used
herein "Millennium Compliant" shall mean the ability of Systems
to provide the following functions, without human intervention,
individually and in combination with other products or systems:
(i) consistently handle data information after January 1, 2000,
including but not limited to accepting data input, providing
data output and performing calculations on dates or portions of
dates; (ii) function accurately and without interruption after
January 1, 2000 (including leap year computations), without any
change in operations associated with the advent of a new
century; (iii) respond to two-digit input in a way that resolves
any ambiguity as to century in a disclosed, defined and
predetermined manner; and (iv) store and provide output of date
information in ways that are unambiguous as to century.
2.25 Community Reinvestment Act. Savings' rating pursuant
--------------------------
to its most recent examination by federal regulatory authorities
pursuant to the provisions of the Community Reinvestment Act was
a "satisfactory" or better. Neither the Company nor Savings has
received any comment letters relating to its Community
Reinvestment Act Statement or is otherwise aware of any adverse
reaction to such statement.
2.26 Delays. The Company is not aware of any matter that
------
could cause a delay in receiving the Governmental Approvals
required to consummate the Company Merger and the other
transactions contemplated by this Agreement, including without
limitation, non-compliance with the Truth in Lending Act,
capital compliance, or any provisions of the Community
Reinvestment Act.
22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PATAPSCO, THE BANK AND NEW SUB
Patapsco, the Bank and New Sub represent and warrant to
Company and Savings that, except as disclosed in Schedule II
attached hereto and except that the Bank and New Sub do not make
any representation or warranty regarding Patapsco:
3.1 Organization, Good Standing, Authority, Insurance, Etc.
------------------------------------------------------
Patapsco is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Maryland. Each
of the subsidiaries of Patapsco within the meaning of Section
2(d) of the Bank Holding Company Act of 1956, as amended (the
"BHCA") (individually a "Patapsco Subsidiary" and collectively
the "Patapsco Subsidiaries") is duly organized, validly
existing, and in good standing under the laws of the respective
jurisdiction under which it is organized. Patapsco and each
Patapsco Subsidiary has all requisite power and authority and is
duly qualified and licensed to own, lease and operate its
properties and conduct its business as it is now being
conducted. Patapsco has delivered to the Company a true,
complete and correct copy of the articles of incorporation,
charter, or other organizing document and of the bylaws, as in
effect on the date of this Agreement, of Patapsco and each
Patapsco Subsidiary. Patapsco and each Patapsco Subsidiary
is qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which qualification is
necessary under applicable law, except to the extent that any
failures to so qualify would not, in the aggregate, have a
material adverse effect on the business, financial condition or
results of operations of Patapsco and the Patapsco Subsidiaries,
taken as a whole. The Bank is a member in good standing of the
Federal Home Loan Bank of Atlanta, and all eligible accounts
issued by the Bank are insured by the SAIF to the maximum extent
permitted under applicable law. Patapsco is duly registered as a
bank holding company under the BHCA.
Other than immaterial omissions, the minute books of
Patapsco and the Patapsco Subsidiaries contain complete and
accurate records of all meetings and other corporate actions
held or taken by their respective shareholders and Boards of
Directors (including the committees of such Boards).
3.2 Capitalization. The authorized capital stock of
--------------
Patapsco consists of 5,000,000 shares of Patapsco common stock,
par value $.01 per share, of which 327,390 shares were issued
and outstanding as of the date of this Agreement, and 1,000,000
shares of preferred stock, par value of $.01 per share, of which
no shares were outstanding as of the date of this Agreement.
All outstanding shares of Patapsco common stock are duly
authorized, validly issued, fully paid, nonassessable and free
of preemptive rights. Except for (i) 41,407 shares of Patapsco's
common stock under the Patapsco Bancorp, Inc. 1996 Stock Option
and Incentive Plan, (ii) 8,398 shares of Patapsco's common stock
under the Patapsco Bancorp, Inc. Management Recognition Plan and
pursuant to an award of restricted stock to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, up
to (iii) 114,107 shares of Preferred Stock issuable upon
consummation of the Company Merger as contemplated by this
Agreement and (iv) up to 114,107 shares of Patapsco's common
stock issuable upon conversion of the 114,107 shares of
Preferred Stock, as of the date of this Agreement, there
are no options,
23
convertible securities, warrants, or other rights preemptive or
otherwise) to purchase or acquire any of Patapsco's capital
stock from Patapsco and no oral or written agreement, contract,
arrangement, understanding, plan or instrument of any kind
(collectively, "Stock Contract") to which Patapsco or any of
its affiliates is subject with respect to the issuance, voting
or sale of issued or unissued shares of Patapsco's capital
stock.
3.3 Ownership of Subsidiaries. All the outstanding shares
-------------------------
of the capital stock of the Patapsco Subsidiaries are validly
issued, fully paid, nonassessable and owned beneficially and of
record by Patapsco or a Patapsco Subsidiary free and clear of
any lien, claim, charge, restriction or encumbrance
(collectively, "Encumbrance"). There are no options,
convertible securities, warrants, or other rights (preemptive or
otherwise) to purchase or acquire any capital stock of any
Patapsco Subsidiary and no contracts to which Patapsco or any of
its affiliates is subject with respect to the issuance, voting
or sale of issued or unissued shares of the capital stock of any
of the Patapsco Subsidiaries.
3.4 Financial Statements and Reports.
--------------------------------
(a) No registration statement, proxy statement,
schedule or report filed by Patapsco or any Patapsco Subsidiary
with the SEC under the 1933 Act, or the 1934 Act, on the date of
effectiveness in the case of such registration statements, or on
the date of filing in the case of such reports or schedules, or
on the date of mailing in the case of such proxy statements, and
except as revised, amended or modified by a subsequently filed
document, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Patapsco and the Patapsco Subsidiaries have timely filed all
documents required to be filed by them with the SEC, the FRB,
the Commissioner, or the FDIC under various securities and
financial institution laws and regulations for the past five
years (or such shorter period as they may have been subject to
such filing requirements), except to the extent that all
failures to so file, in the aggregate, would not have a material
adverse effect on the business, financial condition or results
of operations of Patapsco and the Patapsco Subsidiaries, taken
as a whole. All such documents, as finally revised, modified or
amended by any subsequently filed amendment, complied in all
material respects with applicable requirements of law and, as of
their respective date or the date as amended, and, with respect
to reports and documents filed with banking regulatory agencies,
were accurate in all material respects. Except to the extent
stated therein, all financial statements (including any notes
thereto) and schedules included in the documents referred to in
the preceding sentences (or to be included in similar documents
to be filed after the date hereof) (i) are or will be (with
respect to financial statements in respect of periods ending
after December 31, 1999) in accordance with Patapsco's books and
records and those of any of its Subsidiaries, and (ii) present
(and in the case of financial statements in respect of periods
ending after December 31, 1999 will present) fairly the
consolidated statement of financial condition and the
consolidated statements of operations, stockholders' equity and
cash flows of Patapsco and the Patapsco Subsidiaries as of the
dates and for the periods indicated in accordance with generally
accepted accounting principles (except for the omission of notes
to unaudited statements, year end
24
adjustments to interim results and changes in generally accepted
accounting principles). The consolidated financial statements
of Patapsco as of June 30, 1999 and for the three years then
ended and the consolidated financial statements for all periods
thereafter up to the Closing disclose or will disclose, as the
case may be, all liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or due to
become due and regardless of when asserted), as of their
respective dates, of Patapsco and the Patapsco Subsidiaries
required to be reflected in such financial statements according
to generally accepted accounting principles, other than
liabilities which are not, in the aggregate, material to
Patapsco and the Patapsco Subsidiaries, taken as a whole, and
contain or will contain in the opinion of management adequate
reserves for losses on loans and properties acquired in
settlement of loans, taxes and all other material accrued
liabilities and for all reasonably anticipated material
losses, if any as of such date. There exists no set of
circumstances that could reasonably be expected to result in any
liability or obligation material to Patapsco or the Patapsco
Subsidiaries, taken as a whole, except as disclosed in such
consolidated financial statements at June 30, 1999, or for
transactions effected or actions occurring or omitted to be
taken after June 30, 1999, (i) in the ordinary course of
business, or (ii) as contemplated by this Agreement.
(b) Patapsco has made available to the Company all
periodic reports filed with the SEC under the 1934 Act for
periods since June 30, 1996 through the date hereof and will
through Closing upon written request promptly deliver copies of
1934 Act reports for future periods.
(c) Except (i) for commitments to fund loans, (ii)
as reflected, noted or adequately reserved against in the
financial statements referred to in this Section 3.4, or (iii)
for deposits incurred in the ordinary course of business
consistent with past practice, Patapsco and the Patapsco
Subsidiaries do not have any material liabilities (whether
accrued, absolute, contingent or otherwise).
3.5 Absence of Changes. Since June 30, 1999, there has been
------------------
no material adverse change in the business, properties,
financial condition, results of operations or assets of Patapsco
and the Patapsco Subsidiaries, taken as a whole. Since June 30,
1999 and through the date hereof, there has been no occurrence,
event or development of any nature existing or, to the knowledge
of Patapsco, threatened which may reasonably be expected to have
a material adverse effect upon the business, properties,
financial condition, operations or assets of Patapsco or any
Patapsco Subsidiary, taken as a whole. Since June 30, 1999 to
the date hereof, each of Patapsco and the Patapsco Subsidiaries
has owned and operated their respective assets, properties and
businesses in the ordinary course of business and consistent
with past practice, other than in connection with this Agreement
or the transactions contemplated by this Agreement.
3.6 Prospectus/Proxy Statement. At the time the
--------------------------
Registration Statement becomes effective and at the time the
Prospectus/Proxy Statement is mailed to the shareholders of the
Company for the solicitation of proxies for the approval
referred to in Section 1.9 hereof and at all times subsequent to
such mailings up to and including the times of such approval,
such
25
Registration Statement and Prospectus/Proxy Statement (including
any amendments or supplements thereto), with respect to all
information set forth therein relating to Patapsco (including
the Patapsco Subsidiaries) and its shareholders, Patapsco common
stock, the Preferred Stock, this Agreement, the Company Merger
and all other transactions contemplated hereby, will:
(a) comply in all material respects with applicable
provisions of the 1933 Act, the 1934 Act and the rules and
regulations under such Acts; and
(b) not contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements contained
therein, in light of the circumstances under which it is made,
not misleading.
