EXHIBIT 99A
AGREEMENT TO MERGE
AND PLAN OF REORGANIZATION
DATED AS OF APRIL 19, 1999
BY AND AMONG
MID-STATE BANK
MID-STATE BANCSHARES
AND
CITY COMMERCE BANK
AGREEMENT TO MERGE
AND PLAN OF REORGANIZATION
THIS AGREEMENT TO MERGE AND PLAN OF REORGANIZATION ("AGREEMENT") is
entered into as of April 19, 1999, among Mid-State Bank, a banking company
organized under the laws of California ("BANK"), being located in Arroyo Grande,
California, Mid-State Bancshares, a corporation and registered bank holding
company organized under the laws of California ("ACQUIROR") located in Arroyo
Grande, California, and City Commerce Bank, a banking company organized under
the laws of California ("TARGET"), located in Santa Barbara, California.
R E C I T A L S:
A. Bank is a wholly owned subsidiary of Acquiror.
B. Acquiror, Bank and Target believe that it would be in their respective
best interests and in the best interests of their respective shareholders for
Target to merge with and into Bank (the "Bank Merger"), and for the shareholders
of Target to become shareholders of Acquiror, all in accordance with the terms
set forth in this Agreement and applicable law.
C. The respective Boards of Directors of Bank and Target have adopted by
majority vote resolutions approving and authorizing the Bank Merger upon the
terms and conditions set forth in this Agreement and the Board of Directors of
Acquiror has adopted by majority vote resolutions approving the Bank Merger,
this Agreement and the transactions contemplated herein.
D. Acquiror, Bank and Target desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated by this Agreement.
E. Concurrently herewith, Acquiror and Target are entering into a stock
option agreement (the "Stock Option Agreement"), to be dated the date hereof,
whereby Target will grant to Acquiror the option to purchase up to 19.9% of the
outstanding shares of Target's Common Stock upon the occurrence of certain
events.
F. It is the intention of the parties to this Agreement that the business
combination contemplated hereby be accounted for under the "pooling of
interests" accounting method and be treated as a "reorganization" under Section
368 of the Internal Revenue Code of 1986, as amended (the "Code").
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A G R E E M E N T
IN CONSIDERATION of the premises and mutual covenants hereinafter
contained, Bank, Acquiror and Target agree as follows:
ARTICLE 1
DEFINITIONS AND DETERMINATIONS
1.1 DEFINITIONS. Capitalized terms used in this Agreement shall have the
meanings set forth below:
"Agreement of Merger" means the Agreement of Merger substantially in the
form attached hereto as Exhibit A.
"Affiliate" means a person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the person specified.
"Acquiror" shall have the meaning given such term in the introductory
clause.
"Acquiror Benefit Arrangement" means the Benefit Arrangements maintained
or otherwise contributed to by Acquiror or Bank.
"Acquiror Corporate Governance Changes" shall have the meaning given such
term in Section 2.1(d).
"Acquiror Property" shall have the meaning given such term in Section
3.10.
"Acquiror Stock" means the common stock, no par value, of Acquiror.
"Acquiror Stock Option" means any option issued pursuant to the Acquiror
Stock Option Plan.
"Acquiror Stock Option Plan" means the Acquiror 1996 Stock Option Plan.
"Average Closing Price" means the average of the daily closing price of a
share of Acquiror's Stock reported over NASDAQ National Market during the twenty
(20) consecutive trading days that Acquiror's Stock trades ending at the end of
the fifth trading day immediately preceding the Effective Day.
"Bank" shall have the meaning given such term in the introductory clause.
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"Bank Corporate Governance Changes" shall have the meaning given such
term in Section 2.1(b).
"Bank Merger" shall have the meaning given such term in the Recitals.
"Bank Stock" means the common stock, no par value, of Bank.
"Benefit Arrangement" means any plan or arrangement maintained or
contributed to by a Party, including an "employee benefit plan" within the
meaning of ERISA, (but exclusive of base salary and base wages) which provides
for any form of current or deferred compensation, bonus, stock option, profit
sharing, benefit, retirement, incentive, group health or insurance, welfare or
similar plan or arrangement for the benefit of any employee, officer or director
or class of employee, officer or director, whether active or retired, of a
Party.
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
"Business Day" means any day other than a Saturday, Sunday or day on
which commercial banks in California are authorized or required to be closed.
"Certificates" shall have the meaning given such term in Section 2.5.
"CFC" means the California Financial Code.
"CGCL" means the California General Corporation Law.
"Charter Documents" means, with respect to any business organization, any
certificate or articles of incorporation or articles of association, and any
bylaws, each as amended to date, that regulate the basic organization of the
business organization and its internal relations.
"Closing" means the consummation of the Bank Merger on the Effective Day
at the main office of Bank or at such other place as may be agreed upon by the
Parties.
"Code" means the United States Internal Revenue Code of 1986, as amended,
and all regulations thereunder.
"Commissioner" means the Commissioner of Financial Institutions, State of
California.
"Competing Transaction" shall have the meaning given such term in Section
6.12.
"Computer System" shall have the meaning given such term in Section 3.16.
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"Confidential Information" means all information exchanged heretofore or
hereafter between Target, its affiliates and agents, on the one hand, and
Acquiror and Bank, their affiliates and agents, on the other hand, which is
information related to the business, financial position or operations of the
Person responsible for furnishing the information or an Affiliate of such Person
(such information to include, by way of example only and not of limitation,
client lists, company manuals, internal memoranda, strategic plans, budgets,
forecasts/ projections, computer models, marketing plans, files relating to
loans originated by such Person, loans and loan participation purchased by such
Person from others, investments, deposits, leases, contracts, employment
records, minutes of board of directors meetings (and committees thereof) and
stockholder meetings, legal proceedings, reports of examination by any
Governmental Entity, and such other records or documents such Person may supply
to the other Party pursuant to the terms of this Agreement or as contemplated
hereby). Notwithstanding the foregoing, "Confidential Information" shall not
include any information that (i) at the time of disclosure or thereafter is
generally available to and known by the public (other than as a result of a
disclosure directly or indirectly by the recipients or any of their officers,
directors, employees or other representatives or agents), (ii) was available to
the recipients on a nonconfidential basis from a source other than Persons
responsible for furnishing the information, PROVIDED that such source is not and
was not bound by a confidentiality agreement with respect to the information, or
(iii) has been independently acquired or developed by the recipients without
violating any obligations under this Agreement.
"Consents" means every required consent, approval, absence of
disapproval, waiver or authorization from, or notice to, or registration or
filing with, any Person.
"Disclosure Letter" means a disclosure letter from the Party making the
disclosure and delivered to the other Party.
"DPC Property" means voting securities, other personal property and real
property acquired by foreclosure or otherwise, in the ordinary course of
collecting a debt previously contracted for in good faith, retained with the
object of sale for any applicable statutory holding period, and recorded in the
holder's business records as such.
"Effective Day" means the day on which the Effective Time occurs.
"Effective Time" shall have the meaning given such term in Section 2.2.
"Encumbrances" means any option, pledge, security interest, lien, charge,
encumbrance, mortgage, assessment, claim or restriction (whether on voting,
disposition or otherwise), whether imposed by agreement, understanding, law or
otherwise.
"Environmental Laws" shall have the meaning given such term in Section
3.10.
"Equity Securities" means capital stock or any options, rights, warrants
or other rights to subscribe for or purchase capital stock, or any plans,
contracts or commitments that are exercisable
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in such capital stock or that provide for the issuance of, or grant the right to
acquire, or are convertible into, or exchangeable for, such capital stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all regulations thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means ChaseMellon Shareholder Services or such other
financial institution appointed by Acquiror to reflect the exchange contemplated
by section 2.5 hereof.
"Exchange Fund" shall have the meaning given such term in Section 2.5.
"Exchange Ratio" means the number of shares of Acquiror Stock into which
a share of Target Stock shall be converted which shall be equal to the amount
(to the nearest ten thousandth) as set forth hereinbelow:
(i) If the Average Closing Price is not less than $26.60 and is
not more than $30.91, the Exchange Ratio shall be .7791;
(ii) If the Average Closing Price is more than $30.91, the
Exchange Ratio shall be calculated by (A) dividing $30.91 by the Average Closing
Price and (B) multiplying such product by .7791 ($30.91/Average Closing Price x
.7791); and
(iii) If the Average Closing Price is less than $26.60, then the
Exchange Ratio shall be .7791 unless at Acquiror's option, which shall be
provided in writing to Target in the manner set forth in Section 11.12 of the
Agreement, the purchase price shall become fixed at $20.72 per share, and the
Exchange Ratio shall then be calculated by dividing $20.72 by the Average
Closing Price; provided, however, that if Acquiror does not so elect and the
Average Closing Price is less than $26.60, Target shall have the right to
terminate the Agreement as set forth in Section 10.1(h) subject to Acquiror's
rights as set forth therein.
"Expenses" shall have the meaning given such term in Section 11.1.
"Executive Officer" means with respect to any company a natural Person
who participates or has the authority to participate (other than solely in the
capacity of a director) in major policy making functions of the company, whether
or not such Person has a title or is serving with salary or compensation.
"FDIC" means the Federal Deposit Insurance Corporation.
"Financial Statements of Acquiror" means the audited consolidated
financial statements and notes thereto of Acquiror and the related opinions
thereon for the years ended December 31, 1996, 1997 and 1998.
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"Financial Statements of Target" means the audited financial statements
and notes thereto of Target and the related opinions thereon for the years ended
December 31, 1996 and 1997, 1998.
"FRB" shall mean the Board of Governors of the Federal Reserve System.
"GAAP" means generally accepted accounting principles.
"Governmental Entity" means any court or tribunal in any jurisdiction or
any United States federal, state, district, domestic, or other administrative
agency, department, commission, board, bureau or other governmental authority or
instrumentality.
"Hazardous Materials" shall have the meaning given such term in Section
3.10.
"Immediate Family" shall mean a Person's spouse, parents, in-laws,
children and siblings.
"IRS" shall mean the Internal Revenue Service.
"Investment Securities" means any equity security or debt security as
defined in Statement of Financial Accounting Standard No. 115.
"Operating Loss" shall have the meaning given such term in Section4.24.
"Party" means any of Acquiror, Bank or Target.
"Permit" means any United States federal, foreign, state, local or other
license, permit, franchise, certificate of authority, order of approval
necessary or appropriate under applicable Rules.
"Person" means any natural person, corporation, trust, association,
unincorporated body, partnership, joint venture, Governmental Entity,
statutorily or regulatory sanctioned unit or any other person or organization.
"Proxy Statement" means the proxy statement that is included as part of
the S-4 and used to solicit proxies for the Target Shareholders' Meeting and to
offer and sell the shares of Acquiror Stock to be issued in connection with the
Bank Merger.
"Related Group of Persons" means Affiliates, members of an Immediate
Family or Persons the obligation of whom would be attributed to another Person
pursuant to the regulations promulgated by the SEC.
"Rule" means any statute or law or any judgment, decree, injunction,
order, regulation or rule of any Governmental Entity.
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"S-4" means the registration statement on Form S-4, and such amendments
thereto, that is filed with the SEC to register the shares of Acquiror Stock to
be issued in the Bank Merger under the Securities Act and includes the Proxy
Statement which will be used to solicit proxies for the Target Shareholders'
Meeting.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" mean all reports filed by a Party hereto pursuant to the
Exchange Act with the SEC or other Governmental Entity.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Option Agreement" shall have the meaning given the term in Recital
E and in the certain Stock Option Agreement entered into by the parties
concurrently with this Agreement.
"Surviving Bank" means the Bank as the California state-chartered bank
surviving the Bank Merger of Target with and into Bank.
"Tank" shall have the meaning given such term in Section 3.10.
"Third Party Consent" shall have the meaning given such term in
subsection (b) of Section 5.7.
"Target" Shall have the meaning given such term in the introductory
clause.
"Target Benefit Arrangement" shall have the meaning given such term in
Section 4.18.
"Target's Directors Agreement" shall mean an agreement, substantially in
the form attached as Exhibit 2.6.
"Target Dissenting Shares" means shares of Target Stock held by
"dissenting shareholders" within the meaning of Chapter 13 of the CGCL.
"Target Perfected Dissenting Shares" means Dissenting Shares which the
holders thereof have not withdrawn or caused to lose their status as Target
Dissenting Shares.
"Target Property" shall have the meaning given such term in Section 4.25.
"Target Scheduled Contracts" shall have the meaning given such term in
Section 4.30.
"Target Shareholders' Meeting" shall have the meaning given such term in
Section 6.6.
"Target Stock" means the common stock, no par value, of Target.
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"Target Stock Options" shall have the meaning given such term in Section
4.2.
"Target Stock Option Plan" means Target's 1989 Stock Option Plan.
"To the knowledge" shall have the meaning given such term in
Section 11.13.
"Year 2000 Readiness" shall have the meaning given such term in Section
3.16.
ARTICLE 2
CONSUMMATION OF THE BANK MERGER
2.1 THE MERGER; PLAN OF REORGANIZATION.
(a) Subject to the terms and conditions of this Agreement and the
Agreement of Merger, at the Effective Time, Target shall merge with and into
Bank under the charter of Bank.
(b) The Charter Documents of Bank as in effect immediately prior to the
Effective Time shall continue in effect after the Bank Merger until thereafter
amended in accordance with applicable law and the members of the Board of
Directors and the Executive Officers of Bank immediately prior to the Bank
Merger shall continue in their respective positions after the Bank Merger and be
the Board of Directors and Executive Officers of the Surviving Bank ; except
that Bank shall have taken prior to the Effective Time all necessary steps so
that at the Effective Time (i) the number of authorized directors of Bank shall
be expanded by one and (ii) one of the current directors of Target (who shall be
mutually acceptable to Acquiror and Target) shall be added to the Board of
Directors of Bank and shall serve until the earlier of his resignation or
removal or until his successor is duly elected and qualified. [clause (i) and
(ii) being hereinafter collectively referred to as the "Bank Corporate
Governance Changes"].
(c) At the Effective Time, the corporate existence of Target shall be
merged and continued in the Surviving Bank. All assets, rights, franchises,
titles and interests of Bank and Target, in and to every type of property (real,
personal and mixed) and chooses in action shall be transferred to and vested in
the Surviving Bank by virtue of the Bank Merger without any deed or other
transfer, and the Surviving Bank, without any order or action on the part of any
court or otherwise, shall hold and enjoy all rights of property, franchises and
interests, including appointments, designations and nominations, and all other
rights and interests as trustee, executor, administrator, registrar of stocks
and bonds, guardian of estates, assignee or receiver and in every other
fiduciary capacity in the same manner and to the same extent that such rights,
franchises and interests were held by Bank and Target at the Effective Time. At
the Effective Time, the Surviving Bank shall be liable for all liabilities of
Bank and Target and all deposits, debts, liabilities, obligations and contracts
of Bank and Target, matured or unmatured, whether accrued, absolute, contingent
or otherwise, and whether or not reflected or reserved against on balance
sheets, books of accounts or records of Bank and Target, shall be those of the
Surviving Bank; and all rights of creditors or other obligees and all liens on
property of Bank and Target shall be preserved unimpaired.
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(d) The Charter Document of Acquiror as in effect immediately prior to
the Effective Time shall continue in effect after the Bank Merger until
thereafter amended in accordance with applicable law, the members of the Board
of Directors and the Executive Officers of Acquiror immediately prior to the
Bank Merger shall continue in their respective positions after the Bank Merger
and be the Board of Directors and Executive Officers of Acquiror and the
operations of Acquiror shall continue in effect after the Bank Merger; except
that Acquiror shall have taken prior to the Effective Time all necessary steps
so that at the Effective Time (i) the number of authorized directors of Acquiror
shall be expanded by one and (ii) one of the current directors of Target (who
shall be mutually acceptable to Acquiror and Target) shall be added to the Board
of Directors of Acquiror and shall serve until the earlier of his resignation or
removal or until his respective successor is duly elected and qualified.
[clauses (i) and (ii) being hereinafter collectively referred to as the
"Acquiror Corporate Governance Changes"].
2.2 EFFECTIVE TIME. The Closing shall take place as soon as
practicable following the satisfaction or waiver of the conditions set forth in
Sections 8.1, 8.2 and 8.3, and the Parties shall use best efforts to cause the
Closing to occur as soon as possible after receipt of approval of the Bank
Merger from the Commissioner and the FDIC and the expiration of all required
waiting periods, or such later time and date as to which the Parties may agree.
The Bank Merger shall be effective upon the filing by the Commissioner of the
Agreement of Merger as specified in the CFC. Such time is referred to herein as
the "Effective Time."
2.3 CONVERSION OF SHARES. At the Effective Time and pursuant to the
Agreement of Merger:
(a) Subject to the exceptions and limitations in Section 2.4,
each outstanding share of Target Stock shall, without any further action on the
part of Target or the holders of any of such shares, be converted into shares of
Acquiror Stock in accordance with the Exchange Ratio.
