Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and
entered into as of June 7, 2003, by and between COMMUNITY BANK SYSTEM, INC., a
Delaware corporation ("CBSI"), and GRANGE NATIONAL BANC CORP., a Pennsylvania
corporation ("GNBC").
WHEREAS, CBSI is a bank holding company, the principal banking
subsidiary of which is Community Bank, N.A., a national banking association
("COMMUNITY BANK");
WHEREAS, GNBC is a financial holding company, the principal
banking subsidiary of which is Grange National Bank, a national banking
association ("GRANGE NATIONAL BANK");
WHEREAS, the respective Boards of Directors of CBSI and GNBC
have each determined that it is in the best interests of their respective
shareholders for CBSI to acquire GNBC through the merger (the "MERGER") of GNBC
with and into CBSI upon the terms and subject to the conditions set forth
herein, and that the Merger presents an opportunity for their respective
companies and shareholders to achieve long-term strategic and financial
benefits;
WHEREAS, following the consummation of the Merger, Grange
National Bank, which shall become a wholly-owned subsidiary of CBSI as a result
of the Merger, shall merge (the "BANK MERGER") with and into Community Bank,
with Community Bank continuing as the surviving bank, pursuant to a plan of
merger;
WHEREAS, it is the current intention of CBSI to operate, after
the consummation of the Bank Merger, the existing business of Grange National
Bank as additional branches of the Pennsylvania division of Community Bank doing
business as "First Liberty Bank & Trust," to the extent permitted by law;
WHEREAS, in furtherance of such acquisition, the respective
Boards of Directors of CBSI and GNBC have each approved this Agreement and the
Merger in accordance with the General Corporation Law of the State of Delaware
(the "DGCL") and the Business Corporation Law of the Commonwealth of
Pennsylvania (the "PBCL") and upon the terms and conditions set forth herein;
WHEREAS, upon the consummation and effectiveness of the
Merger, all of the issued and outstanding shares of common stock, par value
$5.00 per share, of GNBC ("GNBC COMMON STOCK"), other than the Dissenting Shares
(as defined below), shall be converted into the right to receive shares of
common stock, no par value, of CBSI ("CBSI COMMON STOCK") and/or cash, as
provided in ARTICLE II of this Agreement;
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WHEREAS, the parties desire to effectuate the Merger as a tax
free reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "CODE");
WHEREAS, concurrently with the execution of this Agreement,
and as a condition and inducement to CBSI's willingness to enter into this
Agreement, all executive officers and directors of GNBC are entering into a
Voting Agreement (collectively, the "VOTING AGREEMENTS"), substantially in the
form attached hereto as EXHIBIT A;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants, representations, and agreements herein contained, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
"Advisory Board" is defined in SECTION 5.13 hereof.
"Affiliates Agreement" is defined in SECTION 5.10 hereof.
"Agreement" is defined in the preamble hereof.
"All Cash Election" is defined in SECTION 2.2(A)(II) hereof.
"All Stock Election" is defined in SECTION 2.2(A)(I) hereof.
"Bank Examinations" is defined in SECTION 3.30 hereof.
"Bank Holding Company Act" shall mean the Bank Holding Company
Act of 1956, as amended.
"Bank Merger" is defined in the preamble of this Agreement.
"Cash Portion" is defined in SECTION 2.2(A)(III).
"CBSI" is defined in the preamble of this Agreement.
"Community Bank" is defined in the preamble of this Agreement.
"CBSI Common Stock" is defined in the preamble of this
Agreement.
"CBSI Financial Statements" shall mean (i) the consolidated
statements of condition of CBSI as of March 31, 2003 and as of December 31, 2002
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and 2001 and the related consolidated statements of income, cash flows and
changes in shareholders' equity (including related notes, if any) for the three
months ended March 31, 2003 and each of the three years ended December 31, 2002,
2001 and 2000, as filed by CBSI in its SEC Documents and (ii) the consolidated
statements of condition of CBSI and related consolidated statements of income,
cash flows and changes in shareholders' equity (including related notes, if any)
as filed by CBSI in its SEC Documents as of dates or with respect to periods
ended subsequent to March 31, 2003.
"CBSI Market Price" shall mean the average closing sale price
of a share of the CBSI Common Stock over the twenty (20) consecutive trading
days immediately prior to the Closing Date on the NYSE, as reported in the WALL
STREET JOURNAL.
"Certificate" is defined in SECTION 2.2(J) hereof.
"Closing Date" shall mean the date specified pursuant to
SECTION 5.9 hereof as the date on which the parties hereto shall close the
transactions contemplated herein.
"Code" is defined in the preamble of this Agreement.
"Commission" or "SEC" shall mean the Securities and Exchange
Commission.
"CRA" is defined in SECTION 3.29 hereof.
"Designated Term" is defined in SECTION 5.L1(C) hereof.
"DGCL" is defined in the preamble of this Agreement.
"Dissenting Shares" is defined in SECTION 2.5 hereof.
"Effective Date" is defined in SECTION 5.1 hereof.
"Effective Time" is defined in SECTION 2.1(B) hereof.
"Election" is defined in SECTION 2.2(C) hereof.
"Election Deadline" is defined in SECTION 2.2(C) hereof.
"Election Form" is defined in SECTION 2.2(C) hereof.
"Election Period" is defined in SECTION 2.2(C) hereof.
"Employment Agreement" is defined in SECTION 6.1(G) hereof.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
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"ERISA Affiliate" is defined in SECTION 3.12 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Exchange Agent" is defined in SECTION 2.6 hereof.
"Exchange Ratio" shall mean, subject to any adjustment
contemplated by SECTION 2.2(I):
(a) if the CBSI Market Price is equal to or
greater than $29.88, or equal to or less
than $40.43, then 1.209;
(b) if the CBSI Market Price is greater than
$40.43, then a quotient (rounded to the
nearest one-thousandth of a dollar) obtained
by dividing $48.88 by the CBSI Market Price;
and
(c) if the CBSI Market Price is less than
$29.88, then a quotient (rounded to the
nearest one-thousandth of a dollar) obtained
by dividing $36.13 by the CBSI Market Price.
"FDIA" shall mean the Federal Deposit Insurance Act.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of
the Federal Reserve System.
"GNBC" is defined in the preamble of this Agreement.
"Grange National Bank" is defined in the preamble of this
Agreement.
"GNBC Common Stock" is defined in the preamble of this
Agreement.
"GNBC Directors" is defined in SECTION 5.11(C) hereof.
"GNBC Shareholders' Meeting" shall mean the special meeting of
the shareholders of GNBC to be called for the purpose of approving this
Agreement and the transactions contemplated thereby.
"GNBC Financial Statements" shall mean (i) the consolidated
statements of condition of GNBC as of March 31, 2003 and as of December 31, 2002
and 2001 and the related consolidated statements of income, cash flows and
changes in shareholders' equity (including related notes, if any) for the three
months ended March 31, 2003 and each of the three years ended December 31, 2002,
2001 and 2000, as filed by GNBC in its SEC Documents and (ii) the consolidated
statements of condition of GNBC and related consolidated statements of income,
cash flows and changes in shareholders' equity (including related notes, if any)
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as filed by GNBC in its SEC Documents as of dates or with respect to periods
ended subsequent to March 31, 2003.
"Indemnified Parties" is defined in SECTION 5.11(D) hereof.
"Intellectual Property" means domestic and foreign letters
patent, patents, patent applications, patent licenses, software licensed or
owned, know-how licenses, trade names, common law and other trademarks, service
marks, licenses of trademarks, trade names and/or service marks, trademark
registrations and applications, service ▇▇▇▇ registrations and applications and
copyright registrations and applications.
"IRS" means the Internal Revenue Service.
"Material Adverse Effect" shall mean, with respect to any
party, a material adverse effect on the business, results of operations or
financial condition of such party and its Subsidiaries, taken as a whole, or a
material adverse effect on such party's ability to consummate the transactions
contemplated hereby; provided, HOWEVER, that in determining whether a Material
Adverse Effect has occurred there shall be excluded any effect on the referenced
party the primary cause of which is (i) any change in banking or similar laws,
rules or regulations of general applicability or interpretations thereof by
courts or governmental authorities, (ii) any change in generally accepted
accounting principles or regulatory accounting requirements applicable to banks
or their holding companies generally, (iii) general changes in conditions,
including interest rates, in the banking industry or in the global or United
States economy or financial markets, with respect to clause (i), (ii) or (iii),
to the extent that such a change does not materially affect the referenced party
to a materially different extent than other similarly situated banking
organizations, and (iv) any action or omission of the referenced party or any of
its Subsidiaries taken with the prior written consent of the other party to this
Agreement in contemplation of the Merger.
"Merger" is defined in the preamble of this Agreement.
"Merger Consideration" is defined in SECTION 2.2 hereof.
"Mixed Election" is defined in SECTION 2.2(A)(III).
"NYSE" shall mean the New York Stock Exchange.
"OCC" shall mean the Office of the Comptroller of Currency.
"PBCL" is defined in the preamble of this Agreement.
"Person" shall mean an individual, corporation, partnership,
bank, limited liability company, trust, association, unincorporated
organization, other entity or group (as defined in Section 13(d)(3) of the
Exchange Act).
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"Previously Disclosed" shall mean disclosed prior to the
execution hereof in (i) an SEC Document filed with the SEC subsequent to January
1, 2003 and prior to the date hereof or (ii) a letter dated of even date
herewith from the party making such disclosure and delivered to the other party
prior to the execution hereof. Any information disclosed by one party to the
other for any purpose hereunder shall be deemed to be disclosed for all purposes
hereunder provided that the relevance of the disclosed information to the
representations or warranties in question is reasonably apparent. The inclusion
of any matter in such letter shall not be deemed an admission or otherwise to
imply that any such matter is material for purposes of this Agreement.