3.7 No Broker's or Finder's Fees. No agent, broker,
----------------------------
investment banker, person or firm acting on behalf or under
authority of Patapsco or any of the Patapsco Subsidiaries is or
will be entitled to any broker's or finder's fee or any other
commission or similar fee directly or indirectly in connection
with the Company Merger or any other transaction contemplated
hereby, except Patapsco has engaged Trident Securities, Inc., an
investment banking firm, to provide financial advisory services
to Patapsco.
3.8 Litigation and Other Proceedings. Except for matters
--------------------------------
which would not have a material adverse effect on the business,
financial condition or results of operations of Patapsco and the
Patapsco Subsidiaries taken as a whole, neither Patapsco nor any
Patapsco Subsidiary is a defendant in, nor is any of its
property subject to, any pending, or, to the knowledge of
Patapsco, threatened, claim, action, suit, investigation, or
proceeding, or subject to any judicial order, judgment or
decree.
3.9 Compliance With Law.
-------------------
(a) Patapsco and the Patapsco Subsidiaries are in
compliance in all material respects with all laws and
regulations applicable to their respective business or
operations or with respect to which compliance is a condition of
engaging in the business thereof, except to the extent that
noncompliance would not have a material adverse effect on the
business, financial condition or results of operations of
Patapsco and the Patapsco Subsidiaries, taken as a whole, and
neither Patapsco nor any Patapsco Subsidiary has received notice
from any federal, state or local government or governmental
agency of any material violation of, and does not know
of any material violations of, any of the above.
(b) Patapsco and each of its Subsidiaries have all
material permits, licenses, certificates of authority, orders
and approvals of, and have made all material filings,
applications and registrations with, all federal, state and
local governmental or regulatory bodies that are required in
order to permit them to carry on their respective business as
they are presently conducted, except to the extent that failure
to have any such permit, license, certificate of authority,
order or approval, or failure to make any filing, applications
or registration would not
26
have a material adverse effect on the business, financial
condition or results of operations of Patapsco and the Patapsco
Subsidiaries, taken as a whole.
3.10 Corporate Actions. The Boards of Directors of
Patapsco, including two-thirds of the "Continuing Directors" (as
that term is defined in the Articles of Incorporation of
Patapsco) at a meeting of directors at which a "Continuing
Director Quorum" (as that term is defined in the Articles of
Incorporation of Patapsco) was present, the Bank and New Sub
have duly authorized their respective officers to execute and
deliver this Agreement and to take all action necessary to
consummate the Company Merger and the other transactions
contemplated hereby. All corporate authorizations by the Board
of Directors of Patapsco, the Bank and New Sub required for the
consummation of the Company Merger have been obtained. The
shareholders of Patapsco are not required to approve either the
Company Merger or the other transactions contemplated hereby in
accordance with Maryland corporate law. In its capacity as sole
shareholder of New Sub, the Bank will have approved the Company
Merger prior to the Closing.
3.11 Authority. The execution, delivery and, subject to
---------
receipt of the Governmental Approvals (as defined in Section
5.11(c)), performance of this Agreement by Patapsco, the Bank
and New Sub and the Bank Merger by Bank does not violate or
conflict with any of the provisions of, or constitute a breach
or default under or give any person the right to terminate,
cancel or accelerate payment or performance under or result in
the creation of any Encumbrance upon any property or asset of
Patapsco, the Bank or New Sub pursuant to (i) the articles of
incorporation or bylaws of Patapsco, the Bank or New Sub or the
articles of incorporation or bylaws of any other Patapsco
Subsidiary, (ii) any law, rule, ordinance or regulation or
judgment, decree, order, award or governmental or
non-governmental permit or license to which Patapsco or any of
the Patapsco Subsidiaries is subject, except where the
non-compliance or violation of which would not have a material
adverse effect on the business, financial condition or results
of operations of Patapsco and the Patapsco Subsidiaries taken as
a whole, (iii) any material Contract to which Patapsco or any of
the Patapsco Subsidiaries is a party or is subject to or by
which any of their properties or assets is bound, except where
the breach or default would not have a material adverse effect
on the business, financial condition or results of operations of
Patapsco and the Patapsco Subsidiaries taken as a whole, or (iv)
any note, bond, mortgage, indenture, license agreement or other
instrument or obligation the effect of which would have a
material adverse effect on the financial condition, business or
results of operations of Patapsco and the Patapsco Subsidiaries,
taken as a whole. The parties acknowledge that the consummation
of the Company Merger and the other transactions contemplated
hereby is subject to various regulatory approvals. Patapsco,
New Sub and the Bank have all requisite corporate power and
authority to enter into this Agreement and to perform their
obligations hereunder. Other than the receipt of Governmental
Approvals, the adoption by Patapsco of Articles Supplementary
and the filing thereof with and acceptance thereof by the
Department and the acceptance by the Department of the Articles
of Merger, no consents or approvals are required on behalf of
Patapsco or any Patapsco Subsidiary in connection with the
consummation of the transactions contemplated by this Agreement
or the Company Merger. This Agreement constitutes the valid and
binding obligation of Patapsco, New Sub and the Bank, as
applicable, and is enforceable in accordance with its terms,
except as
27
enforceability may be limited by applicable laws relating to
bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or creditors' rights generally and general principles
of equity.
3.12 Information Furnished. No statement contained in any
---------------------
schedule, certificate or other document furnished (whether prior
to or subsequent to the date of this Agreement) or to be
furnished in writing by or on behalf of Patapsco, Bank or NewSub
to Company pursuant to this Agreement contains or will contain
any untrue statement of a material fact or any material
omission. No information material to the Company Merger and
which is necessary to make the representations and warranties
not misleading, to the knowledge of Patapsco, has been withheld
from the Company.
3.13 Agreements and Instruments. As of the date of this
--------------------------
Agreement, there are no agreements, directives, orders or
similar arrangements between or involving Patapsco or any
Patapsco Subsidiary and any state or federal bank regulatory
authority.
3.14 Tax Matters. Patapsco and each of the Patapsco
-----------
Subsidiaries have duly and properly filed all federal, state,
local and other tax returns required to be filed by them and
have made timely payments of all taxes due and payable, whether
disputed or not; the current status of audits of such returns by
the Internal Revenue Service ("IRS") and other applicable
agencies is as set forth in Section 3.14 of Schedule II; and
there is no agreement by Patapsco or any Patapsco Subsidiary for
the extension of time or for the assessment or payment of any
taxes payable. Neither the IRS nor any other taxing authority
is now asserting or, to the knowledge of Patapsco, threatening
to assert any deficiency or claim for additional taxes (or
interest thereon or penalties in connection therewith), nor is
Patapsco aware of any basis for any such assertion or claim.
Patapsco and each of the Patapsco Subsidiaries have complied in
all material respects with applicable IRS backup withholding
requirements and have filed all appropriate information
reporting returns for all tax years for which the statute of
limitations has not closed. Patapsco and each Patapsco
Subsidiary have complied in all material respects with all
applicable state law sales and use tax collection and reporting
requirements.
3.15 Year 2000. Patapsco's and the Bank's computer
---------
hardware and software systems used for the storage and
processing of data (as used in this Section 3.15, "Systems") are
Millennium Compliant as required by all FFIEC Year 2000
compliance guidelines; (b) to Patapsco's knowledge, none of
Patapsco's or any Patapsco Subsidiary's Systems, operations or
business functions will be materially adversely affected by the
failure of any third party with whom Patapsco or the Bank has
consistent dealings to be Millennium Compliant; and (c) Patapsco
and the Bank have taken all necessary and appropriate action to
address and remedy any known deficiencies in Patapsco's and the
Bank's Systems from becoming Millennium Compliant. As used
herein "Millennium Compliant" shall mean the ability of
Patapsco's and the Bank's Systems to provide the following
functions, without human intervention, individually and in
combination with other products or systems: (i) consistently
handle data information after January 1, 2000, including but not
limited to accepting data input, providing data output and
performing calculations
28
on dates or portions of dates; (ii) function accurately and
without interruption after January 1, 2000 (including leap year
computations), without any change in operations associated with
the advent of a new century; (iii) respond to two-digit input in
a way that resolves any ambiguity as to century in a disclosed,
defined and predetermined manner; and (iv) store and provide
output of date information in ways that are unambiguous as to
century.
3.16 Community Reinvestment Act. The Bank's rating pursuant
--------------------------
to its most recent examination by federal regulatory authorities
pursuant to the provisions of the Community Reinvestment Act was
a "satisfactory" or better. Neither Patapsco nor the Bank has
received any comment letters relating to its Community
Reinvestment Act Statement or is otherwise aware of any adverse
reaction to such statement.
3.17 Funding. The Bank shall have no later than one day
-------
prior to the Effective Time sufficient cash on hand to fund the
aggregate Merger Consideration payable hereunder.
3.18 Delays. Patapsco is not aware of any matter that could
------
cause a delay in receiving the Governmental Approvals required
to consummate the Company Merger and the other transactions
contemplated by this Agreement, including without limitation,
non-compliance with the Truth in Lending Act, capital
compliance, or any provisions of the Community Reinvestment Act.
3.19 Property and Assets. There has been no material
-------------------
physical loss, damage or destruction, whether or not covered by
insurance, affecting the real properties of Patapsco and the
Patapsco Subsidiaries since June 30, 1999, except such loss,
damage or destruction which does not have a material adverse
effect on Patapsco and the Patapsco Subsidiaries, taken as a
whole.
3.20 Insurance. Neither Patapsco nor any Patapsco
---------
Subsidiary is in default with respect to any such policy which
default would have a material adverse effect on the business,
financial condition or results of operations of Patapsco and the
Patapsco Subsidiaries taken as a whole. Except as set forth in
Section 3.20 of Schedule II, the Insurance Policies will not in
any way be affected by, or terminated or lapsed solely by reason
of, the transactions contemplated by this Agreement. Neither
Patapsco nor any Patapsco Subsidiary has been refused any
insurance with respect to any material properties, assets or
operations, nor has any coverage been limited or terminated by
any insurance carrier to which it has applied for any such
insurance or with which it has carried insurance during the last
three years.