(b) Each outstanding share of Acquiror Stock shall remain
outstanding and shall not be converted or otherwise affected by the Bank Merger.
2.4 CERTAIN EXCEPTIONS AND LIMITATIONS. (A) Any shares of Target Stock
held by Acquiror or any subsidiary of Acquiror (other than shares held in a
fiduciary capacity or as DPC Property) will be canceled at the Effective Time;
(B) Target Perfected Dissenting Shares shall not be converted into shares of
Acquiror Stock, but shall, after the Effective Time, be entitled only to such
rights as are granted them by Chapter 13 of the CGCL (each dissenting
shareholder who is entitled to payment for his shares of Target Stock shall
receive such payment in an amount as determined pursuant to Chapter 13 of CGCL),
and (C) no fractional shares of Acquiror Stock shall be issued in the Bank
Merger and, in lieu thereof, each holder of Target Stock who would otherwise be
entitled to receive a fractional share shall receive an amount in cash equal to
the product (calculated to the nearest ten thousandth) obtained by multiplying
such fractional share interest by the Average Closing Price.
2.5 EXCHANGE PROCEDURES.
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(a) As of the Effective Time, Acquiror shall have deposited with the
Exchange Agent for the benefit of the holders of shares of Target Stock, for
exchange in accordance with this Section 2.5 through the Exchange Agent,
certificates representing the shares of Acquiror Stock issuable pursuant to
Section 2.3 in exchange for shares of Target Stock outstanding immediately prior
to the Effective Time, and funds in an amount not less than the amount of cash
payable in lieu of fractional shares of Acquiror Stock which would otherwise be
payable in connection with Section 2.3 hereof, but for the operation of Section
2.4 of this Agreement (collectively, the "Exchange Fund").
(b) Acquiror shall direct the Exchange Agent to mail promptly after the
Effective Time, to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of Target
Stock (the "Certificates") whose shares were converted into the right to receive
shares of Acquiror Stock pursuant to Section 2.3 hereof: (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent, and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
shares of Acquiror Stock. Upon surrendering of a Certificate for cancellation
to the Exchange Agent or to such other agent or agents as may be appointed by
Target, together with such letters of transmittal, duly executed, the holder of
such Certificate shall be entitled to receive in exchange therefor that amount
of cash and a certificate representing that number of whole shares of Acquiror
Stock which such holder has the right to receive pursuant to the provisions of
Sections 2.3 and 2.4 hereof, and the Certificate so surrendered shall forthwith
be canceled. In the event a Certificate is surrendered representing Target
Stock, the transfer of ownership which is not registered in the transfer records
of Target, a certificate representing the proper number of shares of Acquiror
Stock may be issued to a transferee if the Certificate representing such Target
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 2.5 and except as provided in subsection (g) hereof, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive upon such surrender the certificate representing shares of Acquiror
Stock and cash in lieu of any fractional shares of stock as contemplated by this
Section 2.5. Notwithstanding anything to the contrary set forth herein, if any
holder of shares of Target should be unable to surrender the Certificates for
such shares, because they have ▇▇▇ ▇▇▇▇ or destroyed, such holder may deliver in
lieu thereof, in the discretion of Acquiror, such bond in form and substance and
with surety reasonably satisfactory to Acquiror and shall be entitled to receive
the certificate representing the proper number of shares of Acquiror Stock and
cash in lieu of fractional shares in accordance with Sections 2.3 and 2.4
hereof.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Acquiror Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Acquiror Stock represented thereby and no cash payment
in lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.4 until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect
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of applicable laws, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Acquiror Stock issued in exchange thereof, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional share of
Acquiror Stock to which such holder is entitled pursuant to Section 2.4 and the
amount of dividends or other distribution with a record date after the Effective
Time theretofore paid with respect to such whole shares of Acquiror Stock, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with respect to such whole
shares of Acquiror Stock.
(d) All shares of Acquiror Stock issued upon the surrender for exchange
of Target Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 2.4) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Target Stock, and there
shall be no further registration of transfers on the stock transfer books of the
Surviving Bank of the shares of Target Stock which were outstanding immediately
prior to the Effective Time. If after the Effective Time, Certificates are
presented to Acquiror for any reason, they shall be canceled and exchanged as
provided in this Agreement.
(e) Any portion of the Exchange Fund which remains undistributed to the
shareholders of Target following the passage of six months after the Effective
Time shall be delivered to Acquiror, upon demand, and any shareholders of Target
who have not theretofore complied with this Section 2.5 shall thereafter look
only to Acquiror for payment of their claim for Acquiror Stock, any cash in lieu
of fractional shares of Acquiror Stock and any dividends or distributions with
respect Target Stock.
(f) Neither Acquiror nor Target shall be liable to any holder of shares
of Target Stock for such shares (or dividends or distributions with respect
thereto) or cash from the Exchange Fund delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(g) The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the shares of Acquiror Stock held by it from
time to time hereunder, except that it shall receive and hold all dividends or
other distributions paid or distributed with respect to such shares of Acquiror
Stock for the account of the Persons entitled thereto. Former shareholders of
record of Target shall be entitled to vote after the Effective Time at any
meeting of Acquiror shareholders the number of whole shares of Acquiror Stock
into which their respective shares of Target Stock are converted, regardless of
whether such holders have exchanged their Certificates for certificates
representing Acquiror Stock in accordance with the provisions of this Agreement.
2.6 DIRECTORS' AGREEMENTS. Concurrently with the execution of this
Agreement, Target shall cause each of its respective directors to enter into a
Target's Directors' Agreement.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND BANK
Acquiror and Bank represent and warrant to Target as follows:
3.1 INCORPORATION, STANDING AND POWER. Acquiror has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of California and is registered as a bank holding company
under the BHC Act. Bank has been duly incorporated and is validly existing as a
banking company under the laws of California and is authorized by the
Commissioner to conduct a general banking business. Bank's deposits are insured
by the FDIC in the manner and to the extent provided by law. Acquiror and Bank
have all requisite corporate power and authority to own, lease and operate their
respective properties and assets and to carry on their respective businesses as
presently conducted. Neither the scope of the business of Acquiror or Bank nor
the location of any of their respective properties requires that Acquiror or
Bank be licensed to do business in any jurisdiction other than in California
where the failure to be so licensed would, individually or in the aggregate,
have a materially adverse effect on the financial condition, results of
operation or business of Acquiror on a consolidated basis.
3.2 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of Acquiror consists of 50,000,000 shares of Acquiror Stock, of
which 10,099,032 shares are outstanding and 25,000,000 shares of Preferred
Stock, of which no shares are outstanding. As of the date of this Agreement,
the authorized capital stock of Bank consists of 10,125,000 shares of Bank
Stock, of which 100 shares are outstanding and are owned by Acquiror without
Encumbrance. All the outstanding shares of Acquiror Stock and Bank Stock are
duly authorized, validly issued, fully paid, nonassessable and without
preemptive rights. Except for Acquiror Stock Options covering shares of Acquiror
Stock granted pursuant to the Acquiror Stock Option Plan and except as set forth
in Acquiror's Disclosure Letter, there are no outstanding options, warrants or
other rights in or with respect to the unissued shares of Acquiror Stock or Bank
Stock or any other securities convertible into such stock, and neither Acquiror
nor Bank is obligated to issue any additional shares of its capital stock or any
options, warrants or other rights in or with respect to the unissued shares of
its capital stock or any other securities convertible into such stock.
3.3 SUBSIDIARIES. Except as set forth in Acquiror's Disclosure Letter,
neither Acquiror nor Bank own, directly or indirectly, any outstanding stock,
Equity Securities or other voting interest in any corporation, partnership,
joint venture or other entity or Person, other than DPC Property.
3.4 FINANCIAL STATEMENTS. Acquiror has previously furnished to Target
a copy of the Financial Statements of Acquiror. The Financial Statements of
Acquiror: (a) present fairly the consolidated financial condition of Acquiror as
of the respective dates indicated and its consolidated results of operations and
cash flow for the respective periods indicated; and (b) have been prepared in
accordance with GAAP. The audits of Acquiror have been conducted in accordance
with generally accepted auditing standards. The books and records of Acquiror
and Bank are being maintained in material compliance with applicable legal and
accounting
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requirements. Except to the extent (i) reflected in the Financial Statements of
Acquiror and (ii) of liabilities incurred since December 31, 1998 in the
ordinary course of business and consistent with past practice, neither Acquiror
nor Bank has any liabilities, whether absolute, accrued, contingent or
otherwise.
3.5 AUTHORITY OF ACQUIROR AND BANK. The execution and delivery by
Acquiror and Bank of this Agreement and, subject to the requisite approval of
Acquiror as the sole shareholder of Bank, the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Acquiror and Bank, and this Agreement is a valid
and binding obligation of Acquiror and Bank enforceable in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
liquidation, receivership, conservatorship, insolvency, moratorium or other
similar laws affecting the rights of creditors generally and by general
equitable principles and by Section 8(b)(6)(D) of the Federal Deposit Insurance
Act, 12 U.S.C. Section 1818(b)(6)(D). Except as set forth in Acquiror's
Disclosure Letter, neither the execution and delivery by Acquiror and Bank of
this Agreement, the consummation of the Bank Merger or the transactions
contemplated herein, nor compliance by Acquiror and Bank with any of the
provisions hereof, will: (a) violate any provision of their respective Charter
Documents; (b) constitute a breach of or result in a default (or give rise to
any rights of termination, cancellation or acceleration, or any right to acquire
any securities or assets) under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, franchise, license, permit, agreement,
Encumbrances or other instrument or obligation to which Acquiror or Bank is a
party, or by which Acquiror or Bank or any of their respective properties or
assets is bound, if in any such circumstances, such event could have
consequences materially adverse to Acquiror on a consolidated basis; or
(c) violate any Rule applicable to Acquiror or Bank or any of their respective
properties or assets. No Consent of any Governmental Entity having jurisdiction
over any aspect of the business or assets of Acquiror or Bank, and no Consent of
any Person, is required in connection with the execution and delivery by
Acquiror and Bank of this Agreement or the consummation by Acquiror and Bank of
the Bank Merger and the transactions contemplated hereby, except (i) the
approval of this Agreement and the transactions contemplated hereby by Acquiror
as the sole shareholder of Bank; (ii) such approvals or notices as may be
required by the FRB, the Commissioner and the FDIC; (iii) the declaring
effective of the S-4 by the SEC and the approvals of all necessary blue sky
administrators; and (iv) as otherwise set forth in Acquiror's Disclosure Letter.
3.6 LITIGATION. To the knowledge of Acquiror and Bank, neither Acquiror
nor Bank is a party to any pending or, to the knowledge of any of the officers,
threatened legal, administrative or other claim, action, suit, investigation,
arbitration or proceeding challenging the validity or propriety of any of the
transactions contemplated by this Agreement.
3.7 COMPLIANCE WITH LAWS AND REGULATIONS. Except as set forth in
Acquiror's Disclosure Letter, neither Acquiror nor Bank is in default under or
in breach of any provision of its Charter Documents or any Rule promulgated by
any Governmental Entity having authority over it, where such default or breach
would have a material adverse effect on the business, financial condition or
results of operations of Acquiror or Bank.
18
3.8 BROKERS AND FINDERS. Except as provided in Acquiror's Disclosure
Letter with copies of any such agreements attached, neither Acquiror nor Bank is
not a party to or obligated under any agreement with any broker or finder
relating to the transactions contemplated hereby, and neither the execution of
this Agreement nor the consummation of the transactions provided for herein or
therein will result in any liability to any broker or finder.
3.9 ABSENCE OF MATERIAL CHANGE. Since December 31, 1998, the
businesses of Acquiror and Bank have been conducted only in the ordinary course,
in substantially the same manner as theretofore conducted, and, except as set
forth in Acquiror's Disclosure Letter, there has not occurred since December 31,
1998 any event that has had or may reasonably be expected to have a material
adverse effect on the business, financial condition or results of operation of
Acquiror or Bank.
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3.10 ENVIRONMENTAL MATTERS. Except as set forth in Acquiror's
Disclosure Letter, to the knowledge of Acquiror and Bank, (i) each of Acquiror
and Bank is in compliance with all Environmental Laws; (ii) there are no Tanks
on or about Acquiror Property; (iii) there are no Hazardous Materials on, below
or above the surface of, or migrating to or from Acquiror Property; (iv) neither
Acquiror nor Bank has loans outstanding secured by real property that is not in
compliance with Environmental Laws or which has a leaking Tank or upon which
there are Hazardous Materials on or migrating to or from; and (v) without
limiting the foregoing representations and warranties contained in clauses (i)
through (iv), as of the date of this Agreement, there is no claim, action ,
suit, or proceeding or notice thereof before any Governmental Entity pending
against Acquiror or Bank or concerning property securing Acquiror and Bank loans
and there is no outstanding judgment, order, writ, injunction, decree, or award
against or affecting Acquiror Property or property securing Acquiror or Bank
loans, relating to the foregoing representations (i) -- (iv), in each case the
noncompliance with which, or the presence of which would have a material adverse
effect on the business, financial condition, results of operations or prospects
of Acquiror or Bank. For purposes of this Agreement, the term "Environmental
Laws" shall mean all applicable statutes, regulations, rules, ordinances, codes,
licenses, permits, orders, approvals, plans, authorizations, concessions,
franchises, and similar items of all Governmental Entities and all applicable
judicial, administrative, and regulatory decrees, judgments, and orders relating
to the protection of human health or the environment, including, without
limitation: all requirements, including, but not limited to those pertaining to
reporting, licensing, permitting, investigation, and remediation of emissions,
discharges, releases, or threatened releases of Hazardous Materials, chemical
substances, pollutants, contaminants, or hazardous or toxic substances,
materials or wastes whether solid, liquid, or gaseous in nature, into the air,
surface water, groundwater, or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
chemical substances, pollutants, contaminates, or hazardous or toxic substances,
materials, or wastes, whether solid, liquid, or gaseous in nature and all
requirements pertaining to the protection of the health and safety of employees
or the public. "Acquiror Property" shall mean real estate currently owned,
leased, or otherwise used by Acquiror or Bank, or in which Acquiror or Bank has
an investment or security interest by mortgage, deed of trust, sale and
lease-back or otherwise, including without limitation, properties under
foreclosure and properties held by Acquiror or Bank in its capacity as a trustee
or otherwise. "Tank" shall mean treatment or storage tanks, sumps, or water,
gas or oil ▇▇▇▇▇ and associated piping transportation devices. "Hazardous
Materials" shall mean any substance the presence of which requires investigation
or remediation under any federal, state, or local statute, regulation,
ordinance, order, action, policy or common law, or which is or becomes defined
as a hazardous waste, hazardous substance, hazardous material, used oil,
pollutant or contaminant under any federal, state or local statute, regulation,
rule or ordinance or amendments thereto including without limitation, the
Comprehensive Environmental Response; Compensation and Liability Act (42 U.S.C.
Section 9601, ET SEQ.); the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901, ET SEQ.); the Clean Air Act, as amended (42 U.S.C. Section 7401,
ET SEQ.); the Federal Water Pollution Control Act, as amended (33 U.S.C.
Section 1251, ET SEQ.); the Toxic Substances Control Act, as amended (15 U.S.C.
Section 9601, et seq.); the Occupational Safety and Health Act, as amended (29
U.S.C. Section 65); the Emergency Planning and Community Right-to-Know Act of
1986 (42 U.S.C. Section 11001, ET SEQ.); the Mine Safety and Health Act of
1977, as amended (30 U.S.C. Section
20
801, ET SEQ.); the Safe Drinking Water Act (42 U.S.C. Section 300f, ET SEQ.);
and all comparable state and local laws, including without limitation, the
▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇-▇▇▇▇▇▇ Hazardous Substance Account Act (State Superfund), the
▇▇▇▇▇▇-Cologne Water Quality Control Action, Section 25140, 25501(j) and (k);
25501.1.25281 and 25250.1 of the California HEALTH AND SAFETY CODE and/or
Article I of Title 22 of the California CODE OF REGULATIONS, Division 4, Chapter
30; laws of other jurisdictions or orders and regulations; or the presence of
which causes or threatens to cause a nuisance, trespass or other common law tort
upon real property or adjacent properties or poses or threatens to pose a hazard
to the health or safety of persons or without limitation, which contains
gasoline, diesel fuel or other petroleum hydrocarbons; polychlorinated biphenyls
(PCB's), asbestos or urea formaldehyde foam insulation.
3.11 COMMUNITY REINVESTMENT ACT. Bank received a rating of
"satisfactory" or better in its most recent examination or interim review with
respect to the Community Reinvestment Act. Neither Acquiror nor Bank has been
advised of any concerns regarding compliance with the Community Reinvestment Act
by any Governmental Entity or by any other Person.