"Proxy Statement/Prospectus" shall mean the proxy
statement/prospectus (or similar documents) together with any supplements
thereto and related materials sent to the shareholders of GNBC to solicit their
votes in connection with this Agreement and the Merger.
"Registration Statement" shall mean the registration statement
under the Securities Act covering the shares of CBSI Common Stock to be issued
in connection with the Merger.
"Representative" is defined in SECTION 2.2(L) hereof.
"Rights" shall mean warrants, options, rights, convertible
securities and other arrangements or commitments which obligate an entity to
issue or dispose of any of its capital stock, and stock appreciation rights,
performance units and other similar stock-based rights whether they obligate the
issuer thereof to issue stock or other securities or to pay cash.
"SEC Documents" shall mean all reports and registration
statements filed, or required to be filed, by a party hereto pursuant to the
Securities Laws.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Securities Laws" shall mean the Securities Act; the Exchange
Act; the Investment Company Act of 1940, as amended; the Investment Advisers Act
of 1940, as amended; the Trust Indenture Act of 1939, as amended; and the rules
and regulations of the Commission promulgated thereunder.
"Stock Option" is defined in SECTION 2.3 hereof.
"Stock Option Plans" is defined in SECTION 2.3 hereof.
"Stock Portion" is defined in SECTION 2.2(A)(III) hereof.
"Subsidiary" shall mean with respect to any party, any Person
which is consolidated with such party for financial reporting purposes;
PROVIDED, HOWEVER, that "Subsidiary" shall not include any subsidiary trust
formed for the purpose of issuing trust preferred or similar securities.
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"Substitute GNBC Directors" is defined in SECTION 5.11(C)
hereof.
"Surviving Corporation" is defined in SECTION 2.1(A) hereof.
"Takeover Laws" is defined in SECTION 5.14 hereof.
"Takeover Proposal" is defined in SECTION 5.5(A) hereof.
"Taxes" shall mean all taxes, however denominated, including
any interest, penalties, criminal sanctions or additions to tax (including,
without limitation, any underpayment penalties for insufficient estimated tax
payments) or other additional amounts that may become payable in respect thereof
(or in respect of a failure to file any Tax Return when and as required),
imposed by any federal, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include, without
limiting the generality of the foregoing, all income taxes, payroll and
employment taxes, withholding taxes (including withholding taxes in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other person or entity), unemployment insurance taxes, social
security (or similar) taxes, sales and use taxes, excise taxes, franchise taxes,
gross receipts taxes, occupation taxes, real and personal property taxes, stamp
taxes, value added taxes, transfer taxes, profits or windfall profits taxes,
licenses in the nature of taxes, estimated taxes, severance taxes, duties
(custom and others), workers' compensation taxes, premium taxes, environmental
taxes (including taxes under Section 59A of the Code), disability taxes,
registration taxes, alternative or add-on minimum taxes, estimated taxes, and
other fees, assessments, charges or obligations of the same or of a similar
nature.
"Tax Returns" shall mean all returns, reports, estimates,
information statements or other written submissions, and any schedules or
attachments thereto, required or permitted to be filed pursuant to the statutes,
rules and regulations of any federal, state, local or foreign government Tax
authority, including but not limited to, original returns and filings, amended
returns, claims for refunds, information returns and accounting method change
requests.
"Transaction Documents" shall mean, collectively, the Voting
Agreements, the Option Agreement, the Affiliate Agreements, the Employment
Agreement, and certificates and other documents contemplated thereby or by this
Agreement.
"USA Patriot Act" is defined in SECTION 3.29 hereof.
"Voting Agreement" is defined in the preamble of this
Agreement.
For purposes of this Agreement, the terms "GNBC," "Grange National
Bank," "CBSI," "Community Bank" and "Subsidiary" include all of the respective
predecessors thereof (including without limitation, any previously acquired
Person).
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ARTICLE II
THE MERGER
2.1 THE MERGER.
(a) At the Effective Time, and upon the terms and subject to
the conditions of this Agreement, GNBC shall be merged with and into CBSI, the
separate existence of GNBC shall cease and CBSI shall continue as the surviving
corporation. CBSI as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "SURVIVING CORPORATION."
As promptly as practicable after the satisfaction or waiver of
the conditions set forth in ARTICLE VI, the parties shall cause the Merger to be
consummated by filing a certificate or articles of merger as contemplated by the
DGCL or the PBCL, together with any required related documents, with the
Secretary of State of the State of Delaware and the Secretary of State of the
Commonwealth of Pennsylvania, in such form as required by, and executed in
accordance with, the relevant provisions of the DGCL and the PBCL (the time of
the last of such filings being the "EFFECTIVE TIME").
2.2 MERGER CONSIDERATION. Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger and without any
action on the part of any Person, each share of GNBC Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted at the
election of the holder thereof (in accordance with the election and allocation
procedures set forth in this SECTION 2.2) into either (i) shares of CBSI Common
Stock based upon the Exchange Ratio; (ii) cash, at the rate of $42.50 for each
share of GNBC Common Stock; or (iii) a combination of such shares of CBSI Common
Stock and cash, as more fully set forth in SECTION 2.2(A)(III). The shares of
CBSI Common Stock issuable and cash payable in connection with the Merger are
sometimes collectively referred to herein as the "MERGER CONSIDERATION."
(a) ELECTION AS TO OUTSTANDING GNBC COMMON STOCK. The
shareholders of GNBC shall be given the following options in connection with the
exchange of their GNBC Common Stock pursuant to the Merger:
(i) At the option of each holder of GNBC Common
Stock, all of such holder's GNBC
Common Stock shall be converted into the right to receive such number of shares
of CBSI Common Stock equal to (x) the number of shares of GNBC Common Stock held
by such holder times (y) the Exchange Ratio (such election, the "ALL STOCK
ELECTION"), provided that:
(A) Fractional shares will not be issued and
cash (payable by check) will be paid in lieu thereof as provided in SECTION
2.2(J); and
(B) After giving effect to SECTION
2.2(A)(I), (II), AND (III), in no event shall, in the aggregate, more than
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seventy percent (70%) of GNBC Common Stock issued and outstanding immediately
prior to the Effective Time be converted into the right to receive shares of
CBSI Common Stock; or
(ii) At the option of each holder of GNBC Common
Stock, all of such holder's GNBC
Common Stock shall be converted into the right to receive cash (payable by
check) in an amount equal to (x) the number of shares of GNBC Common Stock held
by such holder times (y) $42.50 (such election, the "ALL CASH Election"),
provided that:
(A) After giving effect to SECTION
2.2(A)(I), (II), AND (III), in no event shall, in the aggregate, more than
forty-five percent (45%) of GNBC Common Stock issued and outstanding immediately
prior to the Effective Time be converted into and become cash; or
(iii) At the option of each holder of GNBC Common
Stock, seventy percent (70%) of such holder's aggregate number of shares of GNBC
Common Stock (the "STOCK PORTION") shall be converted into the right to receive
such number of shares of CBSI Common Stock equal to (x) the number of shares of
GNBC Common Stock in the Stock Portion times (y) the Exchange Ratio, and thirty
percent (30%) of such holder's aggregate number of shares of GNBC Common Stock
(the "CASH PORTION") shall be converted into the right to receive cash (payable
by check) in an amount equal to (w) the number of shares of GNBC Common Stock in
the Cash Portion times (z) $42.50 (such election, the "MIXED ELECTION"),
provided that:
(A) Fractional shares will not be issued and
cash (payable by check) will be paid in lieu thereof as provided in
SECTION 2.2(J); and
(B) After giving effect to SECTION
2.2(A)(I), (II) AND (III), in no event shall, in the aggregate, more than
seventy percent (70%) of GNBC Common Stock issued and outstanding immediately
prior to the Effective Time be converted into the right to receive shares of
CBSI Common Stock;
(C) After giving effect to SECTION
2.2(A)(I), (II), AND (III), in no event shall, in the aggregate, more than
forty-five percent (45%) of GNBC Common Stock issued and outstanding immediately
prior to the Effective Time be converted into the right to receive cash; or
(iv) If no election is validly made by a holder by
the Election Deadline pursuant to SECTION 2.2(D), all of such holder's shares of
GNBC Common Stock shall be converted into the right to receive CBSI Common Stock
and cash as set forth in SECTION 2.2(A)(III); PROVIDED, HOWEVER, that no
fractional shares shall be issued and cash will be paid in lieu thereof as
provided in SECTION 2.2(J). Notice of such allocation shall be provided promptly
to each holder whose shares of GNBC Common Stock are allocated pursuant to this
SECTION 2.2(A)(IV).
(b) TREASURY SHARES AND SHARES HELD BY CBSI. Each share of
GNBC Common Stock held in treasury by GNBC or owned by any Subsidiary of GNBC,
CBSI or any Subsidiary of CBSI (in each case other than in a fiduciary capacity)
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immediately prior to the Effective Time shall be cancelled without any
conversion thereof and no payment or distribution shall be made with respect
thereto.
(c) PROCEDURES FOR ELECTION. An election form and other
appropriate transmittal materials in such form as the parties shall mutually
agree (the "ELECTION FORM") shall be mailed to stockholders of GNBC prior to the
Election Period. The "ELECTION PERIOD" shall be such period of time as the
parties shall mutually agree and ending three (3) full business days immediately
prior to the Closing Date, within which GNBC shareholders may validly elect the
form of Merger Consideration set forth in SECTION 2.2(A) (the "ELECTION") that
they will receive. The "ELECTION DEADLINE" shall be at close of business on the
last day of the Election Period.