3.21 Labor Relations and Employment Arrangements. Neither
-------------------------------------------
Patapsco nor any Patapsco Subsidiary is a party to or bound by
any collective bargaining agreement. Patapsco and each Patapsco
Subsidiary enjoy good working relationships with their employees
and there are no labor disputes pending, or to the knowledge of
the President of Patapsco or the Bank threatened, that might
materially and adversely affect the condition (financial or
otherwise), assets, liabilities, business or operations of
Patapsco and the Bank, taken as a whole.
29
3.22 Tax Matters. Adequate provision for any federal, state
-----------
or local taxes due or to become due for Patapsco or any of the
Patapsco Subsidiaries for any period or periods through and
including June 30, 1999, has been made and is reflected on the
June 30, 1999 audited Patapsco consolidated financial statements
and has been or will be made in accordance with generally
accepted accounting principles with respect to periods ending
after June 30, 1999.
ARTICLE IV
COVENANTS
4.1 Investigations; Access and Copies. Between the date
---------------------------------
of this Agreement and the Effective Time, each party agrees on
behalf of itself and its subsidiaries to give the other party
and its respective representatives and agents full access (to
the extent permitted by applicable law) to all of the premises,
books, records and employees of it and its subsidiaries at all
reasonable times during normal business hours and upon prior
notice, and to furnish and cause its subsidiaries to furnish to
the other party and its respective agents or representatives
access to and true and complete copies of any financial and
operating data, all documents with respect to matters to which
reference is made in Article II or Article III, as the case may
be, of this Agreement or on any list, schedule or certificate
delivered or to be delivered in connection herewith, and such
other documents, records, or information with respect to the
business and properties of it and its subsidiaries as the other
party or its respective agents or representative shall from time
to time reasonably request; provided, however, that any such
inspection (a) shall be conducted in such manner as not to
interfere unreasonably with the operation of the business of the
entity inspected and (b) shall not affect any of the
representations and warranties hereunder. Each party will also
give prompt written notice to the other party of any event or
development (x) which, had it existed or been known on the
date of this Agreement, would have been required to be disclosed
under this Agreement, (y) which would cause any of its
representations and warranties contained herein to be inaccurate
or otherwise materially misleading, or (z) which materially
relate to the satisfaction of the conditions set forth in
Article V of this Agreement.
4.2 Conduct of Business of the Company and the Company
--------------------------------------------------
Subsidiaries. Between the date of this Agreement and the
------------
earlier of the Effective Time or the date this Agreement is
terminated in accordance with its terms, the Company and Savings
agree:
(a) That the Company and the Company Subsidiaries
shall conduct their business only in the ordinary course, and
maintain their books and records in accordance with past
practices and not to take any action that would materially (i)
adversely affect the ability to obtain the Governmental
Approvals or (ii) adversely affect the Company's ability to
perform its obligations under this Agreement;
(b) That the Company shall not, without the prior
written consent of Patapsco: (i) declare, set aside or pay any
dividend or make any other distribution with respect to
Company's capital stock, except for the declaration and payment
of regular semi-annual cash dividends of $0.10 per share in
accordance with past practice, provided that the Company shall
not declare or
30
pay any dividend following the date on which all Governmental
Approvals, other than the expiration of the 15-day waiting
period required under the regulations of the DOJ, shall have
been obtained; (ii) reacquire any of Company's outstanding
shares of capital stock; (iii) issue or sell or buy any shares
of capital stock of the Company or any Company Subsidiary; (iv)
effect any stock split, stock dividend or other reclassification
of Company's Common Stock; or (v) grant any options or issue any
warrants exercisable for or securities convertible or
exchangeable into capital stock of Company or any Company
Subsidiary or grant any stock appreciation or other rights with
respect to shares of capital stock of Company or of any Company
Subsidiary;
(c) Except as contemplated by this Agreement, as
required by law or as described in Schedule I, that Company and
the Company Subsidiaries shall not, without the prior written
consent of Patapsco: (i) sell or dispose of any significant
assets of the Company or of any Company Subsidiary other than in
the ordinary course of business consistent with past practices;
(ii) merge or consolidate the Company or any Company Subsidiary
with or otherwise acquire any other entity, or file any
applications or make any contract with respect to branching by
Savings (whether de novo, purchase, sale or relocation,
including the proposed new Harford County branch office
previously under consideration) or acquire or construct, or
enter into any agreement to acquire or construct, any interest
in real property (other than with respect to security interests
in properties securing loans and properties acquired in
settlement of loans in the ordinary course) or improvements to
real property except as provided in this Agreement; (iii) change
the articles of incorporation, charter documents or other
governing instruments of the Company or any Company Subsidiary,
except as provided in this Agreement; (iv) grant to any
executive officer, director or employee of the Company or any
Company Subsidiary any increase in annual compensation, any
award under any Employee Plan or Benefit Arrangement or any
bonus type payment except increases in compensation, bonus or
benefits in the ordinary course of business to non-officer
employees; (v) adopt any new or amend (except for any amendments
required by law) or terminate any existing Employee Plans or
Benefit Arrangements of any type except as contemplated herein
and in compliance with applicable law or make any payment or
contribution to any Employee Plans or Benefit Arrangements
except for the Employee Plans or Benefit Arrangements
set forth in Section 2.13 of Schedule I; (vi) authorize
severance pay or other benefits for any officer, director or
employee of Company or any Company Subsidiary; (vii) incur any
material indebtedness or obligation or enter into or extend or
amend any material agreement or lease, which cannot be canceled
upon one month notice or which involves annual payments in
excess of $5,000, except that Savings may obtain FHLB advances
for the purposes of maintaining liquidity or funding loan
demand, with such advances not to exceed an aggregate
outstanding amount of $1.0 million at any given time; (viii)
engage in any lending activities other than in the ordinary
course of business consistent with past practices; (ix) form any
new subsidiary or cause or permit a material change in the
activities presently conducted by any Company Subsidiary or
make additional investments in subsidiaries; (x) purchase any
investments or debt securities, except that Company and the
Company Subsidiaries may purchase federal funds or make
overnight deposits with the Federal Home Loan Bank of Atlanta
and may purchase securities pursuant to any contractual
obligation in existence as of the date of this Agreement, all of
which contractual obligations are set forth in Section 4.2(c) of
Schedule I hereto; (xi) purchase any equity securities
31
other than Federal Home Loan Bank stock; (xii) make any
investment which would cause Savings not to be a qualified
thrift lender under Section 10(m) of the HOLA, or not to
be a "domestic building and loan association" as defined in
Section 7701(a)(19) of the Code; (xiii) make any loan, except
that Company or a Company Subsidiary may, without the prior
written consent of Patapsco, in the ordinary course consistent
with past practices, make (A) single-family residential
mortgage loans and construction loans with principal balances of
no more than $252,700, (B) any other loans secured by real
estate with principal balances of no more than $50,000, except
that Savings may without the prior written consent of Patapsco
purchase a participation interest a loan to be secured by a
property located at ▇▇▇▇▇-▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, or (C) any
unsecured loans of no more than $25,000; (xiv) authorize capital
expenditures other than in the ordinary course of business or in
excess of $5,000 in the aggregate; or (xv) adopt or implement
any change in its accounting principles, practices or methods
other than as may be required by generally accepted accounting
principles or by a regulatory authority or adopt or implement
any change in its methods of accounting for Federal income tax
purposes. The limitations contained in this Section 4.2(c)
shall also be deemed to constitute limitations as to the
making of any commitment with respect to any of the matters set
forth in this Section 4.2(c). Notwithstanding the foregoing,
Savings may engage in any of the foregoing activities
exclusively with the Bank.
(d) From and after the date of this Agreement, the
Company and Savings, on the one hand, and Patapsco and the Bank,
on the other hand, shall in good faith coordinate policies with
respect to their respective investment securities portfolios.
4.3 No Solicitation. From the date of this Agreement until
---------------
the Effective Time or the termination of this Agreement pursuant
to its terms, whichever occurs earlier, the Company agrees that
it will not authorize, and will not authorize any of its
Subsidiaries, or any of its or their officers, directors,
employees, agents or other representatives ("Representatives")
to, directly or indirectly, (A) initiate, solicit, encourage or
otherwise facilitate (including by way of furnishing
information), any inquiries or the making of any proposal or
offer that constitutes, or may reasonably be expected to lead
to, a Takeover Proposal, or (B) enter into or maintain or
continue discussions or negotiate with any person in furtherance
of such inquiries or to obtain a Takeover Proposal, or (C) agree
to, approve, recommend, or endorse any Takeover Proposal, or
authorize or permit any of its or their Subsidiaries or
Representatives to take any such action; provided, however, that
nothing contained in this Agreement shall prohibit the Company
Board of Directors from (i) furnishing information to, or
engaging in discussions or negotiations with, any person in
response to an unsolicited bona fide written Takeover Proposal,
(ii) recommending such an unsolicited bona fide written Takeover
Proposal to the stockholders of the Company or (iii) entering
into any agreement or letter of intent with any person with
respect to a Takeover Proposal, if and only to the extent in
each case that (a) the Company Board of Directors concludes in
good faith (after consultation with its financial advisors) that
such Takeover Proposal would constitute a Superior Proposal, and
(b) immediately (but not less than one day) after furnishing
such information to, or entering into discussions or
negotiations with, such person, the Company provides prompt
written notice to Patapsco to the effect that it is furnishing
information to, or entering into discussions or negotiations
with, such person (which notice shall identify the nature
32
and material terms of the proposal). The Company agrees that it
will immediately cease and cause to be terminated any
activities, discussions, or negotiations with any parties
regarding any Takeover Proposal existing as of the date of this
Agreement. The Company agrees to keep Patapsco fully and timely
informed of the status of any inquiries, proposals, discussions,
negotiations, furnishing of non-public information, or other
activities relating to a Takeover Proposal. As used in this
Agreement with respect to the Company, (i) "Takeover Proposal"
shall mean any proposal, other than as contemplated by this
Agreement, for a merger or other business combination involving
the Company or any Company Subsidiary or for the acquisition of
a twenty-five percent (25%) or greater equity interest in
Company or any Company Subsidiary, or for the purchase, lease or
other acquisition of a substantial portion of the assets of
Company or any Company Subsidiary (other than loans or
securities sold in the ordinary course), and (ii) "Superior
Proposal" means a bona fide Takeover Proposal made by a
third party that the Company Board of Directors determines in
its good faith judgment to be more favorable to the Company's
stockholders than the Company Merger (based on the written
advice of the Company's independent financial advisor) and for
which financing, to the extent required, is then committed or
which, in the good faith judgment of the Company Board of
Directors (following consultation with the Company's independent
financial advisor), is reasonably capable of being obtained by
such third person.