3.12 POOLING OF INTERESTS. It is intended that the Bank merger be
accounted for on a pooling of interests basis, and no event has occurred to the
knowledge of Acquiror or Bank or is reasonably foreseeable (including any
transaction contemplated by this Agreement) that could alter such treatment.
3.13 SEC REPORTS. As of the respective dates, since December 31, 1996,
none of Acquiror's SEC Reports contained at the time of filing 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 made therein, in light of the
circumstance under which they were made, not misleading.
3.14 TRUST ADMINISTRATION. Acquiror and Bank do not presently exercise
trust powers, including, but not limited to, trust administration, and have not
exercised such trust powers for a period of at least 3 years prior to the date
hereof. The term "trusts" as used in this Section 3.31 includes (i) any and all
common law or other trusts between an individual, corporation or other entities
and Acquiror or Bank, as trustee or co-trustee, including, without limitation,
pension or other qualified or nonqualified employee benefit plans, compensation,
testamentary, inter vivos, charitable trust indentures; (ii) any and all
decedents' estates where Acquiror or Bank are serving or have served as a
co-executor or sole executor, personal representative or administrator,
administrator ▇▇ ▇▇▇▇▇ non, administrator ▇▇ ▇▇▇▇▇ non with will annexed, or in
any similar fiduciary capacity; (iii) any and all guardianships,
conservatorships or similar positions where Acquiror or Bank are serving or have
served as a co-grantor or a sole grantor or a conservator or a co-conservator of
the estate, or any similar fiduciary capacity; and (iv) any and all agency
and/or custodial accounts and/or similar arrangements, including plan
administrator for employee benefit accounts, under which Acquiror or Bank are
serving or have served as an agent or custodian for the owner or other party
establishing the account with or without investment authority.
3.15 REGULATORY APPROVALS. To the knowledge of Acquiror and Bank, except
as described in Acquiror's Disclosure Letter, Acquiror and Bank have no reason
to believe that they would not
21
receive all required approvals from any Governmental Entity of any application
to consummate the transactions contemplated by this Agreement without the
imposition of a materially burdensome condition in connection with the approval
of any such application.
3.16 YEAR 2000 READINESS. Except as described in Acquiror's Disclosure
Letter, Acquiror and Bank are taking all reasonable steps to correct their
respective computer programs and applications so that they will not fail or will
create erroneous results by or at the Year 2000 and neither Acquiror nor Bank
has been advised of any concerns regarding readiness with Year 2000 issues by
any Governmental Entity or by any other Person. Further, except as described in
Acquiror's Disclosure Letter, (i)Acquiror's and Bank's computer software and
related hardware (the "Computer System") used for the storage and processing of
data are or will be prior to the year 2000 Year 2000 Readiness; (ii) to the best
of Acquiror's knowledge after the inquiry, none ofAcquiror's and Bank's Computer
System, operations or business functions of Acquiror or Bank will be materially
adversely affected by any third party's failure to be Year 2000 Readiness and to
the best ofAcquiror's knowledge after due inquiry, all of Acquiror's and Bank's
suppliers, customers and third party providers are, or will be prior to year
2000, Year 2000 Readiness; and (iii) Acquiror and Bank are taking or have
taken, all necessary and appropriate action to address and remedy any
deficiencies in their Computer System which would keep it from becoming Year
2000 Readiness. As used herein, "Year 2000 Readiness" shall mean the ability of
a Computer System to provide the following functions, without human
intervention, individually and in combination with other products or systems:
(i) consistently handle, record, store, process and present dates and
date-related information before, during and after January1, 2000, including but
not limited to accepting date input, performing calculations on dates or portion
of dates, and providing date output; (ii) function accurately in accordance with
the published specifications and without undue interruption, before, during, and
after January 1, 2000 (including leap year computations) without any adverse
change in operation associated with the advent of the year 2000; (iii) respond
to two-digit or four-digit dates and date-related input in a way that resolves
any ambiguity as to the year 2000 in a disclosed, defined and predetermined
manner, and store and provide output of dates and date-related information in
ways that are unambiguous as to the year 2000; and (iv) suitably interact with
other software and related hardware in a way which does not compromise its year
2000 readiness capability.
3.17 PERFORMANCE OF OBLIGATIONS. Acquiror and Bank has each performed
all of the obligations required to be performed by it to date and is not in
material default under or in breach of any term or provision of any material
contract, and no event has occurred that, with the giving of notice or the
passage of time or both, would constitute such default or breach. To Acquiror's
and Bank's knowledge, no party with whom either has an agreement that is
material to its business is in default thereunder.
3.18 LICENSES AND PERMITS. Each of Acquiror and Bank has all licenses
and permits that are necessary for the conduct of its businesses, and such
licenses are in full force and effect, except for any failure to be in full
force and effect that would not, individually or in the aggregate, have a
material adverse effect on the business, financial condition or results of
operations of Acquiror.
22
The properties and operations of Acquiror and Bank are and have been maintained
and conducted, in all material respects, in compliance with all applicable
Rules.
3.19 UNDISCLOSED LIABILITIES. Except as set forth in Acquiror's
Disclosure Letter neither Acquiror nor Bank has any liabilities or obligations,
either accrued or contingent, that are material to it and that have not
been:(a) reflected or disclosed in the Financial Statements of Acquiror or
(b) incurred subsequent to December 31, 1998 in the ordinary course of business.
Neither Acquiror nor Bank knows of any basis for the assertion against it of any
liability, obligation or claim (including, without limitation, that of any
Governmental Entity) that is likely to result in or cause a material adverse
change in the business, financial condition or results of operations of Acquiror
that is not fairly reflected in the Financial Statements of Acquiror or
otherwise disclosed in this Agreement.
3.20 ACCOUNTING RECORDS. Each of Acquiror and Bank maintains accounting
records which fairly and validly reflect, in all material respects, its
transactions and accounting controls sufficient to provide reasonable assurances
that such transactions are (i) executed in accordance with its management's
general or specific authorization, and (ii) recorded as necessary to permit the
preparation of financial statements in conformity with GAAP. Such records, to
the extent they contain material information pertaining to Acquiror or Bank
which is not easily and readily available elsewhere, have been duplicated, and
such duplicates are stored safely and securely.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
TARGET
Target represents and warrants to Acquiror and Bank as follows:
4.1 INCORPORATION, STANDING AND POWER. Target has been duly
incorporated and is validly existing as a banking company under the laws of
California and is authorized by the Commissioner to conduct a general banking
business. Target is not a member bank of the Federal Reserve System and its
deposits are insured by the FDIC in the manner and to the extent provided by
law. Target has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as presently
conducted. Neither the scope of the business of Target nor the location of any
of its properties requires that Target be licensed to do business in any
jurisdiction other than in California where the failure to be so licensed would,
individually or in the aggregate, have a materially adverse effect on the
financial condition, results of operation or business of Target.
23
4.2 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of Target consists of 5,000,000 shares of Target Stock, of which
1,637,606 shares are outstanding. All the outstanding shares of Target Stock
are duly authorized, validly issued, fully paid, nonassessable and without
preemptive rights. Except for Target stock options covering 127,172 shares of
Target Stock granted pursuant to the Target Stock Option Plan ("Target Stock
Options") and except as set forth in Target's Disclosure Letter, there are no
outstanding options, warrants or other rights in or with respect to the unissued
shares of Target Stock or any other securities convertible into such stock, and
Target is not obligated to issue any additional shares of its capital stock or
any options, warrants or other rights in or with respect to the unissued shares
of its capital stock or any other securities convertible into such stock.
4.3 SUBSIDIARIES. Except as set forth in Target's Disclosure Letter,
Target does not own, directly or indirectly, any outstanding stock, Equity
Securities or other voting interest in any corporation, partnership, joint
venture or other entity or Person, other than DPC Property.
4.4 FINANCIAL STATEMENTS. Target has previously furnished to Bank and
Acquiror a copy of the Financial Statements of Target. The Financial Statements
of Target: (a) present fairly the financial condition of Target as of the
respective dates indicated and its results of operations and cash flow for the
respective periods indicated; and (b) have been prepared in accordance with
GAAP. The audits of Target have been conducted in accordance with generally
accepted auditing standards. The books and records of Target are being
maintained in material compliance with applicable legal and accounting
requirements. Except to the extent (i) reflected in the Financial Statements of
Target and (ii) of liabilities incurred since December 31, 1998 in the ordinary
course of business and consistent with past practice, Target has no liabilities,
whether absolute, accrued, contingent or otherwise.
4.5 AUTHORITY OF TARGET. The execution and delivery by Target of this
Agreement and, subject to the requisite approval of the shareholders of Target,
the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Target, and
this Agreement is a valid and binding obligation of Target, enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, liquidation, receivership, conservatorship, insolvency,
moratorium or other similar laws affecting the rights of creditors generally and
by general equitable principles and by Section 8(b)(6)(D) of the Federal Deposit
Insurance Act, 12 U.S.C. Section 1818(b)(6)(D). Except as set forth in Target's
Disclosure Letter, neither the execution and delivery by Target of this
Agreement, the consummation of the Bank Merger or the transactions contemplated
herein, nor compliance by Target with any of the provisions hereof, will:
(a) violate any provision of its Charter Documents; (b) constitute a breach of
or result in a default (or give rise to any rights of termination, cancellation
or acceleration, or any right to acquire any securities or assets) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
franchise, license, permit, agreement, Encumbrance or other instrument or
obligation to which Target is a party, or by which Target or any of its
properties or assets is bound, if in any such circumstances, such event could
have consequences materially adverse to Target; or (c) violate any Rule
applicable to Target or any of its properties or assets. No Consent of any
Governmental Entity having jurisdiction over any aspect of
24
the business or assets of Target, and no Consent of any Person, is required in
connection with the execution and delivery by Target of this Agreement or the
consummation by Target of the Bank Merger and the transactions contemplated
hereby, except (i) the approval of this Agreement and the transactions
contemplated hereby by the shareholders of Target; (ii) such approvals or
notices as may be required by the FRB, the Commissioner and the FDIC; (iii) the
declaring effective of the S-4 by the SEC and the approvals of all necessary
blue sky administrators; and (iv) as otherwise set forth in Target's Disclosure
Letter.
4.6 INSURANCE. Target has policies of insurance and bonds covering its
assets and businesses against such casualties and contingencies and in such
amounts, types and forms as are customary in the banking industry for its
businesses, operations, properties and assets. All such insurance policies and
bonds are in full force and effect. Except as set forth in Target's Disclosure
Letter, Target has not received notice from any insurer that any such policy or
bond has canceled or indicating an intention to cancel or not to renew any such
policy or bond or generally disclaiming liability thereunder. Except as set
forth in Target's Disclosure Letter, Target is not in default under any such
policy or bond and all material claims thereunder have been filed in a timely
fashion. Target's Disclosure Letter sets forth a list of all policies of
insurance carried and owned by Target, showing the name of the insurance
company, the nature of the coverage, the policy limit, the annual premiums and
the expiration dates. The existing insurance carried by Target is sufficient
for compliance by Target with all material requirements of law and regulations
and agreements to which Target is subject or is a party.
4.7 TITLE TO ASSETS. Target's Disclosure Letter sets forth a summary
of all items of personal property and equipment with a book value of $50,000 or
more, or having an annual lease payment of $15,000 or more, owned or leased by
Target. Target has good and marketable title to all its properties and assets,
other than real property, owned or stated to be owned by Target, free and clear
of all Encumbrances except: (a) as set forth in the Financial Statements of
Target; (b) Encumbrances for current taxes not yet due; (c) Encumbrances
incurred in the ordinary course of business, if any, that, to the knowledge of
Target, (i) are not substantial in character, amount or extent, (ii) do not
materially detract from the value, (iii) do not interfere with present use, of
the property subject thereto or affected thereby, and (iv) do not otherwise
materially impair the conduct of business of Target; or (d) as set forth in
Target's Disclosure Letter.
4.8 REAL ESTATE. Target's Disclosure Letter sets forth a list of all
real property, including leaseholds, owned by Target, together with (i) a
description of the locations thereof, (ii) a description of each real property
lease, sublease, installment purchase, or similar arrangement to which Target is
a party, and (iii) a description of each contract for the purchase, sale or
development of real estate to which Target is a party. Target has good and
marketable title to the real property, and valid leasehold interests in the
leaseholds, set forth in Target's Disclosure Letter, free and clear of all
Encumbrances, except (a) for rights of lessors, co-lessees or sublessees in such
matters that are reflected in the lease; (b) Encumbrances for current taxes not
yet due and payable; (c) Encumbrances incurred in the ordinary course of
business, if any, that, to the knowledge of Target, (i) are not substantial in
character, amount or extent, (ii) do not materially detract from the value,
(iii) do not interfere with present use, of the property subject thereto or
affected thereby, and
25
(iv) do not otherwise materially impair the conduct of business of Target; or
(d) as set forth in Target's Disclosure Letter. Target, as lessee, has the
right under valid and subsisting leases to occupy, use and possess all property
leased by it, as identified in Target's Disclosure Letter, and, to the knowledge
of Target, there has not occurred under any such lease any breach, violation or
default. Except as set forth in Target's Disclosure Letter and except with
respect to deductibles under insurance policies set forth in Target's Disclosure
Letter, Target has not experienced any uninsured damage or destruction with
respect to the properties identified in Target's Disclosure Letter. To the
knowledge of Target, all properties and assets used by Target are in good
operating condition and repair, suitable for the purposes for which they are
currently utilized, and comply with all applicable Rules related thereto.
Target enjoys peaceful and undisturbed possession under all leases for the use
of real or personal property under which it is the lessee, and, to the knowledge
of Target, all leases to which Target is a party are valid and enforceable in
all material respects in accordance with the terms thereof except as may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
creditors' rights and except as may be limited by the exercise of judicial
discretion in applying principles of equity. Target is not in default with
respect to any such lease, and to the knowledge of the officers of Target no
event has occurred which with the lapse of time or the giving of notice, or
both, would constitute a default under any such lease. Copies of each such
lease are attached to Target's Disclosure Letter.
4.9 LITIGATION. Except as set forth in Target's Disclosure Letter, to
the knowledge of Target, there is no private or governmental suit, claim,
action, investigation or proceeding pending, nor to Target's knowledge
threatened, against Target or against any of its directors, officers or
employees relating to the performance of their duties in such capacities or
against or affecting any properties of Target. Also, except as disclosed in
Target's Disclosure Letter, there are no judgments, decrees, stipulations or
orders against Target enjoining it or any of its directors, officers or
employees in respect of, or the effect of which is to prohibit, any business
practice or the acquisition of any property or the conduct of business in any
area of Target. To the knowledge of Target, Target is not a party to any
pending or, to the knowledge of any of the officers, threatened legal,
administrative or other claim, action, suit, investigation, arbitration or
proceeding challenging the validity or propriety of any of the transactions
contemplated by this Agreement.
4.10 TAXES. Except as set forth in Target's Disclosure Letter, Target
had filed all federal and foreign income tax returns, all state and local
franchise and income tax, real and personal property tax, sales and use tax,
premium tax, excise tax and other tax returns of every character required to be
filed by it and have paid all taxes, together with any interest and penalties
owing in connection therewith, shown on such returns to be due in respect of the
periods covered by such returns, other than taxes which are being contested in
good faith and for which adequate reserves have been established. Except as set
forth in Target's Disclosure Letter, Target has filed all required payroll tax
returns, has fulfilled all tax withholding obligations and have paid over to the
appropriate governmental authorities the proper amounts with respect to the
foregoing. The tax and audit positions taken by Target in connection with the
tax returns described in the preceding sentence were reasonable and asserted in
good faith. Adequate provision has been made in the books and records of Target
and, to the extent required by generally accepted accounting procedures,
reflected in the Financial Statements of Target, for all tax liabilities,
including interest
26
or penalties, whether or not due and payable and whether or not disputed, with
respect to any and all federal, foreign, state, local and other taxes for the
periods covered by such financial statements and for all prior periods.
Target's Disclosure Letter sets forth (i) the date or dates through which the
IRS has examined the federal tax returns of Target and the date or dates through
which any foreign, state, local or other taxing authority has examined any other
tax returns of Target; (ii) a complete list of each year for which any federal,
state, local or foreign tax authority has obtained or has requested an extension
of the statute of limitations from Target and lists each tax case of Target
currently pending in audit, at the administrative appeals level or in
litigation; and (iii) the date and issuing authority of each statutory notice of
deficiency, notice of proposed assessment and revenue agent's report issued to
Target within the last twelve (12) months. Except as set forth in Target's
Disclosure Letter, to the knowledge of Target, neither the IRS nor any foreign,
state, local or other taxing authority has, during the past three years,
examined or is in the process of examining any federal, foreign, state, local or
other tax returns of Target. To the knowledge of Target, neither the IRS nor
any foreign, state, local or other taxing authority is now asserting or
threatening to assert any deficiency or claim for additional taxes (or interest
thereon or penalties in connection therewith) except as set forth in Target's
Disclosure Letter.