(d) PERFECTION OF THE ELECTION. An Election shall be
considered to have been validly made by a holder of GNBC Common Stock only if
the Exchange Agent shall have received prior to the Election Deadline an
Election Form properly completed and executed by such holder, accompanied by one
or more stock certificates representing the shares of GNBC Common Stock as to
which such Election is being made, duly endorsed in blank or otherwise in form
specified in the letter of transmittal, all in accordance with the instructions
to the letter of transmittal.
(e) REVOCATION OF ELECTION Any holder of GNBC Common Stock may
at any time prior to the Election Deadline revoke its election and submit a new
Election Form in accordance with the procedures in SECTION 2.2(D), by providing
written notice that is received by the Exchange Agent prior to the Election
Deadline. In the event of the termination of this Agreement, CBSI shall cause
the Exchange Agent to return any certificates deposited by a holder of GNBC
Common Stock to such holder at the address set forth in the Election Form.
(f) REDUCTION OF SHARES ENTITLED TO RECEIVE CASH. If holders
of more than forty-five percent (45%) of the total number of shares of GNBC
Common Stock issued and outstanding have, at the Election Deadline, either (x)
elected to receive cash pursuant to the All Cash Election or the Mixed Election
(including pursuant to SECTION 2.2(A)(IV)) and not revoked such election
pursuant to SECTION 2.2(E), or (y) properly exercised their appraisal rights
under the PBCL, CBSI will cause to be eliminated by the Exchange Agent, from the
shares subject to the All Cash Election (subject to the limitations described in
SECTION 2.2(F)(IV)), a sufficient number of such shares so that the total number
of shares that will be converted into the right to receive cash pursuant to the
All Cash Election and the Mixed Election (including pursuant to SECTION
2.2(A)(IV)), or that are Dissenting Shares, does not exceed forty-five percent
(45%) of the shares of GNBC Common Stock issued and outstanding on the Election
Deadline. The holders of GNBC Common Stock who have made the Mixed Election
shall not be required to have more than seventy percent (70%) of their shares of
GNBC Common Stock converted into CBSI Common Stock. After giving effect to
SECTION 2.2(A)(IV), such elimination will be effected as follows:
(i) Subject to the limitations described in SECTION
2.2(F)(IV), CBSI will eliminate or cause to be eliminated from the
shares subject to the All Cash Election, and will add or cause to be
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added to the shares subject to the All Stock Election, on a PRO RATA
basis in relation to the total number of shares subject to the All Cash
Election minus the number of shares held by the holders described in
SECTION 2.2(F)(IV) such number of whole shares of GNBC Common Stock
subject to the All Cash Election as may be necessary so that the total
number of shares that will be converted into the right to receive cash
pursuant to All Cash Election or the Mixed Election (including pursuant
to SECTION 2.2(A)(IV)) is equal, as nearly as practicable, to
forty-five percent (45%) of the shares of GNBC Common Stock issued and
outstanding immediately prior to the Effective Time (minus any
Dissenting Shares);
(ii) All shares of GNBC Common Stock that are
eliminated pursuant to SECTION 2.2(F)(I) from the shares subject to the
All Cash Election shall be converted into the right to receive CBSI
Common Stock as provided by SECTION 2.2(A)(I);
(iii) Notice of such allocation shall be provided
promptly to each holder whose shares of GNBC Common Stock are
eliminated from the shares subject to the All Cash Election pursuant to
SECTION 2.2(F)(I); and
(iv) Notwithstanding the foregoing, the holders of
one hundred (100) or fewer
shares of GNBC Common Stock of record on the date of this Agreement who have
elected the All Cash Election shall not be required to have any of their shares
of GNBC Common Stock converted into the right to receive CBSI Common Stock.
(g) INCREASE OF SHARES ENTITLED TO RECEIVE CASH. If the
holders of fewer than thirty percent (30%) of the total number of shares of GNBC
Common Stock issued and outstanding have, at the Election Deadline, elected to
receive cash pursuant to the All Cash Election or the Mixed Election (including
pursuant to SECTION 2.2(A)(IV)) and not revoked such election pursuant to
SECTION 2.2(E), CBSI will cause to be added by the Exchange Agent, to such
shares subject to the All Cash Election, a sufficient number of shares of GNBC
Common Stock subject to the All Stock Election (subject to the limitation
described in SECTION 2.2(G)(IV)) so that the total number of shares of GNBC
Common Stock that will be converted into the right to receive cash pursuant to
the All Cash Election, the Mixed Election (including pursuant to SECTION
2.2(A)(IV)) and this SECTION 2.2(G) immediately prior to the Effective Time is
not less than thirty percent (30%) of the shares of GNBC Common Stock issued and
outstanding immediately prior to the Effective Time. The holders of GNBC Common
Stock who have elected to have their shares converted pursuant to the Mixed
Election or the All Stock Election shall not be required to have more than
thirty percent (30%) of their shares of GNBC Common Stock converted into cash.
After giving effect to SECTION 2.2(A)(IV), such addition will be effected as
follows:
(i) CBSI will cause to be added to the shares subject
to the All Cash Election, and will cause to be eliminated from the shares
subject to the All Stock Election, on a PRO RATA basis in relation to the total
number of shares of GNBC Common Stock subject to the All Stock Election, such
number of whole shares of GNBC Common Stock as may be necessary so that the
number of shares that will be converted into the right to receive cash is equal,
as nearly as practicable, to thirty percent (30%) of the shares of GNBC Common
Stock issued and outstanding immediately prior the Effective Time;
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(ii) All shares of GNBC Common Stock that are added
to the shares subject to the All Cash Election pursuant to SECTION 2.2(G)(I)
shall be converted into the right to receive cash as provided by SECTION
2.2(A)(II); and
(iii) Notice of such allocation shall be provided
promptly to each holder whose shares of GNBC Common Stock are added to the
shares subject to the All Cash Election or the Mixed Election.
(h) CBSI COMMON STOCK. Each share of CBSI Common Stock
outstanding immediately prior to the Effective Time shall remain unchanged and
shall constitute the common stock of the Surviving Corporation.
(i) ADJUSTMENTS TO EXCHANGE RATIO. If, subsequent to the date
of this Agreement but prior to the Effective Time, the outstanding shares of
CBSI Common Stock or GNBC Common Stock shall be increased, decreased, changed
into or exchanged for a different number of shares, in each case by reason of
any stock split, recapitalization, or reclassification or other similar change,
the Exchange Ratio shall be adjusted proportionately.
(j) FRACTIONAL SHARES. No certificates or scrip representing
less than one share of CBSI Common Stock shall be issued upon the surrender for
exchange of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of GNBC Common Stock (the
"CERTIFICATES"). In lieu of any such fractional share, each holder of such
shares who would otherwise have been entitled to a fraction of a share of CBSI
Common Stock, upon surrender of Certificates representing shares of GNBC Common
Stock for exchange, shall be paid upon such surrender cash (without interest) in
an amount equal to such fraction multiplied by the CBSI Market Price.
(k) GNBC PENSION PLAN SHARES. To the extent consistent with
the terms of such plans, the Code and ERISA, (i) the shares of GNBC Common Stock
held for the benefit of the participants in the GNBC 401(k) plan and Simplified
Employee Pension Plan will be converted into cash and/or shares of CBSI Common
Stock pursuant to this SECTION 2.2, and (ii) plan participants will have the
right to direct the trustees of such plans to make an Election with respect to
the shares of GNBC Common Stock held for their accounts in such plans.
(l) GNBC COMMON STOCK HELD BY REPRESENTATIVES. Holders of
record of shares of GNBC Common Stock who hold such shares as nominees, trustees
or in other representative capacities (each, a "REPRESENTATIVE") may submit
multiple Election Forms, provided that such Representative certified that each
such Election Form covers all of the shares of GNBC Common Stock so held by such
Representative for a particular beneficial owner.
2.3 STOCK OPTIONS.
(a) At the Effective Time, each outstanding option to purchase
shares of GNBC Common Stock (a "STOCK OPTION") granted under GNBC's Employee
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Stock Option Plan, Non-employee Director Stock Option Plan and Incentive Stock
Option Plan (collectively the "STOCK OPTION PLANS") shall be deemed assumed by
CBSI and deemed to constitute an option to acquire, on the same terms and
conditions MUTATIS MUTANDIS as were applicable under such Stock Option prior to
the Effective Time, such number of shares of CBSI Common Stock equal to the
product of (x) the number of shares of GNBC Common Stock that would have been
issuable upon exercise of the Stock Option, and (y) the Exchange Ratio;
PROVIDED, HOWEVER, that:
(i) the number of shares of CBSI Common Stock that
may be purchased upon exercise of any such Stock Option shall not
include any fractional share and, upon exercise of the Stock Option, a
cash payment shall be made for any fractional share based upon the
closing sale price per share of the CBSI Common Stock on the last
trading day prior to the effective date of exercise on the NYSE as
reported in the WALL STREET JOURNAL;
(ii) the exercise price per share of such Stock
Option shall be equal to the quotient of (w) the exercise price per
share of the Stock Option, divided by (z) the Exchange Ratio (rounded
to the nearest one-thousandth); and
(iii) the vesting of such Stock Option shall be
accelerated so that such Stock Option shall be exercisable in full
immediately after the Effective Time.
(b) Prior to the Effective Time, CBSI shall reserve for
issuance the number of shares of CBSI Common Stock necessary to satisfy its
obligations with respect to the options assumed pursuant to SECTION 2.3(A). If
and to the extent that any shares of CBSI Common Stock underlying such options
are not already covered by an effective registration statement on Form ▇-▇, ▇▇▇▇
shall file with the SEC a registration statement on Form S-8 (or its successor
form under the Securities Act) to register such shares under the Securities Act.
2.4 EFFECT OF MERGER.
Upon the Effective Time of the Merger:
The certificate of incorporation and bylaws of CBSI, each as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation and bylaws, respectively, of the Surviving Corporation, in each
case until amended in accordance with the DGCL.