4.4 Shareholder Approvals. The Company shall call the
---------------------
meeting of its shareholders to be held for the purpose of voting
upon the Company Merger and related matters, as referred to in
Section 1.8 hereof, as soon as practicable, but in no event
later than sixty (60) days after the Registration Statement has
been declared effective by the SEC. In connection with such
meeting, the Company's Board of Directors shall recommend
approval of the Company Merger, except as the fiduciary duties
of the Company's Board of Directors may otherwise require. The
Company shall use its best efforts to solicit from its
shareholders proxies in favor of approval and to take all other
action necessary or helpful to secure a vote of the holders of
the shares of Company Common Stock in favor of the Company
Merger, except as the fiduciary duties of the Board of Directors
may otherwise require. Notwithstanding the foregoing, the
Company's Board of Directors need take no action pursuant to
this Section 4.4 where prior to taking such action, the Company
shall have entered into a written agreement or a binding
letter of intent to engage in a Takeover Proposal that would
constitute a Superior Proposal.
4.5 Filing of Applications for the Governmental Approvals.
-----------------------------------------------------
Patapsco shall use its best efforts to promptly prepare, submit
and file as soon as practicable after the date hereof all
applications necessary to receive the Governmental Approvals in
connection with the transactions contemplated by this Agreement.
4.6 Consents. Company and Savings will use their best
--------
efforts to obtain the consent or approval of each person whose
consent or approval shall be required in order to permit Company
or Savings, as the case may be, to consummate the Company Merger
and the Bank Merger.
33
4.7 Publicity. Between the date of this Agreement and the
---------
Effective Time, neither Patapsco, Company or any of their
subsidiaries shall, without the prior approval of the other,
issue or make, or authorize any of its directors, employees,
officers or agents to issue or make, any press release,
disclosure or statement to the press or any third party with
respect to the Company Merger or the transactions contemplated
hereto, except as required by law, provided, however, each party
shall provide the other with a copy of any such release prior to
issuance, if permitted by law. The parties shall cooperate when
issuing or making any press release, disclosure or statement
with respect to Company Merger or the transactions contemplated
hereby, except as required by law.
4.8 Cooperation Generally. Between the date of this
---------------------
Agreement and the Effective Time, Patapsco, Company and their
subsidiaries shall use their best efforts, and take all actions
necessary or appropriate, to consummate the Company Merger and
the other transactions contemplated by this Agreement at the
earliest practicable date. Except as contemplated by this
Agreement, as required by applicable law or as the fiduciary
duties of the Board of Directors of the applicable entity may
otherwise require, Patapsco, the Bank and New Sub, on one hand,
and the Company and Savings, on the other hand, agree not to
knowingly take any action that would (i) adversely effect their
respective ability to obtain the Governmental Approvals or (ii)
adversely affect their respective ability to perform their
obligations under this Agreement. Each of the parties will
promptly furnish each other with copies of written
communications received by them or any of their respective
subsidiaries from, or delivered by any of the foregoing to any
governmental entity in respect of the transactions contemplated
hereby. If, at any time after the Effective Time, the Surviving
Corporation or Bank shall consider or be advised that any
further deeds, assignments or assurances or any other acts are
necessary or desirable to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation or Bank its right, title
or interest in, to or under any of the rights, properties or
assets of Company or Savings or otherwise carry out the purposes
of this Agreement, Company and Savings and each of their
respective officers and directors shall be deemed to have
granted to the Surviving Corporation and Bank an irrevocable
power of attorney to execute and deliver all such deeds,
assignments or assurances and to do all acts necessary or
desirable to vest, perfect or confirm title and possession to
such rights, properties or assets in the Surviving Corporation
or Bank and otherwise to carry out the purposes of this
Agreement, and the officers and directors of the Surviving
Corporation and Bank are authorized in the name of Company,
Savings or otherwise to take any and all such action.
4.9 Additional Financial Statements and Reports. As soon
-------------------------------------------
as reasonably practicable after they become publicly available,
each party shall furnish to the other its statement of financial
condition and related statements of operations, cash flows and
stockholders' equity for all periods prior to the Closing. Such
financial statements will be prepared in conformity with
generally accepted accounting principles applied on a consistent
basis and fairly present the financial condition, results of
operations and cash flows of the party (subject, in the case of
unaudited financial statements, to (a) normal year-end audit
adjustments, (b) any other adjustments described therein and (c)
the absence of notes which, if presented, would not differ
materially from those included in its most recent audited
consolidated balance sheet), and all of such financial
statements
34
will be prepared in conformity with the requirements of Form
10-QSB or Form 10-KSB, as the case may be, under the 1934 Act.
Each party shall also furnish to the other within two days after
the meeting at which they are distributed to that party's
directors, such internal monthly financial statements as are
furnished to the directors and executive officers of that party.
4.10 Reserved.
4.11 D&O Indemnification and Insurance. (a) For a
---------------------------------
period of six (6) years following the Effective Time, each of
Patapsco and Bank shall indemnify, defend and hold harmless each
present and former director and officer of the Company and each
Company Subsidiary (each, an "Indemnitee") from and against, and
pay or reimburse the Indemnitee for, costs, judgments, fines,
losses, obligations, claims, damages, liabilities or expenses
(including interest, penalties, out-of-pocket expenses and
reasonable attorneys' fees incurred in the investigation or
defense of any of the same or in asserting any of their rights
under this Section 4.11(a) (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative (each a "Claim and collectively the "Claims")
arising out of, resulting from, or pertaining to matters
existing or occurring at or prior to the Effective Time
(including, but not limited to, the transactions contemplated by
this Agreement), regardless of whether such Claim is asserted
before, at or after the Effective Time, in accordance with and
subject to the requirements and other provisions of the
Articles of Incorporation and Bylaws of Patapsco and Bank in
effect on the date of this Agreement and applicable provisions
of law to the same extent as Patapsco is obligated thereunder to
indemnify and advance expenses to its own directors and officers
with respect to liabilities and claims made against them
resulting from their service for Patapsco and Bank. To the
extent a Claim is asserted before the Effective Time, Patapsco
and the Bank shall have no obligations under this Section
4.11(a) unless appropriate notice was given to the Company's or
the Company's Subsidiaries director's and officer's liability
insurer as required by the insurance policy prior to the
Effective Time.
(b) Patapsco shall cause the persons serving as officers
or directors of the Company immediately prior to the Effective
Time to be covered for a period of six (6) years from the
Effective Time by the directors' and officers' liability
insurance policy maintained by the Company (provided that
Patapsco may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are
not materially less advantageous than such policy) with respect
to acts or omissions occurring prior to the Effective Time which
were committed by such officers and directors in their capacity
as such; provided, however, that in no event shall Patapsco be
required to expend more than $10,000 to maintain or procure
insurance coverage for such three-year period pursuant hereto.
(c) Any Indemnitee wishing to claim indemnification under
Section 4.11(a), upon learning of any Claim shall promptly
notify Patapsco and the Bank thereof; provided that the failure
to so notify shall not affect the obligations of Patapsco or the
Bank under Section 4.11(a) unless and to the extent that such
failure materially prejudices Patapsco or the Bank. In the
event of any such Claim (whether arising before or after the
Effective Time) (i) Patapsco shall have the
35
right to assume the defense thereof, with counsel selected by
Patapsco and reasonably acceptable to the Indemnitee, and
Patapsco shall not be liable to such Indemnitee for any legal
expenses of other counsel or any other expenses subsequently
incurred by such Indemnitee in connection with the defense
thereof, except that if Patapsco elects not to assume such
defense or counsel for the Indemnitee advises that there are
issues which raise conflicts of interest between Patapsco and
the Indemnitee, the Indemnitee may retain counsel satisfactory
to him, and Patapsco shall pay all reasonable fees and expenses
of such counsel for the Indemnitee promptly as statements
therefor are received, provided, however, that Patapsco shall be
obligated pursuant to this paragraph (c) to pay for only one
firm of counsel for all Indemnitees in any jurisdiction unless
the use of one counsel for such Indemnitees would present such
counsel with a conflict of interest, (ii) the Indemnitee will
cooperate in the defense of any such matter and (iii) Patapsco
shall not have any obligation hereunder to any Indemnitee when
and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and
unappealable, that the indemnification of such Indemnitee in the
manner contemplated hereby is prohibited by applicable law.
Patapsco shall not, in the defense of any claim or litigation,
except with the consent of the Indemnitee (which consent shall
not be unreasonably withheld, conditioned or delayed), consent
to entry of judgment or enter into any settlement that provides
for injunctive or other nonmonetary relief affecting the
Indemnitee or that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability with respect to
such claim or litigation.
(d) This Section 4.11 shall be construed as an agreement
as to which the directors and officers of Company and Savings
referred to herein are intended to be third party beneficiaries
and shall be enforceable by such persons and their heirs and
representatives.
4.12 Update Disclosure. (a) From and after the date hereof
-----------------
until the Effective Time, the Company shall promptly, but not
less frequently than monthly, update Schedule I hereto by notice
to Patapsco to reflect any matters which have occurred from and
after the date hereof which, if existing on the date hereof,
would have been required to be described therein and/or which,
in the case of all such updates other than the last such update
prior to the Effective Time, reflect a material change from the
information provided in Schedule I as of the date hereof;
provided, however, that no such update shall affect the
conditions to the obligation of Company and Savings to
consummate the transactions contemplated hereby, and any and all
changes reflected in any such update shall be considered in
determining whether such conditions have been satisfied.
(b) From and after the date hereof until the Effective
Time, Patapsco shall promptly, but not less frequently than
monthly, update Schedule II hereto by notice to Company to
reflect any matters which have occurred from and after the date
hereof which, if existing on the date hereof, would have been
required to be described therein and/or which, in the case of
all such updates other than the last such update prior to the
Effective Time, reflect a material change from the information
provided in Schedule II as of the date hereof; provided,
however, that no such update shall affect the conditions to the
obligation of Patapsco and Bank to consummate the transactions
36
contemplated hereby, and any and all changes reflected in any
such update shall be considered in determining whether such
conditions have been satisfied.