4.11 COMPLIANCE WITH LAWS AND REGULATIONS. Except as set forth in
Target's Disclosure Letter, Target is not in default under or in breach of any
provision of its Charter Documents or any Rule promulgated by any Governmental
Entity having authority over it, where such default or breach would have a
material adverse effect on the business, financial condition or results of
operations of Target.
4.12 PERFORMANCE OF OBLIGATIONS. Target has performed all of the
obligations required to be performed by it to date and is not in material
default under or in breach of any term or provision of any material contract ,
and no event has occurred that, with the giving of notice or the passage of time
or both, would constitute such default or breach. To Target's knowledge, no
party with whom Target has an agreement that is material to the business of
Target is in default thereunder.
4.13 EMPLOYEES. Except as set forth in Target's Disclosure Letter,
there are no controversies pending or threatened between Target and any of its
employees that are likely to have a material adverse effect on the business,
financial condition or results of operation of Target. Target is not a party to
any collective bargaining agreement with respect to any of its employees or any
labor organization to which its employees or any of them belong.
4.14 BROKERS AND FINDERS. Except as provided in Target's Disclosure
Letter with copies of any such agreements attached, Target is not a party to or
obligated under any agreement with any broker or finder relating to the
transactions contemplated hereby, and neither the execution of this Agreement
nor the consummation of the transactions provided for herein or therein will
result in any liability to any broker or finder.
4.15 ABSENCE OF MATERIAL CHANGE. Since December 31, 1998, the business
of Target has been conducted only in the ordinary course, in substantially the
same manner as theretofore conducted, and, except as set forth in Target's
Disclosure Letter, there has not occurred since
27
December 31, 1998, any event that has had or may reasonably be expected to have
a material adverse effect on the business, financial condition or results of
operation of Target.
4.16 LICENSES AND PERMITS. Target has all licenses and permits that are
necessary for the conduct of its businesses, and such licenses are in full force
and effect, except for any failure to be in full force and effect that would
not, individually or in the aggregate, have a material adverse effect on the
business, financial condition or results of operations of Target. The
properties and operations of Target are and have been maintained and conducted,
in all material respects, in compliance with all applicable Rules.
4.17 UNDISCLOSED LIABILITIES. Except as set forth in Target's
Disclosure Letter Target has no liabilities or obligations, either accrued or
contingent, that are material to Target and that have not been:(a) reflected or
disclosed in the Financial Statements of Target or (b) incurred subsequent to
December 31, 1998 in the ordinary course of business. Target does not know of
any basis for the assertion against it of any liability, obligation or claim
(including, without limitation, that of any Governmental Entity) that is likely
to result in or cause a material adverse change in the business, financial
condition or results of operations of Target that is not fairly reflected in the
Financial Statements of Target or otherwise disclosed in this Agreement.
4.18 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Target's Disclosure Letter, Target has no
"employee benefit plan," as defined in Section 3(3) of ERISA.
(b) Target's Disclosure Letter sets forth copies or descriptions of
each Benefit Arrangement maintained or otherwise contributed to by Target (such
plans and arrangements being collectively referred to herein as "Target Benefit
Arrangements"). Except as set forth in Target's Disclosure Letter, all Target
Benefit Arrangements which are in effect have been in effect for substantially
all of 1998. Except as set forth in Target's Disclosure Letter, there has been
no material amendment thereof or increase in the cost thereof or benefits
payable thereunder since December 31, 1998. Except as set forth in Target's
Disclosure Letter, there has been no material increase in the compensation of or
benefits payable to any senior executive employee of Target since December 31,
1998, nor any employment, severance or similar contract entered into with any
such employee, nor any amendment to any such contract, since December 31, 1998.
Except as set forth in Target's Disclosure Letter, there is no contract,
agreement or benefit arrangement covering any employee of Target which
individually or collectively could give rise to the payment of any amount which
would constitute an "excess parachute payment," as such term is defined in
Section 280(G) of the Code.
(c) With respect to all Target Benefit Arrangements, Target is in
substantial compliance (other than noncompliance the cost or liability for which
is not material) with the requirements prescribed by any and all statutes,
governmental or court orders, or governmental rules or regulations currently in
effect, applicable to such plans or arrangements.
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(d) Except for the contracts set forth in Target's Disclosure Letter,
each Target Benefit Arrangement and each personal services contract, fringe
benefit, consulting contract or similar arrangement with or for the benefit of
any officer, director, employee or other person can be terminated by Target
within a period of 30 days following the Effective Time of the Bank Merger,
without payment of any amount as a penalty, bonus, premium, severance pay or
other compensation for such termination.
4.19 CORPORATE RECORDS. The Charter Documents of Target and all
amendments thereto to the date hereof (true, correct and complete copies of
which are set forth in Target's Disclosure Letter) are in full force and effect
as of the date of this Agreement. The minute books of Target, together with the
documents and other materials incorporated therein by reference, reflect all
meetings held and contain complete and accurate records of all corporate actions
taken by the board of directors of Target (or any committees thereof) and
stockholders. Except as reflected in such minute books, there are no minutes of
meetings or consents in lieu of meetings of the board of directors (or any
committees thereof) or of the stockholders of Target.
4.20 ACCOUNTING RECORDS. Target maintains accounting records which
fairly and validly reflect, in all material respects, its transactions and
accounting controls sufficient to provide reasonable assurances that such
transactions are (i) executed in accordance with its management's general or
specific authorization, and (ii) recorded as necessary to permit the preparation
of financial statements in conformity with GAAP. Such records, to the extent
they contain material information pertaining to Target which is not easily and
readily available elsewhere, have been duplicated, and such duplicates are
stored safely and securely.
4.21 OFFICES AND ATMS. Set forth in Target's Disclosure Letter is a
list of the headquarters of Target (identified as such) and each of the offices
and automated teller machines ("ATMs") maintained and operated (or to be
maintained and operated) by Target (including, without limitation,
representative and loan production offices and operations centers) and the
location thereof. Except as set forth in Target's Disclosure Letter, Target
maintains no other office or ATM and conducts business at no other location, and
Target has not applied for nor received permission to open any additional branch
nor operate at any other location.
4.22 LOAN PORTFOLIO. Target's Disclosure Letter sets forth a
description of: (a) by type and classification, all loans, leases, other
extensions and commitments to extend credit of Target of $25,000 or more, that
have been classified by itself, its bank examiners or auditors (external or
internal) as "Watch List," "Substandard," "Doubtful," "Loss" or any comparable
classification; and (b) all loans due to Target as to which any payment of
principal, interest or any other amount is 30 days or more past due. Target's
allowance for loan losses is and will be at the Effective Time adequate and in
accordance with GAAP in all materials respects and in accordance with all
applicable regulatory requirements of any Governmental Entity.
4.23 POWER OF ATTORNEY. Except as set forth in Target's Disclosure
Letter, Target has not granted any Person a power of attorney or similar
authorization that is presently in effect or outstanding.
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4.24 OPERATING LOSSES. Target's Disclosure Letter sets forth any
Operating Loss which has occurred at Target during the period after December 31,
1998. To the knowledge of Target, no action has been taken or omitted to be
taken by an employee of Target that has resulted in the incurrence by Target of
an Operating Loss or that might reasonably be expected to result in an
Operating Loss after December 31, 1998, which, net of any insurance proceeds
payable in respect thereof, would exceed $25,000. "Operating Loss" means any
loss resulting from cash shortages, lost or misposted items, disputed clerical
and accounting errors, forged checks, payment of checks over stop payment
orders, counterfeit money, wire transfers made in error, theft, robberies,
defalcations, check kiting, fraudulent use of credit cards or electronic teller
machines or other similar acts or occurrences.
4.25 ENVIRONMENTAL MATTERS. Except as set forth in Target's Disclosure
Letter, to the knowledge of Target, (i) Target is in compliance with all
Environmental Laws; (ii) there are no Tanks on or about Target Property; (iii)
there are no Hazardous Materials on, below or above the surface of, or migrating
to or from Target Property; (iv) Target has no loans outstanding secured by real
property that is not in compliance with Environmental Laws or which has a
leaking Tank or upon which there are Hazardous Materials on or migrating to or
from; and (v) without limiting the foregoing representations and warranties
contained in clauses (i) through (iv), as of the date of this Agreement, there
is no claim, action , suit, or proceeding or notice thereof before any
Governmental Entity pending against Target or concerning property securing
Target loans and there is no outstanding judgment, order, writ, injunction,
decree, or award against or affecting Target Property or property securing
Target loans, relating to the foregoing representations (i) -- (iv), in each
case the noncompliance with which, or the presence of which would have a
material adverse effect on the business, financial condition, results of
operations or prospects of Target. "Target Property" shall mean real estate
currently owned, leased, or otherwise used by Target, or in which Target has an
investment or security interest by mortgage, deed of trust, sale and lease-back
or otherwise, including without limitation, properties under foreclosure and
properties held by Target in its capacity as a trustee or otherwise.
4.26 COMMUNITY REINVESTMENT ACT. Target received a rating of
"satisfactory" or better in its most recent examination or interim review with
respect to the Community Reinvestment Act. Target has not been advised of any
concerns regarding Target's compliance with the Community Reinvestment Act by
any Governmental Entity or by any other Person.
4.27 DERIVATIVES. Target is not currently a party to any interest rate
swap, cap, floor, option agreement, other interest rate risk management
arrangement or agreement or derivative-type security or derivative arrangement
or agreement.
4.28 POOLING OF INTERESTS. It is intended that the Bank Merger be
accounted for on a pooling of interest basis and to the knowledge of Target no
event has occurred or is reasonable foreseeable (including any transaction
contemplated by this Agreement that could alter such treatment.)
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4.29 SEC REPORTS. Target is not currently required to file any reports
pursuant to the Exchange Act.
4.30 MATERIAL CONTRACTS. Except as set forth in Target's Disclosure
Letter (all items listed or required to be listed in Target's Disclosure Letter
as a result of this Section being referred to herein as "Target Scheduled
Contracts"), Target is not a party or otherwise subject to:
(a) any employment, deferred compensation, bonus or consulting
contract;
(b) any advertising, brokerage, licensing, dealership, representative
or agency relationship or contract;
(c) any contract or agreement that would restrict Acquiror or the
Surviving Bank after the Effective Time from competing in any line of business
with any Person or using or employing the services of any Person;
(d) any collective bargaining agreement or other such contract or
agreement with any labor organization;
(e) any lease of real or personal property providing for annual lease
payments by or to Target in excess of $ 25,000 per annum other than financing
leases entered into in the ordinary course of business in which Target is lessor
and leases of real property presently used by Target as banking offices.
(f) any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any interest
of Target (other than as mortgagor or pledgor in the ordinary course of their
banking business or as mortgagee, secured party or deed of trust beneficiary in
the ordinary course of their business) in personal property having a value of
$25,000 or more;
(g) any stock purchase, stock option, stock bonus, stock ownership,
profit sharing, group insurance, bonus, deferred compensation, severance pay,
pension, retirement, savings or other incentive, welfare or employment plan or
material agreement providing benefits to any present or former employees,
officers or directors of Target;
(h) any agreement to acquire equipment or any commitment to make
capital expenditures of $ 25,000 or more;
(i) other than agreements entered into in the ordinary course of
business with respect to DPC Property, any agreement for the sale of any
property or assets in which Target has an ownership interest or for the grant of
any preferential right to purchase any such property or asset;
(j) any agreement for the borrowing of any money (other than
liabilities or interbank borrowings made in the ordinary course of their banking
business and reflected in the financial records of Target);
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(k) any restrictive covenant contained in any deed to or lease of real
property owned or leased by Target (as lessee) that materially restricts the
use, transferability or value of such property;
(l) any guarantee or indemnification which involves the sum of $25,000
or more, other than letters of credit or loan commitments issued in the normal
course of business;
(m) any supply, maintenance or landscape contracts not terminable by
Target without penalty on 30 days or less notice and which provides for payments
in excess of $ 25,000 per annum;
(n) other than as disclosed with reference to subparagraph (k) of this
Section 4.30, any agreement which would be terminable other than by Target or as
a result of the consummation of the transactions contemplated by this Agreement;
(o) any contract of participation with any other bank in any loan
entered into by Target subsequent to December 31, 1998 in excess of $25,000 or
any sales of assets of Target with recourse of any kind to Target except the
sale of mortgage loans, servicing rights, repurchase or reverse repurchase
agreements, securities or other financial transactions in the ordinary course of
business;
(p) any other agreement of any other kind, including for data
processing and similar services, which involves future payments or receipts or
performances of services or delivery of items requiring aggregate payment of
$25,000 or more to or by Target other than payments made under or pursuant to
loan agreements, participation agreements and other agreements for the extension
of credit in the ordinary course of their business;
(q) any material agreement, arrangement or understanding not made in
the ordinary course of business;
(r) any agreement, arrangement or understanding relating to the
employment, election, retention in office or severance of any present or former
director, officer or employee of Target;
(s) any agreement, arrangement or understanding pursuant to which any
payment (whether severance pay or otherwise) became or may become due to any
director, officer or employee of Target upon execution of this Agreement or upon
or following consummation of the transactions contemplated hereby (either alone
or in connection with the occurrence of any additional acts or events); or
(t) any written agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order, capital order, or
condition of any regulatory order or decree with or by the Commissioner, FDIC,
FRB or any other regulatory agency.
True copies of all Target Scheduled Contracts, including all amendments
and supplements thereto, are attached to Target's Disclosure Letter.
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4.31 TRUST ADMINISTRATION. Target does not presently exercise trust
powers, including, but not limited to, trust administration, and has not
exercised such trust powers for a period of at least 3 years prior to the date
hereof. The term "trusts" as used in this Section 4.31 includes (i) any and all
common law or other trusts between an individual, corporation or other entities
and Target, as trustee or co-trustee, including, without limitation, pension or
other qualified or nonqualified employee benefit plans, compensation,
testamentary, inter vivos and charitable trust indentures; (ii) any and all
decedents' estates where Target is serving or has served as a co-executor or
sole executor, personal representative or administrator, administrator ▇▇ ▇▇▇▇▇
non, administrator ▇▇ ▇▇▇▇▇ non with will annexed, or in any similar fiduciary
capacity; (iii) any and all guardianships, conservatorships or similar positions
where Target is serving or has served as a co-grantor or a sole grantor or a
conservator or a co-conservator of the estate, or any similar fiduciary
capacity; and (iv) any and all agency and/or custodial accounts and/or similar
arrangements, including plan administrator for employee benefit accounts, under
which Target is serving or has served as an agent or custodian for the owner or
other party establishing the account with or without investment authority.
4.32 REGULATORY APPROVALS. To the knowledge of Target, except as
described in Target's Disclosure Letter, Target has no reason to believe that it
would not receive all required approvals from any Governmental Entity of any
application to consummate the transaction contemplated by this Agreement without
the imposition of a materially burdensome condition in connection with the
approval of any such application.
4.33 YEAR 2000 READINESS. Except as described in Target's Disclosure
Letter, Target is are taking all reasonable steps to correct itsrespective
computer programs and applications so that they will not fail or will create
erroneous results by or at the Year 2000 and Target has not been advised of
any concerns regarding readiness with Year 2000 issues by any Governmental
Entity or by any other Person. Further, except as described in Target's
Disclosure Letter, (i) Target's Computer System used for the storage and
processing of data are or will be prior to the year 2000 Year 2000 Readiness;
(ii) to the best of Target's knowledge after due inquiry, none of Target's
Computer System, operations or business functions of Target will be materially
adversely affected by any third party's failure to be Year 2000 Readiness and to
the best of Target's knowledge after due inquiry, all of its suppliers,
customers and third party providers are, or will be prior to year 2000, Year
2000 Readiness; and (iii) Target is taking or has taken, all necessary and
appropriate action to address and remedy any deficiencies in its Computer System
which would keep it from becoming Year 2000 Readiness.
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ARTICLE 5
AGREEMENTS WITH RESPECT TO CONDUCT OF
ACQUIROR AND BANK AFTER THE DATE HEREOF
Acquiror and Bank covenant and agree with Target as follows:
5.1 ACCESS.
(a) Acquiror and Bank will authorize and permit Target, its
representatives, accountants and counsel, to have access during normal business
hours, on notice and in such manner as will not unreasonably interfere with the
conduct of the businesses of either Acquiror or Bank, to all properties, books,
records, branch operating reports, branch audit reports, operating instructions
and procedures, tax returns, tax settlement letters, contracts and documents,
and all other information with respect to their business affairs, financial
condition, assets and liabilities as Target may from time to time reasonably
request. Acquiror and Bank shall permit Target, its representatives,
accountants and counsel to make copies of such books, records and other
documents and to discuss the business affairs, condition (financial and
otherwise), assets and liabilities of Acquiror and Bank with such third Persons,
including, without limitation, its directors, officers, employees, accountants,
counsel and creditors, as Target considers necessary or appropriate for the
purposes of familiarizing itself with the businesses and operations of Acquiror
and Bank, obtaining any necessary orders, consents or approvals of the
transactions contemplated by this Agreement by any Governmental Entity and
conducting an evaluation of the assets and liabilities of Acquiror and Bank.