(b) All respective assets, rights, franchises, and interest of
GNBC and CBSI in and to every type of property shall be vested in the Surviving
Corporation by virtue of the Merger without any deed or other transfer; and the
Surviving Corporation, without any order or other action on the part of any
court or otherwise, shall hold and enjoy all rights of property, franchises and
interest, in the same manner and to the same extent as such rights, franchises
and interests were held and enjoyed by GNBC and CBSI immediately prior to the
Effective Time.
(c) The Surviving Corporation shall be liable for all of the
liabilities of GNBC and CBSI and shall be bound by and subject to all of the
13
obligations and contracts of GNBC and CBSI. All rights of creditors and obligees
and all liens on property of GNBC and CBSI shall be preserved and unimpaired.
(d) The directors and officers of CBSI immediately prior to
the Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation, with the additions of new directors and officers
contemplated by SECTION 5.11(C).
2.5 DISSENTING SHARES. Notwithstanding any other provision contained in
this Agreement, no shares of GNBC Common Stock that are issued and outstanding
as of the Effective Time and that are held by a shareholder who has properly
exercised his or her appraisal rights (such shares being collectively referred
to herein as "DISSENTING SHARES") under the PBCL shall be converted into the
right to receive the Merger Consideration as provided in SECTION 2.2 unless and
until the holder shall have failed to perfect, or shall have effectively
withdrawn or lost, such holder's right to dissent from the Merger under the PBCL
and to receive such consideration as may be determined to be due with respect to
such Dissenting Shares pursuant to and subject to the requirements of the PBCL.
If any holder of Dissenting Shares shall have so failed to perfect or
effectively withdrawn or lost such holder's right to dissent from the Merger,
each of such holder's shares of GNBC Common Stock shall thereupon no longer be
deemed Dissenting Shares and to have become, as of the Effective Time, the right
to receive the Merger Consideration pursuant to SECTION 2.2.
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2.6 PROCEDURE TO EXCHANGE SHARES.
(a) As soon as practicable after the Effective Time, CBSI
shall cause to be deposited with American Stock Transfer & Trust Company or
another financial institution experienced in serving as an exchange agent for a
public company merger (the "EXCHANGE AGENT"), for exchange in accordance with
this ARTICLE II, certificates representing the aggregate number of shares of
CBSI Common Stock and cash, by wire transfer of immediately available funds,
into which the outstanding shares of GNBC Common Stock shall be converted
pursuant to SECTION 2.2 of this Agreement. As soon as practicable after the
Effective Time, CBSI shall cause the Exchange Agent to mail to all holders of
record of GNBC Common Stock who have not deposited their shares pursuant to
valid Elections prior to the Election Deadline (excluding any holders of
Dissenting Shares), letters of transmittal specifying the procedures for
delivery of such holders' certificates formerly representing GNBC Common Stock
to the Exchange Agent in exchange for new certificates of CBSI Common Stock
and/or a check for cash (including cash in lieu of fractional shares) issuable
pursuant to this ARTICLE II. As soon as reasonably practicable, after surrender
to the Exchange Agent of the certificates of GNBC Common Stock in accordance
with the instructions of the letter of transmittal, the Exchange Agent shall
distribute to the former holders of shares of GNBC Common Stock a certificate
representing that number of shares of CBSI Common Stock and/or a check for cash
payable in the Merger (including cash in lieu of fractional shares, if any),
that such holder is entitled to receive pursuant to this Agreement. In no event
shall the holder of any such surrendered certificates be entitled to receive
interest on any stock or cash to be received in the Merger. If any certificate
is to be issued in a name other than that in which the surrendered certificate
is issued, the certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and the Person requesting such exchange
shall affix any required stock transfer tax stamps to the certificate or provide
funds for their purchase or established to the satisfaction of the Exchange
Agent that such taxes are not payable.
(b) No dividends or other distributions declared after the
Effective Time with respect to CBSI Common Stock shall be paid to the holder of
any unsurrendered certificate formerly representing shares of GNBC Common Stock
until such holder shall surrender such certificate in accordance with this
Section. After the surrender of a certificate in accordance with this Section
(or compliance with the procedures set forth in SECTION 2.5(D)), the record
holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore have become
payable with respect to shares of CBSI Common Stock.
(c) At the Effective Time, the stock transfer books of GNBC
shall be closed and no transfer of GNBC Common Stock shall thereafter be made or
recognized. If, after the Effective Time, certificates representing such shares
are presented for transfer, they shall be cancelled and exchanged for the Merger
Consideration as provided in this Section.
(d) In the event any certificate shall have been lost, stolen,
destroyed or mutilated, upon the making of an affidavit of that fact by the
Person claiming such certificate to be lost, stolen, destroyed or mutilated and,
if required by CBSI, the making of an indemnity agreement in a form reasonably
requested by CBSI and/or the posting by such Person of a bond in such amount as
CBSI may reasonably direct as indemnity against any claim that may be made
15
against it with respect to such certificate, the Exchange Agent will issue in
exchange for such lost, stolen, destroyed or mutilated certificate the Merger
Consideration deliverable in respect thereof pursuant to this Agreement.
(e) Neither CBSI nor GNBC shall be liable to any holder of
shares of GNBC Common Stock for any Merger Consideration delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
After the first anniversary of the Effective Time, CBSI shall be entitled to
instruct the Exchange Agent to release to CBSI all of the shares of CBSI Common
Stock and cash then remaining undistributed to former shareholders of GNBC.
Thereafter, CBSI shall deliver certificates representing an appropriate number
of shares of CBSI Common Stock and/or a check for the appropriate amount of
cash, from time to time, as certificates representing GNBC Common Stock, the
accompanying letter of transmittal and other related documents are presented to
the Exchange Agent or CBSI (or the Person claiming such certificates complies
with the procedures contemplated by SECTION 2.5(D)), until at such time as such
shares and cash are delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.7 TAX TREATMENT. The parties hereto intend that the Merger constitute
a tax free reorganization under Section 368(a) of the Code with respect to the
portion of the Merger Consideration consisting of shares of CBSI Common Stock
and cash paid in lieu of fractional shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GNBC
Except as Previously Disclosed, GNBC hereby represents and
warrants to CBSI as follows:
3.1 CAPITAL STRUCTURE OF GNBC. The authorized capital stock of GNBC
consists solely of 1,000,000 shares of preferred stock, par value $5.00 per
share ("GNBC PREFERRED STOCK"), and 5,000,000 shares of GNBC Common Stock, of
which no shares and 1,635,985 shares, respectively, are issued and outstanding.
82,754 shares of GNBC Common Stock and no shares of GNBC Preferred Stock are
held in treasury. An aggregate of 244,042 shares of GNBC Common Stock are
reserved for existing and future grants under the Stock Option Plans, pursuant
to which options to purchase a total of 192,620 shares of GNBC Common Stock are
issued and outstanding on the date hereof (of which options to purchase an
aggregate of 186,606 shares are currently exercisable). Except for such options,
there are no outstanding options, warrants, agreements, arrangements,
commitments or any similar rights granted by or binding on GNBC in existence for
the purchase of or issuance of, or which encumber in any way, GNBC Common Stock
or any equity interest in any Subsidiary of GNBC. All outstanding shares of GNBC
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable. None of the shares of GNBC's capital stock has been issued in
violation of the preemptive rights of any Person.
16
3.2 ORGANIZATION, STANDING AND AUTHORITY OF GNBC. Each of GNBC and its
Subsidiaries is a duly organized corporation, validly existing and in good
standing under the laws of its incorporation with full corporate power and
authority to own, lease and operate the properties it purports to own, lease or
operate and to carry on its business as now conducted, except where the failure
to be in good standing or to have such power or authority would not have a
Material Adverse Effect on GNBC. Each of GNBC and its Subsidiaries is duly
licensed or qualified to do business in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or the conduct
of its business requires such licensing or qualification, except where the
failure to be so licensed or qualified would not have a Material Adverse Effect
on GNBC. GNBC is registered as a bank holding company under the Bank Holding
Company Act, and a financial holding company under the ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act of
1999.
3.3 OWNERSHIP OF GNBC SUBSIDIARIES; CAPITAL STRUCTURE OF GNBC
SUBSIDIARIES. A true and complete list of all of the GNBC's Subsidiaries,
together with the jurisdiction of incorporation of each Subsidiary and the
percentage of each Subsidiary's outstanding capital stock owned by GNBC or
another subsidiary of GNBC, has been Previously Disclosed. Except as Previously
Disclosed, GNBC does not, directly or indirectly, own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any Person other than GNBC's
Subsidiaries.
3.4 AUTHORIZED AND EFFECTIVE AGREEMENT.
(a) GNBC has all requisite corporate power and authority to
enter into and perform all of its obligations under this Agreement and each of
the Transaction Documents to which it is a party. The execution and delivery of
this Agreement and each such Transaction Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
GNBC, except for the affirmative vote of a majority of the votes cast by the
holders of GNBC Common Stock entitled to vote thereon, which is the only
shareholder vote required to approve the Merger pursuant to GNBC's certificate
of incorporation and bylaws. The Board of Directors of GNBC has approved and
adopted this Agreement and the Merger, and directed that this Agreement be
submitted to GNBC's shareholders for approval at a special meeting to be held as
soon as practicable. The Board of Directors of GNBC has unanimously recommended
that the shareholders of GNBC approve this Agreement and the Merger.