4.13 Company's Employee Plans and Benefit Arrangements.
-------------------------------------------------
(a) Between the date of this Agreement and the
Effective Time, neither the Company nor any Company Subsidiary
will make any contribution, or undertake any obligation to
contribute any amount to any Employee Plan or Benefit
Arrangement other than as set forth in Section 2.13 of Schedule
I to this Agreement or as otherwise contemplated by this
Agreement or required under the terms of the plan or
arrangement.
(b) On or before 15 days after execution hereof, the
Company will provide Patapsco with true and complete copies of
the following documents where applicable to any Employee Plan or
Benefit Arrangement: (i) each plan document or agreement, and
any amendments thereto, and related trust agreements, insurance
contracts and policies, annuity contracts, and any other funding
arrangement; (ii) the most recent summary plan description and
summary of material modifications; (iii) for the three most
recent plan years, Form 5500 Annual Return/Report and all
actuarial and financial reports and appraisals prepared in
connection with such reports; (iv) the most recent determination
letter received from the Internal Revenue Service ("IRS"), plus
any open requests and all other rulings received from the IRS,
Department of Labor or Pension Benefit Guaranty Corporation; and
(v) with respect to any action taken within the current and
three preceding plan years, a certified copy of all Board of
Directors resolutions.
(c) Except as otherwise provided in this Section, if
Patapsco so requests, the Company and any Company Subsidiary
shall develop a plan and timetable for terminating each Employee
Plan and Benefit Arrangement as of the date of Closing or the
immediately preceding day and, with the advance written consent
of Patapsco, which consent shall not be unreasonably withheld,
shall proceed with the implementation of said termination plan
and timetable. The Company shall be solely responsible for all
costs, expenses, and other obligations whatsoever arising out of
or resulting from termination of any Employee Plan or Benefit
Arrangement. Neither the Company nor any Company Subsidiary nor
any trust in their direct or indirect control will establish any
new benefit plan or arrangement for directors, officers, or
employees, or amend or commit to distribute any assets from any
Employee Plan or Benefit Arrangement without Patapsco's prior
written approval, except that the Company or a Company
Subsidiary may make such distribution as may be required under
the terms of any existing Employee Plan or Benefit Arrangement
in connection with the retirement or other termination of an
employee and except as contemplated by this Agreement or as
described in Schedule I.
(d) With respect to any benefit plan that provides
for vesting of benefits, there shall be no discretionary
acceleration of vesting, provided that vesting shall accelerate
as of the Effective Time in accordance with the terms of any
Employee Plan or Benefit Arrangement that provides for an
automatic acceleration of vesting upon a change in control
transaction such as the one contemplated hereby.
37
(e) As of the Effective Time, Patapsco and the Bank
agree that the employment of and the Employment Agreement
between G. ▇▇▇▇▇▇ ▇▇▇▇▇▇ and Savings (as disclosed in Section
2.12 of Schedule I to this Agreement) shall be terminated by
Savings. In connection with such termination, ▇▇. ▇▇▇▇▇▇ shall
be entitled to receive payment as contemplated in Section 12 of
such Employment Agreement, subject to the limitations set forth
therein to be paid by Savings, with such payment to be made
immediately prior to the Effective Time.
(f)(i) Company and Savings are authorized to
commence termination of the Company ESOP and to file as soon as
possible an Application for Determination with the IRS regarding
tax qualification upon termination. No additional contribution
shall be made to the Company ESOP by Patapsco, Bank, Company or
Savings except as necessary to make the minimum required payment
under the current exempt loan (the "Loan") between Company and
the Company ESOP or as otherwise required by law, provided,
however, that all such contributions shall only be made if
deductible by Company and Savings under Section 404 of the Code
and the allocations of such contributions shall otherwise be in
compliance with Section 415 of the Code. All shares of Company
Common Stock held by the Trustee of the Company ESOP at the
Effective Time shall be exchanged by the Trustee for the Merger
Consideration in accordance with this Agreement, and the cash
proceeds paid to the Company ESOP with respect to the
unallocated shares of Company Common Stock owned by the Company
ESOP shall be applied against the Loan. To the extent that such
cash proceeds together with other cash owned by the Company ESOP
are insufficient to retire the Loan, the Trustee for the Company
ESOP shall dispose of shares held in the suspense account of the
Company ESOP for the purpose of retiring the Loan. Any shares
and other assets remaining in the suspense account following
repayment of the Loan in full including interest will be
available for allocation and distribution as promptly as
possible to participants (as defined in the Company ESOP) in
accordance with the provisions of the Company ESOP and
applicable law. It is the intent of the parties that the
Company ESOP be terminated and distributions made concurrently
with the Closing to the extent possible but not prior to the
receipt of a favorable determination of the ESOP's qualification
from the IRS.
(ii) In the event that the allocation of assets
remaining in the suspense account following repayment of the
Loan in full is subject to the limits on annual additions
pursuant to Section 415 of the Code, then Patapsco will make all
reasonable efforts, to the extent permissible under applicable
provisions of the Code and related Treasury Regulations, to
continue the Company ESOP trust through the last day of the
Company ESOP plan year following the Company ESOP plan year
during which the Effective Time occurs, solely for the benefit
of those individuals who are participants in the Company ESOP
immediately before the Effective Time, and to allocate such
remaining assets to Company ESOP participants in accordance with
the terms of the Company ESOP to the full extent permissible
under Section 415 of the Code between the Effective Time and the
last day of the Company ESOP plan year following the Company
ESOP plan year during which the Effective Time occurs. In the
event that all assets held by the Company ESOP trust are
allocated prior to the last day of the Company ESOP plan
year during which the Effective Time occurs, the Company ESOP
trust will be immediately terminated and participants' accounts
will be distributed as soon as practicable thereafter.
38
(iii) The provisions in paragraph 4.13(f)(i) and
4.13(f)(ii) are expressly subject to (x) Savings and the Company
making all necessary amendments to the Company ESOP for an IRS
determination that the ESOP is tax-qualified and which
amendments are in effect at the Effective Time; (y) such
amendments include, without limitation, the amendment of Section
17.3 of the Company ESOP to eliminate the provisions of such
section that could require Company, Savings, Patapsco, Bank or
any affiliate thereof to make any payment to Company ESOP
participants in the event that Code section 415 or a
participant's employment status limits allocations to
participant accounts under the Company ESOP and any other
amendments necessary to make all provisions of the Plan
consistent with this Agreement; and (z) all amendments are
satisfactory to Patapsco.
(g) Neither the Company nor any Company Subsidiary
will approve or implement the Stock Option Plan or Management
Recognition Plan currently under consideration, or any similar
plan providing for grants of options to acquire Company Common
Stock or awards of Company Stock, whether restricted or
otherwise. In lieu thereof, immediately prior to the
transactions contemplated by Section 7.3 hereof, Savings will
credit the sum of $150,000 under Savings' Deferred Compensation
Plan, with such sum to be allocated equally among the
participants in such plan. Such sum shall not earn any
investment return.
(h) Within 60 days of the date of this Agreement,
Company and Savings shall develop a written description and
timetable for the termination of Savings' 401(k) plan, which
description and timetable will be provided to and subject to the
approval of Patapsco's counsel, which approval shall not be
unreasonably withheld. Such description and timetable shall
provide that Savings' 401(k) plan shall be terminated no later
than the day prior to the Effective Time. Following the
Effective Time, Patapsco shall file an application with the
Internal Revenue Service for an advance determination as to
whether Savings' 401(k) plan meets the qualification
requirements of Section 401 of the Code with respect to such
plan's termination. No distribution shall be made from Savings'
401(k) Plan prior to the receipt of a favorable determination on
such plan's qualification from the IRS.
(i) Prior to the Effective Time, the Company and
Patapsco shall take all such steps as may be required to cause
any dispositions of Company Common Stock (including derivative
securities with respect to Company Common Stock) or acquisitions
of cash and/or Preferred Stock resulting from the transactions
contemplated by this Agreement by each individual who is subject
to the reporting requirements of Section 16(a) of the Exchange
Act with respect to the Company to be exempt under Rule 16b-3
promulgated under the Exchange Act. The Company agrees to
promptly furnish Patapsco with all requisite information
necessary for Provident to take the actions contemplated by this
Section 4.13(i).
4.14 Payments. No later than thirty (30) days following the
--------
date of this Agreement, the Company shall furnish Patapsco for
its review (i) a computation of the amounts expected to be
payable under the employment agreement disclosed in Section 2.12
of Schedule I as a result of the Company Merger, and (ii) a
schedule reasonably satisfactory to Patapsco demonstrating that
no
39
"disqualified individual" within the meaning of Section 280G of
the Code will be receiving payments in contravention of the
representation set forth in the second sentence to Section 2.12
herein.
4.15 Environmental Reports. The Company shall undertake
---------------------
within 15 days of the date hereof to order, and shall use its
best efforts to receive (from a qualified environmental
consultant engaged by the Company or Savings and reasonably
satisfactory to Patapsco) within 40 days (subject to extension
with the consent of Patapsco) after ordering a Phase I
Environmental Risk Report (as contemplated in OTS Thrift
Bulletin #16) ("Report") on (i) all commercial real estate owned
by, (ii) all offices and premises used as facilities as of the
date hereof by, and (iii) all properties which serve as security
for any commercial real estate loan having a principal balance
as of the date hereof of $500,000 or more of, the Company or
Savings. In the event that Patapsco believes in good faith that
such Reports indicate a reasonable likelihood there will be
material costs associated with bringing any such property
or properties into material compliance with applicable
environmental laws, Patapsco shall, within 15 days of its
receipt of such Reports, provide Company with written notice to
that effect. Failure of Patapsco to provide such written notice
with respect to a property within such 15 days period shall
constitute waiver of its right to terminate this Agreement
pursuant to Section 5.4(f) herein with respect to such property
only. The Company shall thereafter undertake to order (from a
qualified environmental consultant engaged by the Company or
Savings and reasonably satisfactory to Patapsco) a Phase II
Environmental Risk Report (as contemplated in OTS Thrift
Bulletin #16) on any property as directed by Patapsco. Patapsco
and the Bank agree that they shall pay fifty (50) percent
of the expenses incurred with respect to procuring the Phase I
Reports and Patapsco will pay all of the expenses incurred with
respect to procuring the Phase II Reports. Patapsco and the
Bank agree to keep confidential the contents and results of
these Phase I and Phase II Environmental Risk Reports.