Acquiror and Bank will cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP ("AA") to make available to
Target, its accountants, counsel and other agents, such personnel, work papers
and other documentation of AA relating to its work papers and its audits of the
books and records of Acquiror and Bank as may be requested by Target in
connection with its review of the foregoing matters.
(b) The Chairman of the Board of Target or in his absence another
representative of Target selected by him shall be invited by Acquiror and Bank
to attend all regular and special Board of Directors' and Executive Committee
meetings of Acquiror or Bank from the date hereof until the Effective Time.
Acquiror and Bank shall inform Target of all such Board meeting at least 5
Business Days in advance of each such meeting; provided, however, that the
attendance of such representative of Target shall not be permitted at any
meeting, or portion thereof, for the sole purpose of discussing the transaction
contemplated by this Agreement or the obligations of either Acquiror or the Bank
under this Agreement.
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5.2 MATERIAL ADVERSE CHANGES; REPORTS; FINANCIAL STATEMENTS; FILINGS.
(a) Acquiror and Bank will promptly notify Target (i) of any event of
which Acquiror or Bank obtains knowledge which may materially and adversely
affect the business, financial condition, or results of operations of either
Acquiror or Bank; (ii) in the event Acquiror or Bank determine that it is
possible that the conditions to the performance of Target set forth in
Sections 8.1 and 8.3 may not be satisfied; or (iii) any event, development or
circumstance that, to the best knowledge of Acquiror or Bank, will or, with the
passage of time or the giving of notice or both, is reasonably expected to
result in the loss to Acquiror or Bank of the services of any Executive Officer
of Acquiror or Bank.
(b) Acquiror and Bank will furnish to Target, as provided in
Section 11.12 of this Agreement, as soon as practicable, and in any event within
5 Business Days after it is prepared or becomes available to either Acquiror or
Bank, (i) a copy of any report submitted to the board of directors of either
Acquiror or Bank and access to the working papers related thereto and copies of
other operating or financial reports prepared for management of any of its
businesses and access to the working papers related thereto PROVIDED, HOWEVER,
that Acquiror and Bank need not furnish Target any privileged communications of
or memoranda prepared by its legal counsel in connection with the transactions
contemplated by, and the rights and obligations of Acquiror and Bank under, this
Agreement; (ii) quarterly unaudited consolidated balance sheets and statements
of operations, changes in stockholders' equity and cash flow for Acquiror and
Bank; (iii) monthly unaudited consolidated balance sheets and, statements of
operations for Acquiror and Bank; (iv) as soon as available, all letters and
communications sent by Acquiror to its shareholders and all reports filed by
Acquiror or Bank with the SEC, the FRB, the FDIC, the Commissioner and any other
Person; and (v) such other reports as Target may reasonably request relating to
Acquiror or Bank.
(c) Each of the financial statements delivered pursuant to subsection
(b) shall be (i) prepared in accordance with GAAP on a basis consistent with
that of the Financial Statements of Acquiror, except that such financial
statements may omit statements of cash flows and footnote disclosures required
by GAAP; and (ii) accompanied by a certificate of the chief financial officer to
the effect that such consolidated financial statements fairly present the
financial condition and results of operations of Acquiror and Bank for the
period covered, and reflect all adjustments (which consist only of normal
recurring adjustments) necessary for a fair presentation.
5.3 CONDUCT OF BUSINESS.
(a) Between the date hereof and the Effective Time, except (i) as
contemplated by this Agreement and subject to requirements of law and regulation
generally applicable to bank holding companies and banks, Acquiror or Bank shall
not, without prior written consent of Target (which consent shall not be
unreasonably withheld and which consent shall be deemed granted if within five
(5) Business Days of Target's receipt of written notice of a request for prior
written consent, written notice of objection is not received by Acquiror and
Bank):
35
(1) amend, modify, terminate or fail to renew or preserve their
material Permits;
(2) issue, sell, or grant any Equity Securities of Acquiror or
Bank (except pursuant to the Acquiror Stock Option Plan ), any other securities
(including long term debt), or any rights, options or securities to acquire any
Acquiror Stock Option or any Equity Securities of Acquiror or any other
securities (including long term debt) of Acquiror;
(3) declare, issue or pay any dividend or other distribution of
assets, whether consisting of money, other personal property, real property or
other things of value, to the shareholders of Acquiror, or split, combine or
reclassify any shares of its capital stock or other Equity Securities except for
quarterly cash dividends payable by Acquiror to its shareholders in accordance
with past practice and not to exceed $ .20 per share per quarter;
(4) purchase, redeem or otherwise acquire any Equity Securities,
or other securities of Acquiror or Bank or any rights, options, or securities to
acquire any Equity Securities of Acquiror or Bank;
(5) amend or modify its Charter Documents except as contemplated
hereby;
(6) agree or make any commitment to take any actions prohibited
by this Section 5.3;
(7) take any action which would or is reasonably likely to (i)
adversely affect the ability of Acquiror, Bank or Target to obtain any necessary
approval of any Governmental Entity required for the transactions contemplated
hereby; (ii) adversely affect Acquiror or Bank's ability to perform their
covenants and agreements under this Agreement; or (iii) result in any of the
conditions to the performance of Acquiror, Bank or Target's obligations
hereunder, as set forth in Article 8 herein not being satisfied;
(8) knowingly take or cause to be taken any action which would
disqualify the Bank Merger as a "reorganization" within the meaning of Section
368 of the Code or prevent Target from accounting for the business combination
to be effected by the Bank Merger as a pooling-of-interests;
(b) Between the date hereof and the Effective Time, Acquiror and Bank
shall:
(1) duly observe and conform in all material respects to all
lawful requirements applicable to its business;
(2) maintain their assets and properties in good condition and
repair, normal wear and tear excepted;
(3) promptly upon learning of such information, advise Target in
writing of any event or any other transaction within its knowledge whereby any
Person or Related Group of
36
Persons acquires, directly or indirectly, record or beneficial ownership or
control (as defined in Rule 13d-3 promulgated by the SEC under the Exchange Act)
of five percent (5%) or more of the outstanding Acquiror Stock prior to the
record date fixed for the Acquiror Shareholders' Meeting or any adjourned
meeting thereof to approve this Agreement and the transaction contemplated
herein;
(4) Use their best efforts consistent with this Agreement to
maintain and preserve in tact their business organization and to maintain and
preserve the relationship and good will with account customers, employees,
vendors, and others having business relationships with Acquiror and Bank;
(5) provide to Target, as soon as they become available, the
proposed final draft of the opinions referred to in Sections 8.1(g) and (h) of
this Agreement.
5.4 CERTAIN LOANS AND OTHER EXTENSIONS OF ACQUIROR AND BANK. Acquiror
and Bank will promptly inform Target of the amounts and categories of any loans,
leases or other extensions of credit that have been classified by any
Governmental Entity or by any internal or external loan reviewer of Acquiror or
Bank as "Watch List," "Substandard," "Doubtful," "Loss" or any comparable
classification. Acquiror and Bank will furnish to Target, as soon as
practicable, and in any event within 10 days after the end of each calendar
month, schedules including a listing of the following:
(a) classified credits, showing with respect to each such credit in
amount equal to or exceeding $250,000, the classification category, credit type,
and office, and with respect to all other such credits, by credit type and
office, the aggregate dollar amount;
(b) nonaccrual credits, showing with respect to each such credit in
amount equal to or exceeding $250,000, the credit type and office, and with
respect to all other such credits, by credit type and office, the aggregate
dollar amount;
(c) accrual exception credits that are delinquent 90 or more days and
have not been placed on nonaccrual status, showing with respect to each such
credit in amount equal to or exceeding $250,000, the credit type and office, and
with respect to all other such credits, by credit type and office, the aggregate
dollar amount;
(d) delinquent credits showing with respect to each such credit in
amount equal to or exceeding $250,000, the credit type, office and an aging
schedule broken down into 30-59, 60-89, 90 + day categories, and with respect to
all other such credits, by credit type, office and by aging category, the
aggregate dollar amount;
(e) loans or leases charged off during the previous month, showing with
respect to each such loan or lease, the credit type and office;
(f) loans or leases written down during the previous month, including
with respect to each the original amount, the writeoff amount, credit type and
office;
37
(g) other real estate or assets owned, stating with respect to each its
credit type;
(h) a reconciliation of the allowance for loan and lease losses,
identifying specifically the amount and sources of all additions and reductions
to the allowance (which may be by reference to specific portions of another
schedule furnished pursuant to this Section 5.4 and, in the case of unallocated
adjustments, shall disclose the methodology and calculations through which the
amount of such adjustment was determined).
5.5 DISCLOSURE LETTER. Promptly in the case of material matters, and
not less than monthly in the case of all other matters, Acquiror and Bank shall
amend or supplement the Acquiror Disclosure Letter provided for herein
pertaining to Acquiror and Bank as necessary so that the information contained
therein accurately reflects the then current status of Acquiror and Bank and
shall transmit copies of such amendments or supplements to Target in accordance
with Section 11.12 of this Agreement.
5.6 BANK SHAREHOLDER APPROVAL. Bank will promptly take action
necessary in accordance with applicable law and its Charter Documents to convene
a meeting of its shareholder to be held as soon as practicable, for the purpose
of voting on the Bank Merger, this Agreement and related matters. Acquiror
shall vote all shares of Bank Stock which it owns at such meeting in favor of
the Bank Merger, this Agreement and related matters.
5.7 CONSENTS AND APPROVALS.
(a) Acquiror and Bank will cooperate with Target in the preparation of
all filings, applications, notices and requests for waiver for Consents
necessary or desirable for the consummation of the Bank Merger, and the other
transactions contemplated in this Agreement. Acquiror's and Bank's cooperation
hereunder shall include, but not be limited to, providing all information
concerning Acquiror or Bank and their respective shareholders as may be required
for such filings, applications, notices and requests for Consents and signing,
to the extent required, all such filings, applications, notices and requests.
(b) To the extent that the consent of a third party ("Third Party
Consent") with respect to any contract, agreement, license, franchise, lease,
commitment, arrangement, Permit or release that is material to the business of
Acquiror or Bank or that is contemplated in this Agreement is required in
connection with the Bank Merger or the transactions contemplated in this
Agreement, Acquiror and Bank shall use its best efforts to obtain such consent
prior to the Effective Time.
5.8 COMPLIANCE WITH RULES. Acquiror and Bank shall comply with the
requirements of all applicable Rules, the noncompliance with which would
materially and adversely affect the assets, liabilities, business, financial
condition or results of operations or prospects of Acquiror or Bank.
5.9 AGREEMENT OF MERGER. As soon as practicable, Acquiror and Bank
shall execute the Agreement of Merger.
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5.10 AFFILIATE AND FIVE PERCENT SHAREHOLDER AGREEMENTS Within thirty
(30) days of the execution of this Agreement, (a) Acquiror and Bank shall
deliver to Target a letter identifying all persons who are then "affiliates" of
Acquiror or Bank under the Securities Act and (b) Acquiror shall advise the
persons identified in such letter of the sale restrictions imposed under the
pooling of interest accounting rules and shall use reasonable efforts to obtain
from each person identified in such letter a written agreement substantially in
the form attached hereto as Exhibit 5.10. At least 10 Business Days prior to
the issuance of the opinion to be provided for in Section 8.1(h), Acquiror shall
use its best efforts to cause each person or group of persons who holds more
than five percent (5%) of the Acquiror Stock to deliver to AA, KPMG and ▇▇▇▇▇▇
& ▇▇▇▇▇▇, a letter stating that such shareholder(s) has no present plan or
intention to dispose of Acquiror Stock and committing that such shareholder(s)
will not dispose of Acquiror Stock in a manner to cause a violation of the
"continuity of shareholder interest" requirements of Treasury Regulation
1.368-1.
5.11 INSURANCE.
(a) Acquiror and Bank shall permit Target to extend the discovery
period of its directors' and officers' liability insurance for a period of
forty-eight (48) months with respect to all matters arising from facts or events
which occurred before the Effective Time for which Target would have had an
obligation to indemnify its directors and officers; provided, however, that the
total costs of the premiums for such extension shall not exceed $30,968.00.
(b) If Acquiror or Bank or any of its successors or assigns (i) shall
consolidate with or merge into any other corporation or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) shall transfer all or substantially all of its properties and
assets to any individual, corporation or other entity, then and in each such
case, Acquiror or Bank shall take no action to impair the rights provided in
this Section 5.11.
(c) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each director or officer of Target and his or
her heirs and representatives.
ARTICLE 6
AGREEMENTS WITH RESPECT TO CONDUCT OF
TARGET AFTER THE DATE HEREOF
Target covenant and agree with Acquiror and Bank as follows:
6.1 ACCESS.
(a) Target will authorize and permit Acquiror, its representatives,
accountants and counsel, to have access during normal business hours, on notice
and in such manner as will not unreasonably interfere with the conduct of the
businesses of Target, to all properties, books, records, branch operating
reports, branch audit reports, operating instructions and procedures, tax
39
returns, tax settlement letters, contracts and documents, and all other
information with respect to its business affairs, financial condition, assets
and liabilities as Acquiror may from time to time reasonably request. Target
shall permit Acquiror, its representatives, accountants and counsel to make
copies of such books, records and other documents and to discuss the business
affairs, condition (financial and otherwise), assets and liabilities of Target
with such third Persons, including, without limitation, its directors, officers,
employees, accountants, counsel and creditors, as Acquiror considers necessary
or appropriate for the purposes of familiarizing itself with the businesses and
operations of Target, obtaining any necessary orders, consents or approvals of
the transactions contemplated by this Agreement by any Governmental Entity and
conducting an evaluation of the assets and liabilities of Target. Target will
cause KPMG Peat Marwick LLP ("KPMG") to make available to Acquiror, its
accountants, counsel and other agents, such personnel, work papers and other
documentation of KPMG relating to its work papers and its audits of the books
and records, including, but not limited to, all tax records of Target as may be
requested by Acquiror in connection with its review of the foregoing matters.
(b) The President of Acquiror or in his absence another representative
of Acquiror selected by him shall be invited by Target to attend all regular and
special Board of Directors' and Executive Committee meetings of Target from the
date hereof until the Effective Time. Target shall inform Acquiror of all such
Board meeting at least 2 Business Days in advance of each such meeting;
provided, however, that the attendance of such representative of Acquiror shall
not be permitted at any meeting, or portion thereof, for the sole purpose of
discussing the transaction contemplated by this Agreement or the obligations of
Target under this Agreement.
6.2 MATERIAL ADVERSE CHANGES; REPORTS; FINANCIAL STATEMENTS; FILINGS.
(a) Target will promptly notify Acquiror (i) of any event of
which Target obtains knowledge which may materially and adversely affect the
business, financial condition, or results of operations of either Target; (ii)
in the event Target determine that it is possible that the conditions to the
performance of Acquiror set forth in Sections 8.1 and 8.2 may not be satisfied;
(iii) of the opening or closing of any branch or other office of Target at which
business is conducted; or (iv) any event, development or circumstance that, to
the best knowledge of Target, will or, with the passage of time or the giving of
notice or both, is reasonably expected to result in the loss to Target of the
services of any Executive Officer of Target.
(b) Target will furnish to Acquiror as provided in Section 11.12
of this Agreement, as soon as practicable, and in any event within 5 Business
Days after it is prepared or becomes available to either Target, (i) a copy of
any report submitted to the board of directors of either Target and access to
the working papers related thereto and copies of other operating or financial
reports prepared for management of any of its businesses and access to the
working papers related thereto, PROVIDED, HOWEVER, that Target need not furnish
Acquiror any privileged communications of or memoranda prepared by its legal
counsel in connection with the transactions contemplated by, and the rights and
obligations of Target under, this Agreement; (ii) quarterly unaudited balance
sheets and statements of operations, changes in stockholders' equity and cash
flow for Target; (iii) monthly unaudited balance sheets and, statements of
operations for Target; (iv)
40
as soon as available, all letters and communications sent by Target to its
shareholders and all reports filed by Target with the SEC, the FRB, the FDIC,
the Commissioner and any other Person; and (v) such other reports as Acquiror
may reasonably request relating to Target.