(b) This Agreement and each Transaction Document to which GNBC
is a party have been duly executed and delivered by GNBC and, assuming the
accuracy of the representation contained in SECTION 4.3(B) hereof, this
Agreement constitutes the legal, valid and binding obligations of GNBC,
enforceable against GNBC in accordance with its terms, except that such
enforceability may be subject to bankruptcy, insolvency and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(c) Neither the execution and delivery by GNBC of this
Agreement or any Transaction Document to which it is a party, nor consummation
17
of the transactions contemplated hereby or thereby, nor compliance by GNBC with
any of the provisions hereof or thereof shall (i) conflict with or result in a
breach of any provision of the certificate of incorporation or bylaws of GNBC,
(ii) assuming the consents and approvals contemplated by SECTION 5.3 hereof and
the consents and approvals which are Previously Disclosed are duly obtained,
constitute or result in a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of GNBC or any of its
Subsidiaries pursuant to, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which GNBC or any of its
Subsidiaries is a party, or (iii) assuming the consents and approvals
contemplated by SECTION 5.3 hereof and the consents and approvals which are
Previously Disclosed are duly obtained, conflict with or violate any law, order,
writ, injunction, decree, statute, rule or regulation applicable to GNBC or any
of its Subsidiaries or their respective assets; except, in case of clauses (ii)
and (iii) above, for any such breach, default, right, lien, charge,
encumbrances, violation or conflict which, individually or in the aggregate,
would not have a Material Adverse Effect on GNBC.
(d) Other than as contemplated by SECTION 5.3 hereof, no
consent, approval or authorization of, or declaration, notice, filing or
registration with, any governmental or regulatory authority is required to be
made or obtained by GNBC on or prior to the Closing Date in connection with the
execution, delivery and performance of this Agreement or any of the Transaction
Documents to which it is a party or the consummation of the transactions
contemplated hereby or thereby. As of the date hereof, GNBC is not aware of any
reason that the condition set forth in SECTION 6.1(B) of this Agreement would
not be satisfied.
3.5 REGULATORY FILINGS. Each of GNBC and its Subsidiaries has filed all
reports required by statute or regulation to be filed with any federal or state
bank regulatory agency, except where the failure to so file would not have a
Material Adverse Effect on GNBC, and such reports were prepared in accordance
with the applicable statutes, regulations and instructions in existence as of
the date of filing of such reports in all material respects.
3.6 SEC DOCUMENTS; FINANCIAL STATEMENTS; BOOKS AND RECORDS; MINUTE
BOOKS. GNBC has filed, on a timely basis, all forms, reports and documents
required to be filed with the SEC since January 1, 2001. The SEC Reports (i)
were prepared in all material respects in accordance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (ii) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The GNBC
Financial Statements filed by GNBC in SEC Documents prior to the date of this
Agreement fairly present, and the GNBC Financial Statements filed by GNBC in SEC
Documents after the date of this Agreement will fairly present, the consolidated
financial position of GNBC as of the dates indicated and the consolidated
income, changes in shareholders' equity and cash flows of GNBC and its
18
consolidated Subsidiaries for the periods then ended and each such financial
statement has been or will be, as the case may be, prepared in conformity with
generally accepted accounting principles applicable to financial institutions
applied on a consistent basis, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount, and may not contain
certain related notes as may be permitted by the applicable rules promulgated by
the SEC. The books and records of GNBC and each of its Subsidiaries fairly
reflect in all material respects the transactions to which it is a party or by
which its properties are subject or bound. Such books and records have been
properly kept and maintained and are in compliance with all applicable legal and
accounting requirements in all material respects. The minute books of GNBC and
each of its Subsidiaries contain records which are accurate in all material
respects of all corporate actions of its shareholders and Board of Directors
(including committees of its Board of Directors).
3.7 MATERIAL ADVERSE CHANGE. GNBC has not, on a consolidated basis,
suffered any change in its financial condition, results of operations or
business since December 31, 2002, which, individually or in the aggregate with
any other such changes, would constitute a Material Adverse Effect on GNBC.
3.8 ABSENCE OF UNDISCLOSED LIABILITIES. Neither GNBC nor any of its
Subsidiaries has any liability (contingent or otherwise) that is material to
GNBC on a consolidated basis, or that, when combined with all similar
liabilities, would be material to GNBC on a consolidated basis, except as
disclosed in the GNBC Financial Statements contained in an SEC Document filed
prior to the date hereof and except for liabilities incurred in the ordinary
course of business consistent with past practice since April 1, 2003.
3.9 PROPERTIES. GNBC and its Subsidiaries have good and marketable
title free and clear of all liens, encumbrances, charges, defaults or equitable
interests to all of the properties and assets, real and personal, which are
material to the business of GNBC on a consolidated basis, and which are
reflected on the GNBC Financial Statements as of December 31, 2002 or acquired
after such date, except (i) liens for taxes not yet due and payable, (ii)
pledges to secure deposits and other liens incurred in the ordinary course of
banking business as reflected in the books and records of GNBC, (iii) such
imperfections of title, easements and encumbrances, if any, as are not material
in character, amount or extent and (iv) dispositions and encumbrances for
adequate consideration in the ordinary course of business consistent with past
practice. All leases pursuant to which GNBC or any of its Subsidiaries, as
lessee, leases real and personal property which, individually or in the
aggregate, are material to the business of GNBC on a consolidated basis are
valid and enforceable against the lessor in accordance with their respective
terms. All tangible property used in the business of GNBC is in good condition,
reasonable wear and tear excepted, and is usable in the ordinary course of
business consistent with GNBC 's past practices.
3.10 LOANS.
(a) Each loan reflected as an asset in the GNBC Financial
Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii) to the
extent secured, has been secured by valid liens and security interests which
have been perfected, and (iii) is the legal, valid and binding obligation of the
19
obligor named therein, enforceable in accordance with its terms, except that the
enforceability thereof may be subject to bankruptcy, insolvency, fraudulent
conveyance and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles, in each case other than
loans as to which the failure to satisfy the foregoing standards, individually
or in the aggregate, would not have a Material Adverse Effect on GNBC.
(b) The allowance for loan losses reflected on the GNBC
Financial Statements, as of their respective dates, is in all material respects
consistent with the requirements of generally accepted accounting principles to
provide for reasonably anticipated losses with respect to the loan portfolio of
GNBC and its Subsidiaries based upon information available at the time.
3.11 TAX MATTERS.
(a) GNBC and each of its Subsidiaries have timely filed (after
giving effect to any extensions of time), or has received an extension of time
(which has not lapsed) to file, federal income tax returns for each year through
December 31, 2002 and has timely filed, or caused to be filed, all other Tax
Returns required to be filed with respect to GNBC or any of its Subsidiaries.
All Taxes due by or on behalf of GNBC or any of its Subsidiaries have been paid
or adequate reserves have been established on the GNBC Financial Statements for
the payment of such Taxes. Neither GNBC nor any of its Subsidiaries will have
any liability for any such Taxes in excess of the amounts so paid or reserves or
accruals so established, except where such liability would not, individually or
in the aggregate, have a Material Adverse Effect on GNBC.
(b) All Tax Returns filed by GNBC and each of its Subsidiaries
are complete and accurate in all material respects. Neither GNBC nor any of its
Subsidiaries is delinquent in the payment of any material Tax, and none of them
has requested any extension of time within which to file any Tax Returns which
have not since been filed. Except as fully settled and paid or accrued on the
GNBC Financial Statements, no material audit examination, deficiency,
adjustment, refund claim or litigation with respect to Tax Returns, paid Taxes,
unpaid Taxes or Tax attributes of GNBC has been proposed, asserted or assessed
(tentatively or otherwise). There are currently no agreements in effect with
respect to GNBC or any of its Subsidiaries to extend the period of limitations
for the assessment or collection of any Tax.
(c) Neither the transactions contemplated hereby nor the
termination of the employment of any employees of GNBC prior to or following
consummation of the transactions contemplated hereby will result in GNBC or any
of its Subsidiaries (or any successor thereof) making or being required to make
any "excess parachute payment" as that term is defined in Section 280G of the
Code.
(d) Neither GNBC nor any of its Subsidiaries is a party to any
agreement providing for the allocation or sharing of, or indemnification for,
Taxes.
(e) Except as Previously Disclosed, neither GNBC nor any of
its Subsidiaries is required to include in income any adjustment in any taxable
20
period ending after the date hereof pursuant to Section 481(a) of the Code,
other than any adjustment for which it has already made a full accrual.
(f) Neither GNBC nor any of its Subsidiaries has executed or
entered into any written agreement with any Tax authority conceding or agreeing
to any treatment of Taxes or Tax attributes, including, without limitation, an
Internal Revenue Service Form 870 or Form 870-AD, closing agreement or special
closing agreement, affecting GNBC or any of its Subsidiaries pursuant to Section
7121 of the Code or any predecessor provision thereof or any similar provision
of state, local or foreign law, which agreement would have a material impact on
the calculation of the Taxes of the Surviving Corporation or any of its
Subsidiaries after the Effective Time.
3.12 EMPLOYEE BENEFIT PLANS.
(a) A true and complete list of each GNBC Plan has been
Previously Disclosed. For purposes of this SECTION 3.12, the term "GNBC PLAN"
means each bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, medical, life or other insurance, profit-sharing,
or pension plan, program, agreement or arrangement, and each other employee
benefit plan, program, agreement or arrangement, sponsored, maintained or
contributed to or required to be contributed to by GNBC or by any trade or
business, whether or not incorporated, that together with GNBC would be deemed a
"single employer" under Section 414 of the Code (an "ERISA AFFILIATE") for the
benefit of any employee or director or former employee or former director of
GNBC or any ERISA Affiliate of GNBC.
(b) With respect to each of the GNBC Plans, GNBC has made
available to CBSI correct and complete copies of each of the following
documents: (a) the GNBC Plan and related documents (including all amendments
thereto); (b) the most recent annual reports, financial statements, and
actuarial reports, if any; (c) the most recent summary plan description,
together with each summary of material modifications, required under ERISA with
respect to such GNBC Plan and all material communications relating to each such
GNBC Plan; and (d) the most recent determination letter received from the IRS
with respect to each GNBC Plan that is intended to be qualified under the Code
and all material communications to or from the IRS or any other governmental or
regulatory agency or authority relating to each GNBC Plan.