4.16 Conduct of Business of Patapsco and the Patapsco
------------------------------------------------
Subsidiaries. Between the date of this Agreement and the
------------
earlier of the Effective Time or the date this Agreement is
terminated in accordance with its terms, Patapsco and the Bank
agree that Patapsco and the Patapsco Subsidiaries shall not take
any action that would (i) materially adversely affect the
ability to obtain the Governmental Approvals or (ii) materially
adversely affect Patapsco's ability to perform its obligations
under this Agreement.
4.17 Resale Letter Agreements. After execution of this
------------------------
Agreement, Company shall use its best efforts to cause to be
delivered to Patapsco from each person who may be deemed to be
an "affiliate" of Company within the meaning of Rule 145 under
the 1933 Act, a written letter agreement regarding restrictions
on resale of the shares of Preferred Stock received by such
persons in the Company Merger to ensure compliance with
applicable resale restrictions imposed under the federal
securities laws.
4.18 Employee Benefit Schedules. Within 15 days following
--------------------------
the date of this Agreement, the Company shall prepare and
furnish to Patapsco a schedule that sets forth, as of the date
of this
40
Agreement (i) the actuarial present value, determined and
prepared in accordance with GAAP (based, where applicable, on
the same actuarial assumptions as those previously used for
funding purposes, other than turnover assumptions, and computed
on the basis of a terminated plan), of any accrued benefits or
other obligations under a defined benefit pension plan not
listed elsewhere in this schedule, including without limitation,
premiums and contributions for which the Company or any Company
Subsidiary is or may be directly or indirectly liable to present
or former employees, officers, directors, and their
beneficiaries, (ii) the net fair market value of the assets
held in any fund, policy, or other arrangement as of April 30,
2000, and (iii) the amount of any contribution or other
obligation paid, accrued, or payable, or reasonably expected to
be payable, between the date of this Agreement and the Closing,
including but not limited to contributions by Company or Savings
to Company's Employee Stock Ownership Plan (the "Company ESOP")
to repay its loan in accordance with the ESOP loan documents,
subject to applicable tax law
limitations.
4.19 Articles Supplementary. Prior to the Closing,
----------------------
Patapsco's Board of Directors shall have approved the Articles
Supplementary in all material respects in the form attached
hereto as Exhibit A.
4.20 Conduct of Business of Patapsco and the Patapsco
------------------------------------------------
Subsidiaries. Between the date of this Agreement and the
------------
earlier of the Effective Time or the date this Agreement is
terminated in accordance with its terms, Patapsco and the Bank
agree not to take any action that would materially (i) adversely
affect the ability to obtain the Governmental Approvals or (ii)
adversely affect Patapsco's ability to perform its obligations
under this Agreement;
ARTICLE V
CONDITIONS TO THE COMPANY MERGER; TERMINATION OF AGREEMENT
5.1 General Conditions. The obligations of Patapsco, the
------------------
Bank and New Sub and the Company and Savings to effect the
Company Merger and the Bank Merger shall be subject to the
following conditions:
(a) Stockholder Approval. The holders of the
--------------------
outstanding shares of Company Common Stock shall have approved
this Agreement and the Company Merger as specified in Section
1.8 hereof and as otherwise required by applicable law and the
Company's Articles of Incorporation.
(b) No Proceedings. No order, decree or injunction
--------------
shall have been entered and remain in force restraining or
prohibiting the Company Merger, the Liquidation or the Bank
Merger in any legal, administrative, arbitration, investigatory
or other proceedings (collectively, "Proceedings").
41
(c) Government Approvals. To the extent required by
--------------------
applicable law or regulation, all approvals of or filings with
any governmental authority (collectively, "Governmental
Approvals"), including without limitation those of the OTS, the
FDIC, FRB, the Commissioner, the Federal Trade Commission, DOJ,
the SEC, and any state securities or Blue Sky authorities, as
applicable, shall have been obtained or made and any waiting
periods shall have expired in connection with the consummation
of the Company Merger, the Liquidation and the Bank Merger. All
other statutory or regulatory requirements for the valid
consummation of the Company Merger, the Liquidation and the Bank
Merger and related transactions shall have been satisfied.
(d) Registration Statement. The Registration
----------------------
Statement shall have been declared effective and shall not be
subject to a stop order of the SEC and, if the offer and sale of
the Preferred Stock in the Company Merger pursuant to this
Agreement is subject to the Blue Sky laws of any state, shall
not be subject to a stop order of any state securities
commissioner.
5.2 Conditions to Obligations of Patapsco, Bank and New
---------------------------------------------------
Sub. The obligations of Patapsco, Bank and New Sub to effect
---
the Company Merger, the Liquidation, the Bank Merger and the
transactions contemplated herein shall be subject to the
following additional conditions to the extent not waived:
(a) Required Consents. In addition to Governmental
-----------------
Approvals, Company and Savings shall have obtained all necessary
third party consents or approvals in connection with the Company
Merger, the Liquidation and the Bank Merger, the absence of
which would materially and adversely affect Company and the
Company Subsidiaries, taken as a whole.
(b) No Material Adverse Change. Between the date of
--------------------------
this Agreement and the date of Closing, there shall not have
occurred any material adverse change in the financial condition,
business, results of operations or assets of Company and the
Company Subsidiaries, taken as a whole. For purposes of this
Section 5.2(b), the term "material adverse change" or "material
adverse effect" or words of similar import, shall not include
the impact of: (i) changes, after the date hereof, in laws of
general applicability or interpretations thereof by courts or
governmental authorities; (ii) changes, after the date hereof,
in generally accepted accounting principles or regulatory
principles generally applicable to the banking and thrift
industries; (iii) actions or omissions by a party hereto (or any
of its subsidiaries), after the date hereof, taken or failed to
be taken with the prior informed written consent of the other
party, or at the express written request of the other party, in
contemplation of the transaction contemplated hereby; or (iv)
the Company Merger and compliance with the provisions of this
Agreement on the operating performance of the parties. No
payments made or expenses incurred in accordance with Section
4.13 herein shall be deemed to constitute a material adverse
change under this Section 5.2(b).
(c) Representations and Warranties to be True;
------------------------------------------
Fulfillment of Covenants and Conditions. The representations
---------------------------------------
and warranties of the Company and Savings shall be true in all
material respects at the Effective Time
42
with the same effect as though made at the Effective Time (or on
the date when made in the case of any representation or warranty
which specifically relates to an earlier date); Company and
Savings shall have performed all obligations and complied with
each covenant, in all material respects, and all conditions
under this Agreement on their parts to be performed or complied
with at or prior to the Effective Time; and Company shall
have delivered to Patapsco a certificate, dated the Effective
Time and signed by its chief executive officer and chief
financial officer, to such effect.
(d) No Litigation. Neither the Company nor any
-------------
Company Subsidiary shall be a party to any pending litigation,
reasonably probable of being determined adversely to the Company
or any Company Subsidiary, which would have a material adverse
effect on the business, financial condition or results of
operations of the Company and the Company Subsidiaries, taken as
a whole.
(e) Governmental Approval. All Governmental
---------------------
Approvals required hereunder to consummate the transactions
contemplated hereby shall have been obtained without the
imposition of any conditions which Patapsco, the Bank and New
Sub reasonably and in good faith determine to be unduly
burdensome upon the conduct of the business of Patapsco, the
Bank or New Sub and, in the reasonable judgment of Patapsco,
substantially diminish the benefits expected to be received by
Patapsco from the transactions contemplated hereby.
(f) Environmental Reports. Patapsco shall have
---------------------
received, to its reasonable satisfaction, any Phase II
Environmental Reports as is contemplated in Section 4.15 herein
subject to Patapsco's rights under Section 5.4(g) herein.
(g) Objecting Shares. No greater than 5% of the
----------------
outstanding shares of Company Common Stock entitled to vote at
the meeting of Company's shareholders, excluding shares owned by
Patapsco, as is contemplated in Section 1.9 herein shall have
delivered the written notice of intent to demand payment
pursuant to Title 3 Subtitle 2 of the MGCL and shall have voted
against the Company Merger at the Shareholders' Meeting.
(h) Tax Opinion. Patapsco and the Company shall have
-----------
received an opinion of Patapsco's tax counsel or tax accountants
substantially to the effect that (i) Patapsco, New Sub and the
Company will not recognize any gain or loss upon the acquisition
of the Company Common Stock in the Company Merger, (ii) the
Company will not recognize any gain or loss upon its
distribution of all its assets to, and the assumption of all its
liabilities by, Patapsco in the Liquidation; (iii) Patapsco will
not recognize any gain or loss upon receipt of all the assets
and assumption of all the liabilities of the Company in the
Liquidation; and (iv) Patapsco, the Bank and Savings will not
recognize any gain or loss as a result of the Bank Merger.
(i) Resignation of Directors and Officers. Each of
-------------------------------------
the persons serving as a director or officer of Company and
Savings or any subsidiary of either shall, at the Closing,
submit his/her written resignation, effective as of the
Effective Time.
43
(j) Legal and Financial Advisory Fees. The legal
---------------------------------
fees and fees to the advisor or advisors referred to in Section
2.7 of Schedule I payable or paid in connection with the Company
Merger and the transactions contemplated by this Agreement shall
not have exceeded $125,000 in the aggregate.
(k) Affiliates Letters. Patapsco shall have received
------------------
the letter agreements from all affiliates of the Company as
contemplated in Section 4.17 herein.
5.3 Conditions to Obligations of Company and Savings. The
------------------------------------------------
obligations of Company and Savings to effect the Company Merger
and the transactions contemplated herein shall be subject to the
following additional conditions to the extent not waived.
(a) Representations and Warranties to be True;
-----------------------------------------
Fulfillment of Covenants and Conditions. The representations
---------------------------------------
and warranties of Patapsco and the Bank shall be true in all
material respects at the Effective Time with the same effect as
though made at the Effective Time (or on the date when made in
the case of any representation or warranty which specifically
relates to an earlier date); Patapsco, the Bank and New Sub
shall have performed all obligations and complied with each
covenant, in all material respects, and all conditions under
this Agreement on their parts to be performed or complied with
at or prior to the Effective Time; and Patapsco shall have
delivered to Company a certificate, dated the Effective Time and
signed by its chief executive officer and chief financial
officer, to such effect.