(c) Each of the financial statements delivered pursuant to
subsection (b) shall be (i) prepared in accordance with GAAP on a basis
consistent with that of the Financial Statements of Target except that such
financial statements may omit statements of cash flows and footnote disclosures
required by GAAP; and (ii) accompanied by a certificate of the chief financial
officer to the effect that such financial statements fairly present the
financial condition and results of operations of Target for the period covered,
and reflect all adjustments (which consist only of normal recurring adjustments)
necessary for a fair presentation.
6.3 CONDUCT OF BUSINESS.
(a) Between the date hereof and the Effective Time, except (i)
as contemplated by this Agreement, and subject to requirements of law and
regulation generally applicable to bank holding companies and banks, Target
shall not, without prior written consent of Acquiror (which consent shall not be
unreasonably withheld and which consent [except with respect to subparagraph
(29) of this Section 6.3(a)] shall be deemed granted if within five (5) Business
Days of Acquiror's receipt of written notice of a request for prior written
consent, written notice of objection is not received by Target):
(1) amend, modify, terminate or fail to renew or preserve
their material Permits;
(2) amend or modify in any material respect, or, except
as they may expire in accordance with their terms, terminate any Target
Scheduled Contract or any other material contract or agreement to which Target
is a party, or materially default in the performance of any of its obligations
under any such contract or agreement;
(3) enter into any agreement or contract that would be
required to be included as a Target Scheduled Contract.
(4) terminate or unilaterally fail to renew any existing
insurance coverage or bonds;
(5) make any loan or other extension of credit, or enter
into any commitment to make any loan or other extension of credit to any
director, officer, employee or shareholder holding 5% or more of the outstanding
shares of Target Stock except for any loan, extension of credit or commitment
made after the date hereof not exceeding $50,000, to any such person; provided,
however, that the aggregate of all loans, extensions of credit or commitments
made after the date hereof to any such person shall not exceed $50,000;
41
(6) grant any general or uniform increase in the rate of
pay to any employee or employee benefit or profit sharing plan or increase the
salary or employee benefits of any non-exempt employee or agent or pay any
bonus, severance or similar payment to any Person, except in the ordinary course
of business and consistent with past practice or established practices;
(7) grant any promotion or any increase in the rate of
pay to any exempt employee, profit sharing plan or increase in any employee
benefits or pay any bonus, severance or similar payment to any exempt employee
except Target may pay immediately prior to the Effective Time to officers and
employees then employed by Target or their respective accounts pro rata bonuses
and matching 401(k) payments (pro rated through the Effective Date) which
bonuses and matching payments have been calculated in accordance with Target's
existing bonus compensation program and for which regular monthly accruals have
been made on the books of Target;
(8) sell, transfer, mortgage, encumber or otherwise
dispose of any assets or release or waive any claim, except in the ordinary
course of business and consistent with past practice or as required by any
existing contract or for ordinary repairs, renewals or replacements or as
contemplated in this Agreement;
(9) issue, sell, or grant any Equity Securities of Target
(except pursuant to the exercise of Target options outstanding as of the date
hereof), any other securities (including long term debt), or any rights, options
or securities to acquire any Target Stock Option or any Equity Securities of
Target or any other securities (including long term debt) of Target;
(10) declare, issue or pay any dividend or other
distribution of assets, whether consisting of money, other personal property,
real property or other things of value, to theshareholders of Target, or split,
combine or reclassify any shares of its capital stock or other Equity
Securities;
(11) purchase, redeem or otherwise acquire any Equity
Securities, or other securities of Target or any rights, options, or securities
to acquire any Equity Securities of Target;
(12) amend or modify its Charter Documents;
(13) make their credit underwriting policies, standards or
practices relating to the making of loans and other extensions of credit, or
commitments to make loans and other extensions of credit, less stringent than
those in effect on December 31, 1998;
(14) make any capital expenditures, or commitments with
respect thereto, in excess of $ 50,000 except in the ordinary course of business
and consistent with past practice;
(15) make extraordinary payments to any Person other than
as contemplated, or as disclosed, in this Agreement;
42
(16) make any investment by purchase of stock or
securities (including an Investment Security), contributions to capital,
property transfers or otherwise in any other Person, except for federal funds or
obligations of the United States Treasury or an agency of the United States
Government the obligations of which are entitled to or implied to have the full
faith and credit of the United States government and which have an original
maturity not in excess of one year, or bank qualified investment grade municipal
bonds, and except in any case, in the ordinary course of business consistent
with the past practices, and which are not designated as trading;
(17) compromise or otherwise settle or adjust any
assertion or claim of a deficiency in taxes (or interest thereon or penalties in
connection therewith); file any appeal from an asserted deficiency except in a
form previously approved by Acquiror in writing; file or amend any United States
federal, foreign, state or local tax return without Acquiror's prior written
approval, which approval shall not be unreasonably withheld; or make any tax
election or change any method or period of accounting unless required by GAAP or
applicable law;
(18) enter into or consent to any new employment agreement
or other Benefit Arrangement, or amend or modify any employment agreement or
other Target Benefit Arrangement in effect on the date of this Agreement to
which either Target is a party or bound except Target may pay immediately prior
to the Effective Time to officers and employees then employed by Target or their
respective accounts pro rata bonuses and matching 401(k) payments (pro rated
through the Effective Date) which bonuses and matching payments have been
calculated in accordance with Target's existing bonus compensation program and
for which regular monthly accruals have been made on the books of Target;
(19) grant any Person a power of attorney or similar
authority except in accordance with a written policy previously disclosed to
Acquiror;
(20) agree or make any commitment to take any actions
prohibited by this Section 6.3;
(21) change any of Target's basic policies and practices
with respect to liquidity management and cash flow planning, marketing, deposit
origination, lending, budgeting, profit and tax planning, personnel practices or
any other material aspect of Target's business or operations, except such
changes as may be required in the opinion of Target's management to respond to
economic or market conditions or as may be required by any Governmental Entity;
(22) take any action which would or is reasonably likely
to (i) adversely affect the ability of Target, Bank or Acquiror to obtain any
necessary approval of any Governmental Entity required for the transactions
contemplated hereby; (ii) adversely affect Target's ability to perform their
covenants and agreements under this Agreement; or (iii) result in any of the
conditions to the performance of Target, Bank or Acquiror's obligations
hereunder, as set forth in Article 8 herein not being satisfied;
43
(23) reclassify any Investment Security from
hold-to-maturity or available for sale to trading;
(24) sell any Investment Security prior to maturity,
except in the ordinary course of business;
(25) knowingly take or cause to be taken any action which
would disqualify the Bank Merger as a "reorganization" within the meaning of
Section 368 of the Code or prevent Acquiror from accounting for the business
combination to be effected by the Bank Merger as a pooling-of-interests;
(26) settle any claim, action or proceeding involving any
material liability for monetary damages or enter into any settlement agreement
containing material obligations;
(27) make, acquire a participation in, or reacquire an
interest in a participation sold of, any loan that is not in compliance with its
normal credit underwriting standards, policies and procedures as in effect as of
the date of this Agreement; or renew, extend the maturity of, or alter any of
the material terms of any such loan for a period of greater than six months;
(28) incur any indebtedness for borrowed money or assume,
guaranty, endorse or otherwise as an accommodation become responsible for the
obligations of any other Person, except for (i) in connection with banking
transactions with banking customers in the ordinary course of business, or (ii)
short-term borrowings made at prevailing market rates and terms; and
(29) grant, renew or commit to grant or renew any
extension of credit if such extension of credit, together with all other credit
then outstanding to the same Person and all Affiliated Persons, would exceed
$250,000 on an unsecured basis and $500,000 on a secured basis. Consent shall
be deemed granted if within two Business Days of written notice delivered to
Bank's Chief Credit Officer, written notice of objection is not received by
Target.
(b) Between the date hereof and the Effective Time , Target
shall:
(1) duly observe and conform in all material respects to
all lawful requirements applicable to its business;
(2) maintain its assets and properties in good condition
and repair, normal wear and tear excepted;
(3) promptly upon learning of such information, advise
Acquiror in writing of any event or any other transaction within its knowledge
whereby any Person or Related Group of Persons acquires, directly or indirectly,
record or beneficial ownership or control (as defined in Rule 13d-3 promulgated
by the SEC under the Exchange Act) of five percent (5%) or
44
more of the outstanding Target Stock prior to the record date fixed for the
Target Shareholders' Meeting or any adjourned meeting thereof to approve this
Agreement and the transaction contemplated herein;
(4) promptly notify Acquiror regarding receipt from any
tax authority of any notification of the commencement of an audit, any request
to extend the statute of limitations, any statutory notice of deficiency, any
revenue agent's report, any notice of proposed assessment, or any other similar
notification of potential adjustments to the tax liabilities of Target, or any
actual or threatened collection enforcement activity by any tax authority with
respect to tax liabilities of Target; and
(5) maintain an allowance for loan and lease losses
consistent with practices and methodology as in effect on the date of the
execution of this Agreement, and shall not, notwithstanding any recoveries
received with respect to loans previously charged off, reduce the allowance for
loan and lease losses below the amount in effect on the date of the execution of
this Agreement.
6.4 CERTAIN LOANS AND OTHER EXTENSIONS OF TARGET. Target will
promptly inform Acquiror of the amounts and categories of any loans, leases or
other extensions of credit that have been classified by any Governmental Entity
or by any internal or external loan reviewer of Target as "Watch List,"
"Substandard," "Doubtful," "Loss" or any comparable classification. Target will
furnish to Acquiror, as soon as practicable, and in any event within 10 days
after the end of each calendar month, schedules including a listing of the
following:
(a) classified credits, showing with respect to each such credit
in amount equal to or exceeding $50,000, the classification category, credit
type, and office, and with respect to all other such credits, by credit type and
office, the aggregate dollar amount;
(b) nonaccrual credits, showing with respect to each such credit
in amount equal to or exceeding $50,000, the credit type and office, and with
respect to all other such credits, by credit type and office, the aggregate
dollar amount;
(c) accrual exception credits that are delinquent 90 or more
days and have not been placed on nonaccrual status, showing with respect to each
such credit in amount equal to or exceeding $50,000, the credit type and office,
and with respect to all other such credits, by credit type and office, the
aggregate dollar amount;
(d) delinquent credits showing with respect to each such credit
in amount equal to or exceeding $50,000, the credit type, office and an aging
schedule broken down into 30-59, 60-89, 90 + day categories, and with respect to
all other such credits, by credit type, office and by aging category, the
aggregate dollar amount;
(e) loan and lease participations, stating, with respect to
each, whether it is purchased or sold, the loan or lease type, and the office;
45
(f) loans or leases (including any commitments) by Target to any
director, officer, or employee of Target, or any shareholder holding 5% or more
of the capital stock of Target, including with respect to each such loan or
lease, the identity and, to the best knowledge of Target, the relation of the
borrower to Target, the loan or lease type and the outstanding and undrawn
amounts;
(g) letters of credit, showing with respect to each letter of
credit in an amount equal to or exceeding $50,000, the credit type and office,
and showing with respect to all other such letters of credit, by credit type and
office, the aggregate dollar amount;
(h) loans or leases charged off during the previous month,
showing with respect to each such loan or lease, the credit type and office;
(i) loans or leases written down during the previous month,
including with respect to each the original amount, the writeoff amount, credit
type and office;
(j) other real estate or assets owned, stating with respect to
each its credit type;
(k) a reconciliation of the allowance for loan and lease losses,
identifying specifically the amount and sources of all additions and reductions
to the allowance (which may be by reference to specific portions of another
schedule furnished pursuant to this Section 6.4 and, in the case of unallocated
adjustments, shall disclose the methodology and calculations through which the
amount of such adjustment was determined);
(l) extensions of credit whether unsecured or secured in amount
equal to or exceeding $100,000, originated on or after the date of the schedule
previously provided to Acquiror (or if it is the first such schedule, the date
of this Agreement) and before the date of the schedule in which reported,
showing with respect to each, the credit type and the office; and
(m) renewals or extensions of maturity of outstanding
extensions of credit whether unsecured or secured in amount equal to or
exceeding $100,000, showing with respect to each, the credit type and the
office.
6.5 DISCLOSURE LETTER. Promptly in the case of material matters, and
not less than monthly in the case of all other matters, Target shall amend or
supplement the Target Disclosure Letter provided for herein pertaining to Target
as necessary so that the information contained therein accurately reflects the
then current status of Target and shall transmit copies of such amendments or
supplements to Acquiror in accordance with Section 11.12 of this Agreement.
46
6.6 SHAREHOLDER APPROVAL. Target will promptly take action necessary
in accordance with applicable law and its Charter Documents to convene a meeting
of its shareholders (the "Target Shareholders' Meeting") to be held as soon as
practicable, for the purpose of voting on the Bank Merger, this Agreement and
related matters. In connection with the Target Shareholders' Meeting, (i) the
Board of Directors of Target shall, subject to fiduciary duty, recommend
shareholder approval of the Bank Merger, this Agreement and related matters; and
(ii) Target shall use its best efforts to obtain such shareholder approval by
the largest possible percentage.
6.7 CONSENTS AND APPROVALS.
(a) Target will cooperate with Acquiror in the preparation of
all filings, applications, notices and requests for waiver for Consents
necessary or desirable for the consummation of the Bank Merger, and the other
transactions contemplated in this Agreement. Target's and Bank's cooperation
hereunder shall include, but not be limited to, providing all information
concerning Target and its shareholders as may be required for such filings,
applications, notices and requests for Consents and signing, to the extent
required, all such filings, applications, notices and requests.
(b) To the extent that a Third Party Consent with respect to any
contract, agreement, license, franchise, lease, commitment, arrangement, Permit
or release that is material to the business of Target or that is contemplated in
this Agreement is required in connection with the Bank Merger or the
transactions contemplated in this Agreement, Target shall use its best efforts
to obtain such consent prior to the Effective Time.
6.8 PRESERVATION OF EMPLOYMENT RELATIONS PRIOR TO EFFECTIVE TIME.
Target will use its best efforts consistent with current employment practices
and policies to maintain the services of the officers and employees of Target
through the Effective Time.
6.9 COMPLIANCE WITH RULES. Target shall comply with the requirements
of all applicable Rules, the noncompliance with which would materially and
adversely affect the assets, liabilities, business, financial condition or
results of operations or prospects of Target.
6.10 TARGET BENEFIT ARRANGEMENTS. Subject to Section 9.1(d)hereof,
Target and any effected officers, directors or employees shall mutually
terminate all Target Benefit Arrangements without the imposition of any
liability therefor to Acquiror or any other Party.
6.11 AGREEMENT OF MERGER. As soon as practicable, Target shall execute
the Agreement of Merger.
6.12 NO SHOP. Neither Target nor any of its Affiliates shall, on or
before the earlier of the Effective Time or the date of termination of this
Agreement, initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to any Competing Transaction (as such term is defined below),
or negotiate with any Person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any
47
Competing Transaction, or authorize or permit any of its officers, directors or
employees or any investment banker, financial advisor, attorney, accountant or
any other representative retained by it or any of its Affiliates to take any
such action, and Target shall promptly notify Acquiror (orally and in writing)
of all of the relevant details relating to all inquiries and proposals which
they may receive relating to any of such matters. For purposes of this
Agreement, "Competing Transaction" shall mean any of the following involving
Target: any merger, consolidation, share exchange or other business combination;
a sale, lease, exchange, mortgage, pledge, transfer or other disposition of
assets of Target representing twenty-five percent (25%) or more of the asset of
Target; a sale of shares of capital stock (or securities convertible or
exchangeable into or otherwise evidencing, or any agreement or instrument
evidencing, the right to acquire capital stock) or other Equity Security,
representing ten percent (10%) or more of the voting power of Target, a tender
offer or exchange offer for at least twenty-five percent (25%) of the
outstanding shares of Target Stock; a solicitation of proxies in opposition to
approval of the Bank Merger by Target shareholders; or a public announcement of
an unsolicited BONA FIDE proposal, plan, or intention to do any of the
foregoing. Notwithstanding any other provision in this Section 6.12 or
elsewhere in this Agreement, the obligations of Target in this Agreement are
subject to the continuing fiduciary duties of its Board of Directors. In the
event the Board of Directors of Target receives a bona fide offer for a
Competing Transaction with another entity, and reasonably determines, upon
written advice of counsel, that as a result of such offer, any duty to act or to
refrain from doing any act pursuant to this Agreement, is inconsistent with the
continuing fiduciary duties of said Board of Directors to their shareholders,
such failure to act or refrain from doing any act shall not constitute the
failure of any condition, breach of any covenant or otherwise constitute any
breach of this Agreement, except that any such failure to act or refrain from
doing any act shall entitle Acquiror to terminate this Agreement pursuant to
Section 10.1(f) hereof, and in no event shall this sentence or the previous
sentence operate to excuse or modify the obligations of Target under Section
11.1(c) hereof or under the Stock Option Agreement.