(c) No liability under Title IV of ERISA has been incurred by
GNBC or any ERISA Affiliate of GNBC that has not been satisfied in full, and no
condition exists that presents a material risk to GNBC or any ERISA Affiliate of
GNBC of incurring a liability under such Title, other than liability for premium
payments to the Pension Benefit Guaranty Corporation, which premiums have been
or will be paid when due.
(d) Neither GNBC nor, to the knowledge of GNBC, any ERISA
Affiliate of GNBC, nor any of the GNBC Plans, nor, to the knowledge of GNBC, any
trust created thereunder, nor any trustee or administrator thereof has engaged
in a prohibited transaction (within the meaning of Section 406 of ERISA and
21
Section 4975 of the Code) in connection with which GNBC or any ERISA Affiliate
of GNBC could reasonably be expected to, either directly or indirectly, incur
any material liability or material cost.
(e) Full payment has been made, or will be made in accordance
with Section 404(a)(6) of the Code, of all amounts that GNBC or any ERISA
Affiliate of GNBC is required to pay under Section 412 of the Code or under the
terms of the GNBC Plans.
(f) As of the last day of the most recent fiscal year of each
GNBC plan, the fair market value of the assets held under each GNBC Plan that is
subject to Title IV of ERISA equals or exceeds the actuarial present value of
all accrued benefits under each such GNBC Plan. No reportable event under
Section 4043 of ERISA has occurred with respect to any GNBC Plan other than any
reportable event occurring by reason of the transactions contemplated by this
Agreement or a reportable event for which the requirement of notice to the PBGC
has been waived.
(g) None of the GNBC Plans is a "multiemployer pension plan,"
as such term is defined in Section 3(37) of ERISA, a "multiple employer welfare
arrangement," as such term is defined in Section 3(40) of ERISA, or a single
employer plan that has two or more contributing sponsors, at least two of whom
are not under common control, within the meaning of Section 4063(a) of ERISA.
(h) A favorable determination letter or IRS opinion letter has
been issued by the IRS with respect to each of the GNBC Plans that is intended
to be "qualified" within the meaning of Section 401(a) of the Code to the effect
that such plan is so qualified and, to the knowledge of GNBC, no condition
exists that could adversely affect the qualified status of any such GNBC Plan.
Each of the GNBC Plans that is intended to satisfy the requirements of Section
125 or 501(c)(9) of the Code satisfies such requirements in all material
respects. Each of the GNBC Plans has been operated and administered in all
material respects in accordance with its terms and applicable laws, including
but not limited to ERISA and the Code.
(i) There are no actions, suits or claims pending, or, to the
knowledge of GNBC, threatened or anticipated (other than routine claims for
benefits) against any GNBC Plan, the assets of any GNBC Plan or against GNBC or
any ERISA Affiliate of GNBC with respect to any GNBC Plan. There is no judgment,
decree, injunction, rule or order of any court, governmental body, commission,
agency or arbitrator outstanding against or in favor of any GNBC Plan or any
fiduciary thereof, other than rules of general applicability. There are no
pending or, to the knowledge of GNBC, threatened audits, examinations or
investigations by any governmental body, commission or agency involving any GNBC
Plan.
(j) Except as set forth in SCHEDULE 3.12(J), the consummation
of the transactions contemplated by this Agreement will not result in, and is
not a precondition to, (i) any current or former employee or director of GNBC or
any ERISA Affiliate of GNBC becoming entitled to severance pay, unemployment
compensation or any similar payment, (ii) any acceleration in the time of
payment or vesting, or increase in the amount, of any compensation due to any
such current or former employee or director, or (iii) any renewal or extension
22
of the term of any agreement regarding compensation for any such current or
former employee or director.
3.13 MATERIAL CONTRACTS.
(a) Except as set forth in SCHEDULE 3.13, neither GNBC nor any
of its Subsidiaries is a party to, and is bound by, (i) any material contract,
as defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC, which
has not been filed as an exhibit to GNBC's SEC Documents or any other material
agreement or similar arrangement (any contract or commitment which could
reasonably be expected to involve expenditures or receipt by GNBC or any of its
Subsidiaries in excess of $50,000 in the aggregate shall be deemed material for
these purposes) whether or not made in the ordinary course of business (other
than loans or loan commitments and funding transactions in the ordinary course
of business consistent with past practice of Grange National Bank) or any
agreement restricting the nature or geographic scope of its business activities
in any material respect, (ii) any agreement, indenture or other instrument
relating to the borrowing of money by GNBC or any of its Subsidiaries or the
guarantee by GNBC of any of its Subsidiaries of any such obligation, other than
instruments relating to transactions entered into in the ordinary course of
business consistent with past practice, (iii) any agreement, arrangement or
commitment relating to the employment of a consultant who was a director or
executive officer or to the employment, election, retention in office or
severance of any present or former director or officer, or (iv) any contract,
agreement or understanding with a labor union, in each case whether written or
oral.
(b) Neither GNBC nor any of its Subsidiaries is in default
under any material agreement, commitment, arrangement, lease, insurance policy
or other instrument whether entered into in the ordinary course of business or
otherwise and whether written or oral, and there has not occurred any event
that, with the lapse of time or giving of notice or both, would constitute such
a default, except for such defaults which would not, individually or in the
aggregate, have a Material Adverse Effect on GNBC.
3.14 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE 3.14, there are
no actions, suits or proceedings instituted, pending or, to the knowledge of
GNBC, threatened against GNBC or any of its Subsidiaries or against any asset,
interest or right of GNBC or any of its Subsidiaries that, if decided against
GNBC or any of its Subsidiaries, would, individually or in the aggregate, have a
Material Adverse Effect on GNBC. There are no actual or threatened actions,
suits or proceedings which present a claim to restrain or prohibit the
transactions contemplated herein or to impose any material liability or
restrictions in connection therewith. There are no actions, suits or proceedings
instituted, pending or, to the knowledge of GNBC, threatened against any present
or former director or officer of GNBC or any of its Subsidiaries, that would
reasonably be expected to give rise to a claim for indemnification.
3.15 COMPLIANCE WITH LAWS. GNBC and each of its Subsidiaries is in
compliance with all statutes and regulations applicable to the conduct of its
business, except where the failure to so comply would not, individually or in
the aggregate, a Material Adverse Effect on GNBC. Neither GNBC nor any of its
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Subsidiaries has received notification from any agency or department of federal,
state or local government (i) asserting a violation of any such statute or
regulation, (ii) threatening to revoke any license, franchise, permit or
government authorization or (iii) in any way restricting or limiting its
operations. Neither GNBC nor any of its Subsidiaries is subject to any
regulatory or supervisory cease and desist order, agreement, directive,
memorandum of understanding or commitment which would, individually or in the
aggregate, have a Material Adverse Effect on GNBC, or has received any
communication contemplating any of the foregoing.
3.16 LABOR MATTERS. With respect to their employees, neither GNBC nor
its Subsidiaries is a party to any collective bargaining or other similar
agreement with any labor organization, group or association or has engaged in
any unfair labor practice. Since January 1, 2001, neither GNBC nor its
Subsidiaries has experienced any attempt by organized labor or its
representatives to make GNBC or any of its Subsidiaries conform to demands of
organized labor relating to their employees or to enter into a binding agreement
with organized labor that would cover the employees of GNBC or any of its
Subsidiaries. To the knowledge of GNBC, there is no unfair labor practice charge
or other complaint by any employee or former employee of GNBC or any of its
Subsidiaries against any of them pending before any court, arbitrator or
governmental agency arising out of GNBC's or such Subsidiary's activities or
such employee's employment with GNBC or such Subsidiary. There is no strike,
work stoppage or labor disturbance pending or, to the knowledge of GNBC,
threatened against GNBC or any of its Subsidiaries, and neither GNBC nor any of
its Subsidiaries has experienced any such strike, stoppage or disturbance since
January 1, 2001.
3.17 BROKERS AND FINDERS. Neither GNBC nor any of its Subsidiaries, nor
any of their respective officers, directors or employees, has engaged any
broker, finder or financial advisor or become obligated to or incurred any
liability for any fees or commissions in connection with the transactions
contemplated herein, except for the firm of Sandler ▇'▇▇▇▇▇ & Partners, L.P., to
provide financial advice with respect to the transaction provided for in this
Agreement. GNBC has heretofore furnished to CBSI a complete and correct copy of
all agreements between GNBC or any of its Subsidiaries and Sandler ▇'▇▇▇▇▇ &
Partners, L.P., pursuant to which such firm would be entitled to any payment
relating to the transactions contemplated hereunder.
3.18 INSURANCE. Each of GNBC and its Subsidiaries currently maintains
insurance in amounts reasonably adequate for their operations. Neither GNBC nor
any of its Subsidiaries has received any notice of a material premium increase
over current rates or cancellation with respect to any of their insurance
policies or bonds, and within the last three years, neither GNBC nor any of its
Subsidiaries has been refused any insurance coverage sought or applied for, and
neither GNBC nor any of its Subsidiaries has any reason to believe that existing
insurance coverage cannot be renewed as and when the same shall expire, upon
terms and conditions as favorable as those presently in effect. GNBC has
Previously Disclosed a list of all outstanding claims as of the date hereof by
GNBC or any of its Subsidiaries under any insurance policy. The deposits of
Grange National Bank are insured by the FDIC in accordance with the FDIA, and
Grange National Bank has paid all assessments and filed all reports required by
the FDIA.