(b) Receipt of Merger Consideration. The Exchange
-------------------------------
Agent in its fiduciary capacity shall have certified receipt of
the aggregate Merger Consideration for all shares of Company
Common Stock to be acquired hereunder, and a certificate to that
effect shall have been delivered to the Company.
(c) Required Consents. In addition to Governmental
-----------------
Approvals, Patapsco, the Bank and New Sub shall have obtained
all necessary third party consents or approvals in connection
with the Company Merger, the absence of which would materially
and adversely affect Patapsco and the Patapsco Subsidiaries,
taken as a whole.
(d) Patapsco shall have reserved for issuance the
number of shares of Preferred Stock issuable pursuant to the
terms of this Agreement and the number of shares of Patapsco
common stock into which such shares of Preferred Stock may be
converted pursuant to the Articles Supplementary governing such
Preferred Stock.
(e) The average of the highest bid and lowest asked
price for the Patapsco common stock during the 30 trading days
ending five business days before the Closing shall exceed $15.00
per share.
(f) No Material Adverse Change. Between the date of
--------------------------
this Agreement and the date of Closing, there shall not have
occurred any material adverse change in the financial
44
condition, business, results of operations or assets of Patapsco
and the Patapsco Subsidiaries, taken as a whole. For purposes
of this Section 5.3(f), the term "material adverse change" or
"material adverse effect" or words of similar import, shall not
include the impact of: (i) changes, after the date hereof, in
laws of general applicability or interpretations thereof by
courts or governmental authorities; (ii) changes, after the date
hereof, in generally accepted accounting principles or
regulatory principles generally applicable to the banking and
thrift industries; (iii) actions or omissions by a party hereto
(or any of its subsidiaries), after the date hereof, taken or
failed to be taken with the prior informed written consent of
the other party, or at the express written request of the other
party, in contemplation of the transaction contemplated hereby;
or (iv) the Company Merger and compliance with the provisions of
this Agreement on the operating performance of the parties.
(g) No Litigation. Neither Patapsco nor any Patapsco
-------------
Subsidiary shall be a party to any pending litigation,
reasonably probable of being determined adversely to Patapsco or
any Patapsco Subsidiary, which would have a material adverse
effect on the business, financial condition or results of
operations of Patapsco and the Patapsco Subsidiaries, taken as a
whole.
5.4 Termination of Agreement and Abandonment of Company
---------------------------------------------------
Merger. This Agreement and the Company Merger and the Bank
------
Merger may be terminated at any time before the Effective Time,
whether before or after approval thereof by shareholders of the
Company, as provided below:
(a) Mutual Consent. By mutual consent of the
--------------
parties, evidenced by their written agreement.
(b) Reserved.
(c) Conditions to Patapsco Performance Not Met. By
------------------------------------------
Patapsco upon delivery of written notice of termination to
Company if any event occurs which renders impossible the
satisfaction in any material respect one or more of the
conditions to the obligations of Patapsco, the Bank and New Sub
to effect the Company Merger or the Bank Merger set forth in
Sections 5.1 and 5.2 and noncompliance is not waived by
Patapsco, provided, however, that such notice shall include a
statement of the grounds thereof and the Company and Savings
shall have thirty (30) days thereafter to cure the event or
conditions cited in such notice (to the extent curable) and if
the Company or Savings cures the events or conditions giving the
rise to such grounds to the reasonable satisfaction of Patapsco,
Patapsco shall not have any right to terminate this Agreement
based upon such specified events or conditions, and provided,
however, that the right to terminate under this Section 5.4(c)
shall not be available to Patapsco where Patapsco's, Bank's or
New Sub's failure to perform an obligation hereunder has been
the cause of, or has resulted in, the failure of the Closing to
occur on or before such date.
(d) Conditions to Company Performance Not Met. By
-----------------------------------------
the Company upon delivery of written notice of termination to
Patapsco if any event occurs which renders impossible
45
of satisfaction in any material respect one or more of the
conditions to the obligations of Company and Savings to effect
the Company Merger set forth in Sections 5.1 and 5.3 and
noncompliance is not waived by Company, provided, however, that
such notice shall include a statement of the grounds thereof and
Patapsco, the Bank, and New Sub shall have thirty (30) days
thereafter to cure the events or conditions cited in such notice
(to the extent curable) and if Patapsco, the Bank, or New Sub
cures the events or conditions giving the rise to such grounds
to the reasonable satisfaction of the Company, the Company shall
not have any right to terminate this Agreement based upon such
specified events or conditions, and provided, however, that the
right to terminate under this Section 5.4(d) shall not be
available to the Company where the Company's or Savings' failure
to perform an obligation hereunder has been the cause of, or has
resulted in, the failure of the Closing to occur on or before
such date.
(e) Other Agreements. By Company in connection with
----------------
entering into a definitive agreement or letter of intent with
any person with respect to a Takeover Proposal in accordance
with Section 4.3 herein, provided it has complied with all
provisions thereof, in which case Patapsco shall be entitled to
the fee specified in Section 6.2(b) hereof.
(f) Patapsco Board. At any time prior to the
Effective Time, by Patapsco, if (i) the Company Board of
Directors withdraws or modifies its recommendation of this
Agreement or the Company Merger in a manner materially adverse
to Patapsco or shall have resolved or publicly announced or
disclosed to any third party its intention to do any of the
foregoing or the Company Board of Directors shall have
recommended to the stockholders of the Company any Takeover
Proposal or resolved to do so; (ii) a tender offer or
exchange offer for 10 percent or more of the outstanding shares
of Company Common Stock is commenced or a registration statement
with respect thereto shall have been filed and the Company Board
of Directors, within 10 days after such tender offer or exchange
offer is so commenced, either fails to recommend against
acceptance of such tender or exchange offer by its stockholders
or takes no position with respect to the acceptance of such
tender or exchange offer by its stockholders; or (iii) the
Company enters into a definitive agreement or letter of intent
with respect to a Takeover Proposal.
(g) Environmental Reports. By Patapsco at any time
---------------------
within 10 days of receipt of the last Phase II Report to be
delivered as contemplated in Section 4.16 herein if the costs to
bring the properties (either singularly or together with other
properties) which are the subject of such Phase II Reports into
material compliance with applicable environmental laws is
projected by the environmental consultant to exceed $50,000.
46
ARTICLE VI
TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES
6.1 Termination; Lack of Survival of Representations and
----------------------------------------------------
Warranties. In the event of the termination and abandonment of
----------
this Agreement pursuant to Section 5.4 of this Agreement, this
Agreement shall become void and have no effect and no party
shall have any further liability to the other party except as
otherwise expressly provided herein and except that (i) the
provisions of this Section 6.1, and Sections 2.7 and 3.6
(Brokers and Finders), 4.7 (Publicity), 6.2 (Expenses) and 8.2
(Confidentiality) of this Agreement shall survive any such
termination and abandonment, and (ii) in the event this
Agreement is terminated pursuant to Sections 5.4 (c) or (d) and
the nonterminating party has willfully and materially breached
this Agreement, the terminating party shall be entitled to
receive as liquidated damages the sum of $250,000 payable within
30 days of the effective date of termination. The parties agree
that such amount is not a penalty and is a reasonable estimate
of the damages that would be sustained by the terminating
party, as it would be difficult to determine the extent of
damages at the time of termination. Nothing contained herein
shall limit or alter the rights of Patapsco to receive the
$500,000 amount (less $250,000 if such amount is already paid to
Patapsco pursuant to this Section 6.1) contemplated in Section
6.2(b) herein if it is later determined that such amount is owed
to Patapsco.
The representations, warranties and agreements of the
parties set forth in this Agreement shall not survive the
Effective Time, and shall be terminated and extinguished at the
Effective Time, and from and after the Effective Time none of
the parties hereto shall have any liability to the other on
account of any breach or failure of any of those
representations, warranties and agreement; provided, however,
that the foregoing clause shall not (i) apply to agreements of
the parties which by their terms are intended to be performed
after the Effective Time, and (ii) shall not relieve any person
for liability for fraud, deception or intentional
misrepresentation.
6.2 Payment of Expenses.
-------------------
(a) Except as set forth in Section 6.1 and Section
6.2(b) herein, each of the parties hereto shall bear and pay all
costs and expenses incurred by it or on its behalf in connection
with the transactions contemplated hereunder.
(b) In order to induce Patapsco, the Bank and New Sub
to enter into this Agreement and as a means of compensating
Patapsco, the Bank and New Sub for the substantial direct and
indirect monetary and other costs incurred and to be incurred in
connection with this Agreement and the transactions contemplated
hereby, the Company and Savings agree that if this Agreement is
terminated for any reason, and prior to or within 24 months from
the date of termination a Termination Event, as defined in
paragraph (c) of this Section 6.2, shall have occurred, the
Company or Savings will upon demand pay to Patapsco or the Bank
in immediately available funds $500,000 (less $250,000 if such
amount has previously been paid pursuant to Section 6.1 herein).
47
(c) For purposes of this Agreement, a Termination
Event shall mean the entering into by Company and Savings of a
written definitive agreement or binding letter of intent with a
third party with respect to a Takeover Proposal or any
third-party person or entity shall have acquired 25% or more of
the Company's outstanding Common Stock.
ARTICLE VII
CERTAIN POST-MERGER AGREEMENTS
7.1 Employees. (i) Patapsco and the Bank shall on and
---------
after the Effective Time, subject to the exercise of their
business judgment in their sole discretion, use reasonable
efforts to continue the employment of the employees of Company
and Savings as of the Effective Time at comparable positions and
at comparable compensation levels as employed prior to the
Effective Time. Except as set forth in paragraphs (ii), (iii)
and (iv) of this Section 7.1, employees of the Company or
Savings who become employees of Patapsco or the Bank after the
Effective Time (the "Continuing Employees") shall be eligible to
participate in all benefit plans sponsored by Patapsco or the
Bank to the same extent as other similarly situated Patapsco or
Bank employees, and for purposes of participation, vesting and
accrual of benefits, service with the Company or Savings shall
be treated under any benefit plan (other than the plans referred
to in paragraph (iv) of this Section 7.1) sponsored by Patapsco
or the Bank as service with Patapsco or the Bank.