6.13 AFFILIATES AND FIVE PERCENT SHAREHOLDER AGREEMENTS. Within thirty
(30) days of the execution of this Agreement, (a) Target shall deliver to
Acquiror a letter identifying all persons who are then "affiliates" of Target
for purposes of Rule 145 under the Securities Act and (b) Target shall advise
the persons identified in such letter of the resale restrictions imposed by
applicable securities laws and shall use reasonable efforts to obtain from each
person identified in such letter a written agreement substantially in the form
attached hereto as Exhibit 6.13. Target shall use reasonable efforts to obtain
from any person who becomes an affiliate of Target after Target's delivery of
the letter referred to above, and on or prior to the date of the Target
Shareholders' Meeting to approve this Agreement, a written agreement
substantially in the form attached as Exhibit 6.13 hereto as soon as practicable
after obtaining such status. At least 10 Business Days prior to the issuance of
the opinion to be provided for in Section 8.1(h), Target shall use its best
efforts to cause each person or group of persons who holds more than five
percent (5%) of the Target Stock (regardless of whether such person is an
"affiliate" under Rule 145) to deliver to AA, KPMG and Reitner & Stuart, a
letter stating that such shareholder(s) has no present plan or intention to
dispose of Target Stock and committing that such shareholder(s) will not dispose
of Target Stock in a manner to cause a violation of the "continuity of
shareholder interest" requirements of Treasury Regulation 1.368-1.
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ARTICLE 7
FURTHER COVENANTS OF ACQUIROR, BANK AND TARGET
7.1 S-4 AND PROXY STATEMENT.
(a) As promptly as practicable, Acquiror and Target shall
cooperate with each other and exercise their best efforts to prepare and file
with the SEC the S-4, in which the Proxy Statement will be included as a
prospectus. The Parties hereto agree to provide the information necessary for
inclusion in the Proxy Statement and S-4. Each of the parties will use its
respective best efforts to have the S-4 declared effective under the Securities
Act as promptly as practicable after it is filed. Acquiror shall pay all
third party costs (except Target's legal and accounting fees) associated with
the preparation and filing of the S-4, including the filing fees with the SEC
and Blue Sky regulators as well as the costs of printing and mailing the Proxy
Statement.
(b) After the date of the filing of the S-4 with the SEC, each
of the Parties agrees promptly to notify the other of and to correct any
information furnished by such Party that shall have become false or misleading
in any material respect and to cooperate with the other to take all steps
necessary to file with the SEC and have declared effective or cleared by the SEC
any amendment or supplement to the S-4 so as to correct such information and to
cause the Proxy Statement as so corrected to be disseminated to the shareholders
of Acquiror and Target to the extent required by applicable Rules. All documents
that the Parties file with the SEC or any other Governmental Entity in
connection with this Agreement will comply as to form in all material respects
with the provisions of applicable Rules.
(c) Acquiror shall take all required action with appropriate
Governmental Entities under state securities or blue sky laws in connection with
the issuance of Acquiror Stock pursuant to this Agreement.
7.2 FILINGS. The Parties agree that through the Effective Time, each
of its reports, registration statements and other filings required to be filed
with any applicable Governmental Entity will comply in all material respects
with the applicable statutes, rules and regulations enforced or promulgated by
the Governmental Entity with which it will be filed and none will contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any financial
statement contained in any such report, registration statement or other filing
that is intended to represent the financial position of the entities or entity
to which it relates will fairly present the financial position of such entities
or entity and will be prepared in accordance with GAAP consistently applied
during the periods involved.
7.3 APPLICATIONS. Acquiror will promptly prepare and file or cause to
be prepared and filed (i) an application for approval of the Bank Merger with
the FDIC; (ii) an application for approval of the Bank Merger with the
Commissioner; (iii) if required, a request for waiver from the
49
FRB; and (iv) any other applications or notices necessary to consummate the
transactions contemplated hereby. Acquiror shall afford Target a reasonable
opportunity to review all such applications and all amendments and supplements
thereto before the filing thereof. The Parties covenant and agree that the S-4
and the Proxy Statement and all applications to the appropriate Governmental
Entities for approval or consent to the Bank Merger, with respect to information
relating to it, will comply in all material respects with the provisions of
applicable law. Acquiror will use its best efforts to obtain all regulatory
approvals or consents necessary to effect the Bank Merger and Target shall
cooperate with Acquiror and Bank in such efforts.
7.4 STOCK OPTIONS.
(a) At and as of the Effective Time and without further action
by any Party, the Stock Option Plan of Target shall terminate. The Acquiror
Stock Option Plan shall not be terminated at the Effective Time and outstanding
Acquiror Stock Options at the Effective Time shall continue in effect.
(b) As of the Effective Time Acquiror shall grant substitute
stock options to each person who has at the Effective Time an outstanding Target
Stock Option. Each and every substitute stock option so granted by Acquiror to
replace a Target Stock Option shall be 100% vested and shall be exercisable for
that number of whole shares of Acquiror Stock equal to the product of (A) the
number of shares of Target Stock that were purchasable under such Target Stock
Option immediately prior to the Effective Time multiplied by (B) the Exchange
Ratio, rounded down to the nearest whole number of shares of Acquiror Stock.
Further, each and every substitute stock option so granted by Acquiror to
replace a Target Stock Option shall provide for a per share exercise price which
shall be equal to the quotient determined by dividing (A) the exercise price per
share of Target Stock at which such Target Stock Option was exercisable
immediately prior to the Effective Time by (B) the Exchange Ratio. At the
Effective Time, Acquiror shall issue to each holder of an outstanding Target
Stock Option a substitute stock option providing for the terms discussed above.
(c) Acquiror shall use its best effort to assure that each
holder of an Target Stock Option which qualified as a incentive stock option
prior to the Effective Time shall receive a substitute stock option which will
qualify as an incentive stock option.
7.5 FURTHER ASSURANCES. Acquiror/Bank and Target agree that from time
to time, whether before, at or after the Effective Time, they will execute and
deliver such further instruments of conveyance and transfer and to take such
other action as may be reasonable or necessary to consummate the Bank Merger and
the transactions contemplated in this Agreement. Acquiror, Bank and Target
agree to take such further action as may reasonably be requested to facilitate
consummation of the Bank Merger and the transactions contemplated in this
Agreement and that are not inconsistent with the other provisions of this
Agreement.
7.6 REMOVAL OF CONDITIONS. In the event of the imposition of a
condition to any consent of, the Commissioner, the FDIC or other Government
Entity which any Party deems to materially
50
adversely affect it or to be materially burdensome as provided in
Section 8.1(c), the Parties shall use their respective best efforts to obtain
the removal of such condition.
7.7 CORPORATE GOVERNANCE. (a) Prior to the Effective Time, Acquiror
shall take all necessary steps to effect the Acquiror and Bank Corporate
Governance Changes at the Effective Time.
7.8 LISTING OF ACQUIROR STOCK. Acquiror and Bank shall take all
reasonable steps to have the shares of Acquiror Stock to be issued in the Bank
Merger listed on the NASDAQ National Market as the Effective Date or as soon
thereafter as is practicable.
ARTICLE 8
CONDITIONS TO THE PARTIES' OBLIGATIONS TO CLOSE
8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CLOSE. The respective
obligations of Acquiror and Bank, on the one hand, and Target, on the other, to
consummate the Bank Merger and the other transactions contemplated hereby are
subject to the satisfaction or waiver at or prior to the Effective Time of each
of the following conditions:
(a) The Agreement and the transactions contemplated hereby shall
have received all requisite approvals of the shareholders of Target.
(b) No judgment, decree, injunction, order or proceeding shall
be outstanding or threatened by any Governmental Entity which prohibits or
restricts the effectuation of, or threatens to invalidate or set aside, the Bank
Merger substantially in the form contemplated by this Agreement, unless counsel
to the party again whom such action or proceeding was instituted or threatened
renders to the other Parties hereto a favorable opinion that such judgment,
decree, injunction, order or proceeding is without merit.
(c) On or before September 30, 1999, (i) the Parties shall have
received any required Consent from the FRB, the Commissioner, the FDIC, and, at
or prior to the Effective Time, this Agreement and the transactions contemplated
hereby shall have been approved by any other Governmental Entity whose Consent
is required for consummation of the transactions contemplated in this Agreement
and (ii) no final FASB ruling is adopted prohibiting the use of "pooling of
interest" accounting treatment in this transaction or which otherwise limits the
benefits to Acquiror of the "pooling of interest" accounting rules as they exist
as of the date hereof, in each case either unconditionally or without the
imposition of conditions or limitations that are applicable to any Party or
would become applicable to Acquiror or the Surviving Bank after the Bank Merger
that Acquiror reasonably and in good faith concludes would materially adversely
affect the financial condition or operations of any Party or otherwise would be
materially burdensome to any Party and all such Consents shall be in effect at
the Effective Time, which Consents shall permit the Bank Merger and permit the
Surviving Bank to acquire and conduct all direct and indirect activities as
previously conducted by Target and Bank, at or prior to the Effective Time, and
all required waiting periods shall have expired.
51
(d) No Rule shall be outstanding or threatened by any
Governmental Entity which prohibits or materially restricts the consummation of,
or threatens to invalidate or set aside, the Bank Merger substantially in the
forms contemplated by this Agreement or which would not permit the businesses
presently carried on by Target, Acquiror or Bank to continue materially
unimpaired following the Effective Time, unless counsel to the Party or Parties
against whom such action or proceeding was instituted or threatened renders to
the other Party or Parties hereto a favorable opinion that such Rule is without
merit and counsel to the other Party concurs with such opinion.
(e) All Third Party Consents necessary to permit the Parties to
consummate the transactions contemplated in the Agreement shall have been
obtained prior to the Effective Time, unless the failure to obtain any such
Third Party Consent would not have a material adverse effect on the business,
financial condition, or results of operations of Acquiror on a consolidated
basis.
(f) The S-4 shall have been declared effective by the SEC and
shall not be the subject of any stop order or proceedings seeking or threatening
a stop order. Acquiror shall have received all state securities or "Blue Sky"
permits and other authorization necessary to issue the Acquiror Stock to
consummate the Bank Merger.
(g) Target and Acquiror shall have received from AA, an opinion
reasonably satisfactory to each of them to the effect that the Bank Merger shall
not result in the recognition of gain or loss for federal income tax purposes to
Target, Acquiror or Bank, nor shall the issuance of Acquiror Stock result in the
recognition of gain or loss by the holders of Target Stock who receive such
stock in connection with the Bank Merger, nor shall a holder of an outstanding
stock option granted under Target's stock option plan recognize income, gain or
loss as a result of the granting of a substitute option nor shall the granting
of such substitutes be deemed to be a modification of any incentive stock option
granted under Target's stock option plan, dated prior to the date of the Proxy
Statement is first mailed to the shareholders of Acquiror and Target and such
opinions shall not have been withdrawn or modified in any material respect.
(h) Prior to the Effective Time, AA shall have delivered a
written opinion to Target and Acquiror that the Bank Merger and the other
transactions contemplated hereby will qualify for pooling-of-interest accounting
treatment. In making its determination that the Bank Merger will qualify for
such treatment, AA shall be entitled to assume that cash will be paid with
respect to all shares held of record by any holder of Dissenting Shares.
8.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF ACQUIROR AND BANK TO CLOSE.
The obligations of Acquiror and Bank to consummate the Bank Merger and the other
transactions contemplated hereby are subject to the satisfaction or waiver at or
prior to the Effective Time of each of the following conditions:
(a) All actions necessary to authorize the execution, delivery
and performance of the Agreement by Target, the consummation of the Bank Merger
by Target and the
52
consummation of the Agreement of Merger by Target shall have been duly and
validly taken by the board of directors and shareholders of Target, as the case
may be.
(b) The representations and warranties of Target contained in
Article 4 of this Agreement shall have been true and correct in all material
respects (i) on the date of this Agreement; and (ii) at and as of the Effective
Time as though all such representations and warranties had been made on and as
of the Effective Time, except with respect to representations and warranties
that, by their terms, speak as of a different time; and Acquiror and Bank shall
have received a certificate to that effect dated the Effective Time and executed
on behalf of Target by its chief executive officer and chief financial officer.
It is understood and acknowledged that the representations made on and as of the
date of the Agreement shall be true and correct as of the date of the Agreement
without giving effect to any update with respect to the Disclosure Letter
pertaining to Target as updated in accordance with Section 6.5.
(c) Each of the covenants and agreements of Target contained in
this Agreement to be performed at or before the Effective Time shall have been
so performed in all material respects; and Acquiror and Bank shall have received
a certificate to that effect dated the Effective Time and executed by the chief
executive officer and chief financial officer of Target.
(d) During the period from the date of this Agreement to the
Effective Time, there shall not have occurred any event related to the business,
condition (financial or otherwise), capitalization or properties of Target that
has had or could reasonably be expected to have a material adverse effect on the
business, financial condition, or results of operations of Target after
consummation of the Bank Merger, whether or not such event, change or effect is
reflected in Target's Disclosure Letter to this Agreement, as amended or
supplemented, after the date of this Agreement; and Acquiror and Bank shall have
received a certificate to that effect dated the Effective Time and signed by the
chief executive officer and chief financial officer of Target.
(e) Target shall have delivered to Acquiror and Bank a written
opinion of ▇▇▇▇▇▇ & ▇▇▇▇▇▇ dated as of the Effective Time substantially in the
form attached to this Agreement as Exhibit 8.2(e).
(f) Acquiror shall have received a letter from First Security
▇▇▇ ▇▇▇▇▇▇ dated as of a date within five (5) Business Days of the mailing of
the Proxy Statement to the shareholders of Target to the effect that the
transactions contemplated by this Agreement are fair from a financial point of
view to the shareholders of Acquiror.
(g) Concurrently with the execution of this Agreement, each
director of Target shall have executed and delivered to Acquiror an Target
Directors' Agreement substantially in the form of Exhibit 2.6.
(h) Within 30 days of the execution of this Agreement, Acquiror
shall have received from each person named in the letter or otherwise referred
to in Section 6.13 of this Agreement an executed copy of the agreement required
by Section 6.13.
53
(i) Acquiror shall have received satisfactory evidence that all
of Target's Benefit Arrangements have been treated as provided in Articles 6 and
9 of this Agreement.
(j) Acquiror shall have received the written resignation of each
director of Target dated as of the Effective Date; provided, however, that such
resignations shall not effect Acquiror's and Bank's obligations to make the
Acquiror and Bank Corporate Governance Changes.
(k) As of the month and preceding the Effective Date, Target's
shareholders'equity and allowance for credit losses shall not be less than
$17,858,000 (including not to exceed $100,000 of legal, accounting and
investment advisor fees and expenses relating to the transactions contemplated
by this Agreement) and $1,600,000, respectively, and Target shall have received
a certificate, dated as of the Effective Date, signed on behalf of Target by its
Chief Financial Officer to such effect.
8.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET TO CLOSE. The
obligations of Target to consummate the Bank Merger and the other transactions
contemplated herein is subject to the satisfaction or waiver, at or prior to the
Effective Time, of each of the following conditions:
(a) All actions necessary to authorize the execution, delivery
and performance of the Agreement, consummation of the Bank Merger by Acquiror
and Bank and the consummation of the Agreement of Merger by Acquiror and Bank
shall have been duly and validly taken by the respective boards of directors and
shareholders of Acquiror and Bank, as the case may be.
(b) The representations and warranties of Acquiror and Bank
contained in Article 3 of this Agreement shall be true and correct in all
material respects (i) on the date of this Agreement; and (ii) at and as of the
Effective Time as though all such representations and warranties had been made
at and as of such time, except with respect to representations and warranties
that, by their terms, speak as of a different time; and Target shall have
received a certificate to that effect dated the Effective Time and executed on
behalf of Acquiror and Bank by their respective chief executive officers and
chief financial officers. It is understood and acknowledged that the
representations made on and as of the Effective Time shall be made without
giving effect to any update with respect to the Disclosure Letters pertaining to
Acquiror and Bank as updated in accordance with Section 5.5.
(c) The covenants and agreements of Acquiror and Bank to be
performed at or before the Effective Time shall have been duly performed in all
material respects; and Target shall have received one or more certificates to
that effect dated the Effective Time and executed by the respective chief
executive officers and chief financial officers of Acquiror and Bank.
(d) During the period from the date of this Agreement to the
Effective Time, there shall not have occurred any event related to the business,
condition (financial or otherwise), capitalization or properties of Acquiror or
Bank that has had or could reasonably be expected to have a material adverse
effect on the business, financial condition, or results of operations of the
Surviving Bank or Acquiror after consummation of the Bank Merger, whether or not
such event,
54
change or effect is reflected in Acquiror's Disclosure Letters to this
Agreement, as amended or supplemented, after the date of this Agreement; and
Target shall have received a certificate to that effect dated the Effective Time
and signed by the chief executive officer and chief financial officer of
Acquiror and Bank.