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3.19 ENVIRONMENTAL LIABILITY. Neither GNBC nor any of its Subsidiaries
has received any written notice of any legal, administrative, arbitral or other
proceeding, claim or action and, to the knowledge of GNBC, there is no
governmental investigation of any nature pending, in each case that would
reasonably be expected to result in the imposition on GNBC or any of its
Subsidiaries of any liability arising under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended; there are no facts or circumstances which would reasonably be
expected to form the basis for any such proceeding, claim, action or
governmental investigation that would impose any such liability; and neither
GNBC nor any of its Subsidiaries is subject to any agreement, order, judgment,
decree or memorandum by or with any court, governmental authority, regulatory
agency or third party imposing any such liability.
3.20 ADMINISTRATION OF TRUST ACCOUNTS. GNBC and each of its
Subsidiaries have properly administered all common trust funds and collective
investment funds and all accounts for which each of them acts as a fiduciary or
agent, including but not limited to accounts for which it serves as a trustee,
agent, custodian, personal representative, guardian, conservator or investment
advisor, in accordance with the terms of the governing documents and applicable
state and federal law and regulation and common law, except where the failure to
do so would not, individually or in the aggregate, have a Material Adverse
Effect on GNBC. Neither GNBC nor any of its Subsidiaries, nor any of their
respective directors, officers or employees acting on behalf of GNBC or any of
its Subsidiaries, has committed any breach of trust with respect to any such
common trust fund or collective investment fund or fiduciary or agency account,
and the accountings for each such common trust fund or collective investment
fund or fiduciary or agency account are true and correct in all material
respects and accurately reflect the assets of such common trust fund or
collective investment fund or fiduciary or agency account, except for such
breaches and failures to be true, correct and accurate which would not,
individually or in the aggregate, have a Material Adverse Effect on GNBC.
3.21 INTELLECTUAL PROPERTY. Each of GNBC and its Subsidiaries owns the
entire right, title and interest in and to, or has valid licenses with respect
to, all of the Intellectual Property necessary in all material respects to
conduct their respective businesses and operations as presently conducted,
except where the failure to do so would not, individually or in the aggregate,
have a Material Adverse Effect on GNBC. The ownership, licensing or use of
Intellectual Property by GNBC or any of its Subsidiaries does not conflict with,
infringe, misappropriate or otherwise violate the Intellectual Property rights
of any other Person, except where such conflict, infringement, misappropriation
or other violation would not, individually or in the aggregate, have a Material
Adverse Effect on GNBC. None of such Intellectual Property is subject to any
outstanding order, decree, judgment, stipulation, settlement, lien, charge,
encumbrance or attachment, which order, decree, judgment, stipulation,
settlement, lien, charge, encumbrance or attachment would, individually or in
the aggregate, have a Material Adverse Effect on GNBC. Except as Previously
Disclosed, upon consummation of the transactions contemplated by this Agreement,
the Surviving Corporation will be entitled to continue to use all such
Intellectual Property without the payment of any fees, licenses or other
payments.
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3.22 CERTAIN INFORMATION. When the Registration Statement or any
post-effective amendment thereto shall become effective, and at all times
subsequent to such effectiveness up to and including the time of the GNBC
Shareholders' Meeting or the CBSI Stockholders' Meeting to vote upon the
approval of this Agreement, such Registration Statement and all amendments or
supplements thereto, with respect to all information set forth or incorporated
by reference therein furnished by GNBC relating to GNBC or any of its
Subsidiaries, (i) shall comply in all material respects with the applicable
provisions of the Securities Laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in the
light of the circumstances under which they were made, not misleading. All
information concerning GNBC and its directors, officers, and shareholders
included (or submitted for inclusion) in any application and furnished by it
pursuant to SECTIONS 5.2 or 5.3 of this Agreement shall be true, correct and
complete in all material respects.
3.23 RISK MANAGEMENT INSTRUMENTS. All interest rate swaps, caps,
floors, option agreements, futures and forward contracts and other similar risk
management arrangements to which GNBC or any of its Subsidiaries is a party,
whether entered into for GNBC's own account, or for the account of one or more
of such Subsidiaries or their customers, were entered into (i) in accordance
with prudent business practices and all applicable laws, rules, regulations and
regulatory policies and (ii) with parties reasonably believed to be financially
responsible; and each of them constitutes the valid and legally binding
obligation of GNBC or such Subsidiary, enforceable in accordance with its terms
(except that enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
equity principles), and neither GNBC nor any of its Subsidiaries nor to GNBC's
knowledge, any other party thereto, is in breach of any of its obligations under
any such agreement or arrangement. GNBC has previously made available to CBSI
all of such agreements and arrangements that are in effect as of the date of
this Agreement.
3.24 TAX TREATMENT. As of the date of this Agreement, GNBC knows of no
reason relating to it which would reasonably cause it to believe that the Merger
will not qualify as a reorganization under Section 368(a) of the Code.
3.25 INTERESTED PARTY TRANSACTIONS. Except as Previously
Disclosed, there are no events, relationships or transactions that would be
required to be reported under Item 404 of Regulation S-K promulgated
by the SEC.
3.26 TAKEOVER STATUTES NOT APPLICABLE; NO RIGHTS AGREEMENT. The Board
of Directors of GNBC has taken all actions so that the restrictions contained in
Subchapter F of Chapter 25 of the PBCL applicable to a "business combination"
(as defined therein) will not apply to the execution or delivery of this
Agreement or any Transaction Document to which GNBC is a party, or to the
consummation of the Merger or the other transactions contemplated hereby or
thereby. GNBC has no shareholder rights agreement or plan or other similar plan,
agreement or arrangement.
26
3.27 INVESTMENT SECURITIES. Except for pledges to secure public and
trust deposits, Federal Reserve borrowings, repurchase agreements and reverse
repurchase agreements entered into in arms'-length transactions pursuant to
normal commercial terms and conditions and other pledges required by law, none
of the investments reflected in the GNBC Financial Statements, and none of the
material investments made by GNBC or any of its Subsidiaries since December 31,
2002, is subject to any restriction (contractual, statutory or otherwise) that
would materially impair the ability of the entity holding such investment freely
to dispose of such investment at any time.
3.28 CAPITALIZATION. GNBC and Grange National Bank are "well
capitalized" as such term is defined in the rules and regulations promulgated by
the Federal Reserve Board and the FDIC.
3.29 CRA, ANTI-MONEY LAUNDERING AND CUSTOMER INFORMATION SECURITY.
Neither GNBC nor Grange National Bank is aware of, has been advised of, or has
reason to believe that any facts or circumstances exist which would cause Grange
National Bank: (i) to be deemed not to be in satisfactory compliance in any
material respect with the Community Reinvestment Act of 1977, as amended (the
"CRA") and the regulations promulgated thereunder, or to be assigned a rating
for CRA purposes by federal or state bank regulators of lower than
"satisfactory," or (ii) to be deemed to be operating in violation in any
material respect of the federal Bank Secrecy Act, as amended and its
implementing regulations (31 CFR part 103), the USA Patriot Act of 2001, Public
Law 107-56 (the "USA PATRIOT ACT") and the regulations promulgated thereunder,
any order issued with respect to anti-money laundering by the U.S. Treasury's
Office of Foreign Assets Control, or any other applicable anti-money laundering
statute, rule or regulation; or (iii) to be deemed not to be in satisfactory
compliance in any material respect with the privacy of customer information
requirements contained in Title V of the ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act of 1999 and
regulations promulgated thereunder as well as the provisions of the Information
Security Program adopted by Grange National Bank pursuant to 12 CFR Part 364.
Furthermore, the Board of Directors of Grange National Bank has adopted, and
Grange National Bank has implemented, an anti-money laundering program that
meets the requirements in all material respects of Section 352 of the USA
Patriot Act and the regulations thereunder.
3.30 AGREEMENTS WITH AND EXAMINATION BY BANKING AUTHORITIES. Neither
GNBC nor any of its Subsidiaries is a party to any commitment, letter (other
than letters addressed to regulated depository institutions generally), written
agreement, memorandum of understanding, order to cease and desist with, is
subject to any order or directive specifically naming or referring to GNBC or
any of its Subsidiaries by, has been required to adopt any board resolution by,
any federal or state governmental entity charged with the supervision or
regulation of banks or bank holding companies or engaged in the insurance of
bank deposits which is currently in effect and restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, loan loss
allowances or reserves, ability to perform its obligations hereunder, and
neither GNBC nor any of its Subsidiaries has received written notification from
any such federal or state governmental entity that any such Person may be
27
required to enter into, or otherwise be subject to, any such commitment, letter,
written agreement, memorandum of understanding or cease or desist order. Neither
GNBC nor any of its Subsidiaries has been informed by any bank regulator that it
is contemplating issuing or requesting any such order, directive, agreement,
memorandum of understanding, commitment letter or similar submission. Neither
GNBC nor any of its Subsidiaries is a party to any agreement or arrangement
entered into in connection with the consummation of a federally assisted
acquisition of a depository institution pursuant to which GNBC or any of its
Subsidiaries is entitled to receive financial assistance or indemnification from
any governmental agency. Except for normal periodic examinations (the "BANK
EXAMINATIONS") conducted by the Federal Reserve Board, the FDIC, or the OCC in
the regular course of the business of GNBC and its Subsidiaries, since January
1, 2001, no bank regulator has initiated any proceeding or, to the best
knowledge of GNBC, investigation into the business or operations of the GNBC or
any of its Subsidiaries. GNBC and its Subsidiaries have resolved all material
violations, criticisms or exceptions by any bank regulator with respect to any
Bank Examination.