(ii) Following the Effective Time, Patapsco and Bank
shall maintain Company's and Savings' existing health plan for
the benefit of the Continuing Employees through December 31,
2000. Thereafter, Company's and Savings' health plan shall be
discontinued, and the Continuing Employees shall participate in
the health plan sponsored by Patapsco and Bank to the same
extent as other similarly situated Patapsco and Bank employee,
provided however, that if Company's and Savings' health plan
does not permit coverage for the Continuing Employees following
the Effective Time then the Continuing Employees shall
participate in the health plan sponsored by Patapsco and Bank to
the same extent as other similarly situated Patapsco and Bank
employees immediately following the Effective Time.
(iii) Following the Effective Time, with respect
to the Continuing Employees, for the calendar year ending
December 31, 2000, Patapsco and Bank shall continue in effect
Company's and Savings policies with respect to vacation days and
sick leave. Beginning on January 1, 2000, the Continuing
Employees shall become subject to Patapsco's and Bank's policies
regarding vacation days and sick leave, with service with the
Company or Savings being treated as service with Patapsco or the
Bank, and the Continuing Employees shall not be entitled to
carry over following December 31, 2000 any unused vacation time
or sick leave.
(iv) The Continuing Employees shall be eligible to
participate in Patapsco's Employee Stock Ownership Plan
("Patapsco ESOP") no later than July 1, 2002, with service with
the Company or Savings being treated as service with Patapsco or
the Bank.
48
7.2 Directors. As of the Effective Time, ▇▇▇▇ ▇. ▇▇▇▇▇ and
---------
J. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall become Directors of Patapsco and the
Bank. In addition, as of the Effective Time, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇▇ shall be named as a honorary director to the Bank to
advise and assist the Bank with respect to the communities
served by Savings.
7.3 Deferred Compensation Plan. As of the Effective Time,
--------------------------
Savings and Patapsco will take the appropriate actions to merge
Savings' Deferred Compensation Plan into Patapsco's Deferred
Compensation Plan with the effect being that Savings' Deferred
Compensation Plan as of the date of such merger will cease to
exist and all "Benefits" as that term is defined in Savings'
Deferred Compensation Plan allocable to the participants of
Savings' Deferred Compensation Plan shall become benefits under
Patapsco's Deferred Compensation Plan, subject to the following
terms and conditions:
1. Benefits allocable to G. ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇ and E. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇. will not be merged
into Patapsco's Deferred Compensation Plan and
instead, Benefits payable to such individuals will be
paid immediately prior to the Effective Time.
2. Prior to the assumption by Patapsco of the Benefits
allocable to the participants of Savings' Deferred
Compensation Plan, other than the participants
described in (1) above, each such participant will
execute a deferral compensation agreement in a form
reasonably satisfactory to Patapsco and the
participant.
3. Benefits allocated to Savings' Deferred Compensation
Plan as a result of the transactions contemplated by
Section 4.13(g) hereof shall not be merged into
Patapsco's Deferred Compensation Plan and instead,
Benefits payable to plan participants as a result of
such transactions will be paid immediately prior to
the Effective Time.
4. Immediately prior to the Effective Time, Savings'
Deferred Compensation Plan will be amended to provide
that, with respect to appreciation or depreciation of
Benefits credited to the accounts of participants in
Savings' Deferred Compensation Plan, the return on the
Company's Common Stock shall be calculated as if the
Common Stock had a value as of such date of $18.50.
5. Savings will direct the trustee of the grantor trust
associated with Savings' Deferred Compensation Plan to
utilize the trust assets to satisfy all obligations to
participants who are entitled to payments immediately
prior to the Effective Time to the extent of trust
assets.
6. Company and Savings and Patapsco agree to use their
best efforts to take such actions as may be necessary
to effect the foregoing actions and to obtain the
49
consents of the individuals affected thereby,
including, but not limited to, making any necessary
amendments to the applicable deferred compensation
plans.
7.4 Reports to the SEC. Patapsco shall continue to file
------------------
all reports and data with the SEC necessary to permit each
person who may be deemed to be an "affiliate" of Patapsco within
the meaning of Rule 145 under the 1933 Act to sell the Preferred
Stock received by them in connection with the Company Merger
pursuant to Rules 144 or 145(d) under such Act if they would
otherwise be entitled to sell the Preferred Stock under such
rules.
7.5 Appraisal of Preferred Stock. Patapsco shall obtain
----------------------------
an appraisal, from a qualified and experienced appraiser, of the
fair market value of the Preferred Stock as of the Effective
Time and as of any such dates it is required pursuant to the
regulations of the IRS under Section 4975 to offer to the
participants in the Company ESOP a put option permitting them to
put their shares of Preferred Stock received in connection with
the termination of the Company ESOP as contemplated in Section
4.13(f) herein to Patapsco in exchange for the fair market value
of such shares of Preferred Stock.
ARTICLE VIII
GENERAL
8.1 Amendments. Subject to applicable law, this Agreement
----------
may be amended, whether before or after any relevant approval of
shareholders, by an agreement in writing executed in the same
manner as this Agreement and authorized or ratified by the
Boards of Directors of the parties hereto, provided that, after
the adoption of the Agreement by the shareholders of the
Company, no such amendment without further shareholder approval
may reduce the amount or change the form of the consideration to
be received by the Company shareholders in the Company Merger.
8.2 Confidentiality. All information disclosed hereafter
---------------
by any party to this Agreement to any other party to this
Agreement, including, without limitation, any information
obtained pursuant to Section 4.1 hereof, shall be kept
confidential by such other party and shall not be used by such
other party otherwise than as herein contemplated except to the
extent that (i) it was known by such other party when received,
(ii) it is or hereafter becomes lawfully obtainable from other
sources, (iii) it is necessary or appropriate to disclose to the
OTS, the FDIC, the FRB, the Commissioner or any other regulatory
authority having jurisdiction over the parties or their
subsidiaries or as may otherwise be required by law, or (iv) to
the extent such duty as to confidentiality is waived by the
other party. In the event of the termination of this Agreement,
each party shall use all reasonable efforts to return upon
request to the other parties all documents (and reproductions
thereof) received from such other parties (and, in the case of
reproductions, all such reproductions made by the receiving
party) that include information not within the exceptions
contained in the first sentence of this Section 8.2.
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8.3 Governing Law. This Agreement and the legal relations
-------------
between the parties shall be governed by and construed in
accordance with the laws of the State of Maryland without taking
into account a provision regarding choice of law, except to the
extent certain matters may be governed by federal law by reason
of preemption.
8.4 Notices. Any notices or other communications required
-------
or permitted hereunder shall be sufficiently given if sent by
registered mail or certified mail, postage prepaid, addressed,
if to Patapsco or Bank, to
Patapsco Bancorp, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
with a copy to:
▇▇▇▇▇▇▇▇ Ronon ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
Suite 700
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esquire
and if to Company or Savings, to
Northfield Bancorp, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: G. ▇▇▇▇▇▇ ▇▇▇▇▇▇, President
with a copy to:
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇.
or such other address as shall be furnished in writing by any
such party, and any such notice or communication shall be deemed
to have been given two business days after the date of such
mailing (except that the notice of change of address shall not
be deemed to have been given until received by the addressee).
Notices may also be sent by telegram, telex, facsimile
transmission or hand delivery and in such event shall be deemed
to have been given as of the date received.
8.5 No Assignment. Except as expressly provided in this
-------------
Agreement, this Agreement may not be assigned by any of the
parties hereto, by operation of law or otherwise, without the
prior written consent of the other parties. Subject to the
preceding sentence, this Agreement will be binding upon, inure
to the benefit of and be enforceable by the parties and their
respective successors and assigns.
51
8.6 Headings. The description heading of the several
--------
Articles and Sections of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
8.7 Counterparts. This Agreement may be extended in one
------------
or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when one or more
counterparts have been signed by each of the parties hereto and
delivered to each of the other parties hereto.
8.8 Construction and Interpretation. Except as the context
-------------------------------
otherwise requires, (a) all references herein to any state or
federal regulatory agency shall also be deemed to refer to any
predecessor or successor agency, and (b) all references to state
and federal statutes or regulations shall also be deemed to
refer to any successor statute or regulation.
8.9 Entire Agreement. This Agreement, together with the
----------------
schedules, lists, exhibits and certificates required to be
delivered hereunder, and any amendment hereafter executed and
delivered in accordance with Section 8.1, constitutes the entire
agreement of the parties, and supersedes any prior written or
oral agreement or understanding among any of the parties hereto
pertaining to the Company Merger. This Agreement is not
intended to confer upon any other persons any rights or remedies
hereunder except as expressly set forth herein.
8.10 Severability. Whenever possible, each provision of
------------
this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under
applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating
the remainder of such provision or the remaining provisions of
the Agreement.
8.11 No Third Party Beneficiaries. Nothing in this
----------------------------
Agreement shall entitle any person (other than the Company,
Savings, Patapsco, the Bank or New Sub and their respective
successors and assigns permitted hereby) to any claim, cause of
action, remedy or right of any kind, except as otherwise
expressly provided herein, including the Indemnities described
in Section 4.11 of this Agreement.
8.12 Enforcement of Agreement. The parties hereto agree
------------------------
that irreparable damage would occur in the event that any of the
provisions of this Agreement was not performed in accordance
with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction,
this being in addition to any other remedy to which they are
entitled at law or in equity.
8.13 Extension; Waiver. At any time prior to the Effective
-----------------
Date, the parties hereto, by action taken or authorized by their
respective Board of Directors, may, to the extent legally
allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii)
waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto
and (iii) waive compliance with any of the
52
agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extensions or waiver shall be
valid only if set forth in a written instrument signed on behalf
of such party, but such extension or waiver or failure to insist
on strict compliance with an obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
53
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers
thereunder duly authorized, all as of the date set forth above.
PATAPSCO BANCORP, INC. NORTHFIELD BANCORP, INC.
By:/s/ ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇ By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------- --------------------------
Name: ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇ Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman of the Board Title: Chairman of the Board
THE PATAPSCO BANK NORTHFIELD FEDERAL SAVINGS
BANK
By:/s/ ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇ By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
------------------------- ------------------------
Name: ▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇ Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chairman of the Board Title: Chairman of the Board
PN FINANCIAL, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
54