(e) Acquiror and Bank shall have delivered to Target a written
opinion of Reitner & Stuart dated the Effective Time substantially in the form
attached to this Agreement as Exhibit 8.3(e).
(f) Target shall have received a letter from the ▇▇▇▇▇▇▇
Companies dated as of a date within five (5) Business Days of the mailing of the
Proxy Statement to the shareholders of Target, to the effect that the
transactions contemplated by this Agreement are fair from a financial point of
view to the shareholders of Target.
(g) Within 30 days of the execution of this Agreement, Target
shall have received from each person named in the letter or otherwise referred
to in Section 5.10 of this Agreement an executed agreement required by Section
5.10.
(h) All necessary action shall have been taken by Acquiror, to
effect the Acquiror Corporate Governance Changes.
ARTICLE 9
EMPLOYEE BENEFITS
9.1 EMPLOYEE BENEFITS.
(a) All employees of Target at the Effective Time shall be entitled
to participate in the Acquiror Benefit Arrangements on the same basis as other
similarly situated employees of Bank. Each of these employees will be credited
for eligibility, participation and vesting purposes (provided that no more than
sixty (60) days of sick leave may be carried over into Acquiror's sick leave
program), with such employee's respective years of past service with Target (or
other prior service so credited by Target) as though they had been employees of
Acquiror.
(b) Target, Bank and Acquiror have agreed as set forth on
Exhibit 9.1(b) to a severance policy by which all employees of Target who are
not offered employment or who are terminated within twelve months following the
Effective Time and who satisfy the requirements of the severance plan currently
being considered for adoption by Acquiror will receive severance benefits
otherwise.
55
(c) Provided such agreement is listed on the Target Disclosure
List and a complete copy of such agreement has been provided to Acquiror prior
to the date hereof, Acquiror hereby agrees to honor, in accordance with their
terms, any existing individual employment, severance, deferred compensation, and
similar agreements between Target and the Executive Officers of Target listed on
Exhibit 9.1(c)(1). Notwithstanding any other provision of this Agreement, no
employee shall receive duplicative benefits by reason of this Section.
(d) From the date hereof, Target, Bank and Acquiror shall
cooperate to determine the appropriate treatment of Target Benefit
Arrangements, such as termination, merger into a plan, etc., and shall take such
actions as shall be reasonably requested by Acquiror with respect to Target
Benefit Arrangements, provided that Acquiror, Bank and Target shall not be
required to take any action that would be in breach of the fiduciary duties of
the Plan trustees or administrators.
ARTICLE 10
TERMINATION OF AGREEMENT; WAIVER OF CONDITIONS
10.1 TERMINATION OF AGREEMENT. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated hereby
including the Bank Merger may be terminated at any time before the Effective
Time, whether before or after approval by the shareholders of Target as
follows, and in no other manner:
(a) By mutual consent of Acquiror and Bank, on the one hand, and
Target, on the other;
(b) By Acquiror, Bank or Target (i) if any conditions set forth
in Section 8.1 shall not have been met by September 30, 1999, or (ii) upon the
expiration of 20 Business Days after any Governmental Entity denies or refuses
to grant any approval, consent or authorization required to be obtained in order
to consummate the transaction contemplated by this Agreement unless, within said
20 Business Day period after such denial or refusal, all Parties hereto agree to
resubmit the application to the Governmental Entity that has denied, or refused
to grant the approval, consent or authorization requested;
(c) By Acquiror and Bank if any conditions set forth in
Section 8.2 shall not have been met, or by Target if any conditions set forth in
section 8.3 shall not have been met, by September 30, 1999, or such earlier time
as it becomes apparent that such condition cannot be met;
(d) By Acquiror or Bank, if Target should materially default in
the observance or in the due and timely performance of any of its covenants and
agreements herein contained and such default shall not have been fully cured
within 20 Business Days from the date of delivery of written notice specifying
the alleged default;
56
(e) By Target, if Acquiror or Bank should materially default in
the observance or in the due and timely performance of any of their covenants
and agreements herein contained and such default shall not have been fully cured
within 20 Business Days from the date of delivery of written notice specifying
the alleged default;
(f) By Acquiror and Bank, if Target shall have failed to act or
refrain from doing any act pursuant to Section 6.12;
(g) By Acquiror, if Acquiror elects not to consummate the
transaction contemplated by this Agreement because it enters into a transaction
to be acquired by another financial institution; or
(h) By Target at any time during the two day period following
the calculation of the Average Closing Price, if the Average Closing Price is
less than $26.60 and if Acquiror has failed to notify Target of its election to
fix the purchase price at $20.72, Target shall have the right to terminate this
Agreement, subject however, to the following provisions. If Target elects to
exercise its termination right pursuant to the immediately preceding sentence,
it shall give prompt written notice to Acquiror; provided that such notice may
be withdrawn by Target at any time within said two day period. During the
two-day period commencing on the day after receipt of such notice, Acquiror
shall again have the option of adjusting the Exchange Ratio to provide
shareholders of Target a price in shares of Acquiror Common Stock equal to
$20.72 (as a result the Exchange Ratio shall then be calculated by dividing
$20.72 by the Average Closing Price). If Acquiror makes an election
contemplated by the preceding sentence, within such two-day period, it shall
give prompt written notice to Target of such election and the revised Exchange
Ratio, whereupon no termination shall have occurred pursuant to this subsection
and this Agreement shall remain in effect in accordance with its terms (except
the Exchange Ratio shall have been modified), and any references in this
Agreement to "Exchange Ratio" shall thereafter be deemed to refer to the
Exchange Ratio as adjusted pursuant to this subsection.
10.2 EFFECT OF TERMINATION. In the event that this Agreement shall be
terminated pursuant to Section 10.1 hereof, all further obligations of the
Parties hereto under this Agreement shall terminate without further liability of
any Party to another; provided, however, that no termination of this Agreement
under Section 10.1 for any reason or in any manner shall release, or be
construed as so releasing, any Party from its obligations under Sections 11.1,
11.9 or 11.10, hereof and notwithstanding the foregoing if such termination
shall result from the willful failure of a Party to fulfill a condition to the
performance of the obligations of any other Party or to perform a covenant of
such Party in this Agreement, such Party shall, subject to the provision of
Section 11.1, be fully liable for any and all damages, costs and expenses
(including, but not limited to, reasonable attorneys' fees sustained or incurred
by the other Party or Parties in connection with negotiating and implementing
the transactions contemplated in this Agreement).
10.3 WAIVER OF CONDITIONS. If any of the conditions specified in
Section 8.2 has not been satisfied, Acquiror and Bank may nevertheless, at their
election, proceed with the transactions contemplated in this Agreement. If any
of the conditions specified in Section 8.3 has not been
57
satisfied, Target may nevertheless, at its election, proceed with the
transactions contemplated in this Agreement. If any Party elects to proceed
pursuant to the provisions hereof, the conditions that are unsatisfied
immediately prior to the Effective Time shall be deemed to be satisfied, as
evidence by a certificate delivered by the electing Party.
ARTICLE 11
GENERAL
11.1 EXPENSES.
(a) Target hereby agrees that if this Agreement is terminated by
Acquiror or Bank pursuant to Section 10.1(c), including the failure of Target
shareholders to approve the Agreement and the transactions contemplated hereby,
or pursuant to Section 10.1(d), Target shall promptly, and in any event within
seven Business Days after such termination, pay Acquiror and Bank all Expenses
(as defined below) of Acquiror and Bank but not to exceed $250,000.
(b) Acquiror and Bank hereby agree that if this Agreement is
terminated by Target pursuant to Section 10.1(c) or pursuant to Section 10.1(e),
Acquiror shall promptly, and in any event within seven Business Days after such
termination, pay (or cause Bank to pay) Target all Expenses (as defined below)
of Target but not to exceed $250,000.
(c) As an inducement to Acquiror to enter into this Agreement,
in the event this Agreement is terminated by Acquiror pursuant to Section
10.1(f) and Target enters into an agreement for a Competing Transaction prior to
termination of this Agreement or during the twelve-month period immediately
following termination of this Agreement, Target shall pay Acquiror, in
addition to Acquiror's rights under the Stock Option Agreement, $250,000 plus
an amount equal to all of Acquiror's reasonably documented expenses up to a
maximum of $100,000 which amounts represent (i) Target's direct costs and
expenses (including, but not limited to, fees and expenses of financial or other
consultants, printing costs, accountants and counsel) incurred in negotiating
and undertaking to carry out the transactions contemplated by this Agreement,
including Acquiror's management time devoted to negotiation and preparation for
the transactions contemplated by this Agreement; (ii) Acquiror's indirect costs
and expenses incurred in connection with the transactions contemplated by this
Agreement; and (iii) Acquiror's loss as a result of the transactions
contemplated by this Agreement not being consummated.
(d) As an inducement to Acquiror to enter into this Agreement,
in the event this Agreement is terminated by Acquiror pursuant to Section
10.1(g) Acquiror shall promptly, and in any event within seven Business Days
after Target terminates the Agreement pay Target $500,000 plus an amount equal
to all of Target's reasonably documented expenses up to a maximum of $100,000
which amount represents (i) Target's direct costs and expenses (including, but
not limited to, fees and expenses of financial or other consultants, printing
costs, accountants and counsel) incurred in negotiating and undertaking to carry
out the transactions contemplated by this Agreement, including Target's
management time devoted to negotiation and preparation for the
58
transactions contemplated by this Agreement; (ii) Target's indirect costs and
expenses incurred in connection with the transactions contemplated by this
Agreement; and (iii) Target's loss as a result of the transactions contemplated
by this Agreement not being consummated.
(e) Except as otherwise provided herein and in Section 7.1, all
Expenses incurred by Acquiror/Bank or Target in connection with or related to
the authorization, preparation and execution of this Agreement, the solicitation
of shareholder approvals and all other matters related to the closing of the
transaction contemplated hereby, including, without limitation of the generality
of the foregoing, all fees and expenses of agents, representatives, counsel, and
accountants employed by either of the Parties or its affiliates, shall be borne
solely and entirely by the Party which has incurred the same.
(f) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including all fees and expenses of attorneys,
accountants, investment bankers, experts and consultants to the Party and its
Affiliates) incurred by the Party or on its behalf in connection with or related
to the authorization, preparation and execution of this Agreement, the
solicitation of shareholder approvals and all other matters related to the
closing of the transaction contemplated hereby.
11.2 AMENDMENTS. To the fullest extent permitted by law, this Agreement
may be amended by agreement in writing of the Parties hereto at any time prior
to the Effective Time, whether before or after approval of this Agreement by the
shareholders of Target.
11.3 DISCLOSURE LETTER; EXHIBITS; INTEGRATION. Each Disclosure Letter,
exhibit and letter delivered pursuant to this Agreement shall be in writing and
shall constitute a part of the Agreement, although Disclosure Letters and other
letters need not be attached to each copy of this Agreement. This Agreement,
together with such Disclosure Letters, exhibits and letters, and the Stock
Option Agreement constitutes the entire agreement between the Parties pertaining
to the subject matter hereof and supersedes all prior agreements and
understanding of the Parties in connection therewith.
11.4 BEST EFFORTS. Each Party will use its best efforts to cause all
conditions to the obligations of the Parties to be satisfied.
11.5 GOVERNING LAW. This Agreement and the legal relations between the
Parties shall be governed by and construed in accordance with the laws of
California except to the extent that the provisions of federal law are
mandatorily applicable.
11.6 NO ASSIGNMENT. Neither this Agreement nor any rights, duties or
obligations hereunder shall be assignable by Acquiror/Bank or Target, in whole
or in part, without the prior written consent of the other Party. Any attempted
assignment in violation of this prohibition shall be null and void. Subject to
the foregoing, all of the terms and provisions hereof shall be binding upon, and
inure to the benefit of, the successors and assigns of the Parties hereto.
59
11.7 HEADINGS. The descriptive headings contained in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
11.8 COUNTERPARTS. This Agreement and any exhibit hereto may be
executed 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 Party hereto and delivered to each Party hereto.
11.9 PUBLICITY AND REPORTS. Acquiror and Target shall coordinate all
publicity relating to the transactions contemplated by this Agreement and no
Party shall issue any press release, publicity statement or other public notice
relating to this Agreement or any of the transactions contemplated hereby
without obtaining the prior consent of the other Party, except to the extent
that legal counsel to any Party shall deliver a written opinion to the other
Party to the effect that a particular action is required by applicable Rules.
11.10 CONFIDENTIALITY. All Confidential Information disclosed heretofore
or hereafter by any Party to this Agreement to any other Party to this Agreement
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 (a)
it is necessary or appropriate to disclose to the Commissioner, the FDIC or any
other Governmental Entity having jurisdiction over any of the Parties or as may
be otherwise be required by Rule (any disclosure of Confidential Information to
a Governmental Entity shall be accompanied by a request that such Governmental
Entity preserve the confidentiality of such Confidential Information): or (b) to
the extent such duty as to confidentiality is waived by the other Party. Such
obligation as to confidentiality and non-use shall survive the termination of
this Agreement pursuant to Article 10. In the event of such termination and on
request of another Party, each Party shall use all reasonable efforts to (1)
return to the other Parties all documents (and reproductions thereof) received
from such other Parties that contain Confidential Information (and, in the case
of reproductions, all such reproductions made by the receiving Party); and (2)
destroy the originals and all copies of any analyses, computations, studies or
other documents prepared for the internal use of such Party that included
Confidential Information.
11.11 SPECIFIC PERFORMANCE. Target, Bank and Acquiror each acknowledge
that, in view of the uniqueness of their respective businesses and the
transactions contemplated in this Agreement, each Party would not have an
adequate remedy at law for money damages in the event that this Agreement has
not been performed in accordance with its terms, and therefore each Party agrees
that the other shall be entitled to specific enforcement of the terms hereof in
addition to any other remedy to which it may be entitled, at law or in equity.
11.12 NOTICES. Any notice or communication required or permitted
hereunder, including, without limitation, supplemental Disclosure Letters shall
be deemed to have been given if in writing and (a) delivered in person,
(b) telexed, or (c) telecopied (provided that any notice given pursuant to
clauses (b) and (c) is also mailed by certified or registered mail, postage
prepaid), as follows:
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If to Acquiror or Bank, addressed to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman of the Board,
President & Chief Executive Officer
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
With a copy addressed to:
Barnet Reitner, Esq.
Reitner & Stuart
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
If to Target, addressed to:
▇▇▇▇ ▇▇▇▇▇▇
President & Chief Executive Officer
City Commerce Bank
▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
With a copy addressed to:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
or at such other address and to the attention of such other Person as a Party
may notice to the others in accordance with this Section 11.12. Notwithstanding
anything to the contrary contained herein, notice and/or delivery to Acquiror
shall be deemed notice and/or delivery to Bank.
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11.13 KNOWLEDGE. Whenever any statement herein or in any Disclosure
Letter, certificate or other document delivered to any Party pursuant to this
Agreement is made "to the knowledge" or "to the best knowledge" of any Party or
other Person such Party or other Person shall make such statement only after
conducting an investigation reasonable under the circumstances of the subject
matter thereof, and each such statement shall constitute a representation that
such investigation has been conducted.
11.14 SEVERABILITY. If any portion of this Agreement shall be deemed by
a court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining terms hereof shall provide for the consummation of
the transactions contemplated herein in substantially the same manner as
originally set forth at the date this Agreement was executed.
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11.15 ATTORNEYS' FEES. In the event any of the parties to this Agreement
brings an action or suit against any other party by reason of any breach of any
covenant, agreement, representation, warranty or other provision hereof, or any
breach of any duty or obligation created hereunder by such other party, the
prevailing party, as determined by the court or the body having jurisdiction,
shall be entitled to have and recover of and from the losing party, as
determined by the court or other party having jurisdiction, all reasonable costs
and expenses incurred or sustained by such prevailing party in connection with
such prevailing action, including, without limitation, legal fees and court
costs (whether or not taxable as such).
11.16 TERMINATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants of each Party contained herein or in
any certificate or other writing delivered by such party pursuant hereto or in
connection herewith shall not survive the Effective Time.
WITNESS, the signature of Acquiror, as of the 19th day of April, 1999,
set by its President and attested to by its Secretary, pursuant to a resolution
of its Board of Directors, acting by a majority:
MID-STATE BANCSHARES
By:
--------------------------------
President
WITNESS, the signature of Bank, as of the 19th day of April, 1999, set
by its President and attested to by its Secretary, pursuant to a resolution of
its Board of Directors, acting by a majority:
MID-STATE BANK
By:
--------------------------------
President
WITNESS, the signature of Target, as of the 19th day of April, 1999, set
by its Chairman of the Board and attested to by its Secretary, pursuant to a
resolution of its Board of Directors, acting by a majority:
CITY COMMERCE BANK
By:
--------------------------------
Chairman of the Board
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