3.31 OWNERSHIP OF CBSI COMMON STOCK. Neither GNBC nor, to the knowledge
of GNBC, any of its affiliates or associates beneficially owns in the aggregate
three percent (3%) or more of the outstanding shares of CBSI Common Stock or, to
the knowledge of GNBC, has acquired shares of CBSI Common Stock which were at
any time in the past two years beneficially owned by an "Interested Shareholder"
(as defined below) if such acquisition occurred other than pursuant to a public
offering within the meaning of the Securities Act, in each case such that GNBC
would be deemed an "Interested Shareholder" under CBSI's certificate of
incorporation.
3.32 DISCLOSURE. None of the representations and warranties of GNBC
contained in this Agreement or any of the Transaction Documents to which it is a
party, or any of the written information or documents furnished by GNBC to CBSI
in connection therewith, taken as a whole, contains or will contain any untrue
statement of a material fact, or omits to state any material fact required to be
stated or necessary to make any such information or document, in light of the
circumstances, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CBSI
Except as Previously Disclosed, CBSI hereby represents and
warrants to GNBC as follows:
4.1 CAPITAL STRUCTURE OF CBSI. The authorized capital stock of CBSI
consists of (i) 500,000 shares of preferred stock, par value $1.00 per share,
none of which were issued and outstanding and (ii) 20,000,000 shares of CBSI
Common Stock, of which, as of the date hereof, 13,036,634 shares were issued and
outstanding and no shares were held in treasury. All outstanding shares of CBSI
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable. None of the shares of CBSI Common Stock has been issued in
violation of the preemptive rights of any Person. The shares of CBSI Common
Stock to be issued in connection with the Merger have been duly authorized and,
28
when issued in accordance with the terms of this Agreement, will be validly
issued, fully paid, nonassessable and free and clear of any preemptive rights.
4.2 ORGANIZATION, STANDING AND AUTHORITY OF CBSI. Each of CBSI and its
Subsidiaries is a duly organized corporation or bank, validly existing and in
good standing under the laws of its incorporation with full corporate power and
authority to own, lease and operate the properties it purports to own, lease or
operate and to carry on its business as now conducted, except where the failure
to be in good standing or to have such power or authority would not have a
Material Adverse Effect on CBSI. Each of CBSI and its Subsidiaries is duly
licensed or qualified to do business in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or the conduct
of its business requires such qualification, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on CBSI. CBSI is
registered as a bank holding company under the Bank Holding Company Act. Except
as Previously Disclosed, CBSI has no "significant subsidiary," as such term is
defined under Regulation S-X promulgated by the SEC.
4.3 AUTHORIZED AND EFFECTIVE AGREEMENT.
(a) CBSI has all requisite corporate power and authority to
enter into and perform all of its obligations under this Agreement and each of
the Transaction Documents to which it is a party. The execution and delivery of
this Agreement and each such Transaction Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action in respect thereof on the part of
CBSI. The Board of Directors of CBSI has approved and adopted this Agreement and
the Merger.
(b) This Agreement and each Transaction Document to which CBSI
is a party have been duly executed and delivered by CBSI and, assuming the
accuracy of the representation contained in SECTION 3.4(B) hereof, this
Agreement constitutes the legal, valid and binding obligations of CBSI,
enforceable against CBSI in accordance with its terms, except that such
enforceability may be subject to bankruptcy, insolvency and other laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(c) Neither the execution and delivery by CBSI of this
Agreement or any Transaction Document to which it is a party, nor consummation
of the transactions contemplated hereby or thereby, nor compliance by CBSI with
any of the provisions hereof or thereof shall (i) conflict with or result in a
breach of any provision of the certificate of incorporation or bylaws of CBSI,
(ii) assuming the consents and approvals contemplated by SECTION 5.3 hereof and
the consents and approvals which are Previously Disclosed are duly obtained,
constitute or result in a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of CBSI or any of its
Subsidiaries pursuant to, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which CBSI or any of its
Subsidiaries is a party, or (iii) assuming the consents and approvals
contemplated by SECTION 5.3 hereof and the consents and approvals which are
Previously Disclosed are duly obtained, conflict with or violate any law, order,
29
writ, injunction, decree, statute, rule or regulation applicable to CBSI or any
of its Subsidiaries or their respective assets; except, in case of clauses (ii)
and (iii) above, for any such breach, default, right, lien, charge,
encumbrances, violation or conflict which, individually or in the aggregate,
would not have a Material Adverse Effect on CBSI.
(d) Other than as contemplated by SECTION 5.3 hereof, no
consent, approval or authorization of, or declaration, notice, filing or
registration with, any governmental or regulatory authority is required to be
made or obtained by CBSI on or prior to the Closing Date in connection with the
execution, delivery and performance of this Agreement or any of the Transaction
Documents to which it is a party or the consummation of the transactions
contemplated hereby or thereby. As of the date hereof, CBSI is not aware of any
reason that the condition set forth in SECTION 6.1(B) of this Agreement would
not be satisfied.
4.4 REGULATORY FILINGS. Each of CBSI and its Subsidiaries has filed all
reports required by statute or regulation to be filed with any federal or state
bank regulatory agency, except where the failure to so file would not have a
Material Adverse Effect on CBSI, and such reports were prepared in accordance
with the applicable statutes, regulations and instructions in existence as of
the date of filing of such reports in all material respects.
4.5 SEC DOCUMENTS; FINANCIAL STATEMENTS; BOOKS AND RECORDS; MINUTE
BOOKS. CBSI has filed, on a timely basis (except as permitted by Rule 12b-25
under the Exchange Act), all forms, reports and documents required to be filed
with the SEC since January 1, 2001. The SEC Reports (i) were prepared in all
material respects in accordance with the requirements of the Securities Act or
the Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The CBSI Financial
Statements filed by CBSI in SEC Documents prior to the date of this Agreement
fairly present, and the CBSI Financial Statements filed by CBSI in SEC Documents
after the date of this Agreement will fairly present, the consolidated financial
position of CBSI as of the dates indicated and the consolidated income, changes
in shareholders' equity and cash flows of CBSI and its consolidated Subsidiaries
for the periods then ended and each such financial statement has been or will
be, as the case may be, prepared in conformity with generally accepted
accounting principles applicable to financial institutions applied on a
consistent basis, except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which were not or are
not expected to be material in amount, and may not contain certain related notes
as may be permitted by the applicable rules promulgated by the SEC. The books
and records of CBSI and each of its Subsidiaries fairly reflect in all material
respects the transactions to which it is a party or by which its properties are
subject or bound. Such books and records have been properly kept and maintained
and are in compliance with all applicable legal and accounting requirements in
all material respects. The minute books of CBSI and each of its Subsidiaries
contain records which are accurate in all material respects of all corporate
30
actions of its shareholders and Board of Directors (including committees of its
Board of Directors).
4.6 MATERIAL ADVERSE CHANGE. CBSI has not, on a consolidated basis,
suffered any change in its financial condition, results of operations or
business since December 31, 2002, which, individually or in the aggregate with
any other such changes, would constitute a Material Adverse Effect on CBSI.
4.7 ABSENCE OF UNDISCLOSED LIABILITIES. Neither CBSI nor any of its
Subsidiaries has any liability (contingent or otherwise) that is material to
CBSI on a consolidated basis, or that, when combined with all similar
liabilities, would be material to CBSI on a consolidated basis, except as
disclosed in the CBSI Financial Statements contained in an SEC Document filed
prior to the date hereof and except for liabilities incurred in the ordinary
course of business consistent with past practice since April 1, 2003.
4.8 LOAN LOSS RESERVES. The allowance for loan losses reflected on the
CBSI Financial Statements, as of their respective dates, is in all material
respects consistent with the requirements of generally accepted accounting
principles to provide for reasonably anticipated losses with respect to the loan
portfolio of CBSI and its Subsidiaries based upon information available at the
time.
4.9 TAX MATTERS.
(a) CBSI and each CBSI Subsidiary have timely filed (after
giving effect to any extension of time to file), or received an extension of
time (which has not lapsed) to file, federal income tax returns for each year
through December 31, 2002 and have timely filed, or caused to be filed, all
other Tax Returns required to be filed with respect to CBSI or any of its
Subsidiaries. All Taxes due by or on behalf of CBSI or any of its Subsidiaries
have been paid or adequate reserves have been established on the CBSI Financial
Statements for the payment of such Taxes. Neither CBSI nor any of its
Subsidiaries will have any material liability for any such Taxes in excess of
the amounts so paid or reserves or accruals so established except where such
liability would not have, individually or in the aggregate, a Material Adverse
Effect on CBSI.
(b) All Tax Returns filed by CBSI and each of its Subsidiaries
are complete and accurate in all material respects. Neither CBSI nor any CBSI
Subsidiary is delinquent in the payment of any material Tax, and, except as
Previously Disclosed, none of them has requested any extension of time within
which to file any Tax Returns which have not since been filed. Except as
Previously Disclosed or as fully settled and paid or accrued on the CBSI
Financial Statements, no material audit examination, deficiency, adjustment,
refund claim or litigation with respect to Tax Returns, paid Taxes, unpaid Taxes
or Tax attributes of CBSI or any of its Subsidiaries has been proposed, asserted
or assessed (tentatively or otherwise). There are currently no agreements in
effect with respect to CBSI or any of its Subsidiaries to extend the period of
limitations for the assessment or collection of any Tax.
31
(c) Except as Previously Disclosed, neither CBSI nor any of
its Subsidiaries is required to include in income any adjustment in any taxable
period ending after the date hereof pursuant to Section 481(a) of the Code other
than any adjustment for which it already has made an accrual.
(d) Neither CBSI nor any of its Subsidiaries has executed or
entered into any written agreement with any Tax authority conceding or agreeing
to any treatment of Taxes or Tax attributes, including, without limitation, an
Internal Revenue Service Form 870 or Form 870-AD, closing agreement or special
closing agreement, affecting GNBC or any of its Subsidiaries pursuant to Section
7121 of the Code or any predecessor provision thereof or any similar provision
of state, local or foreign law, which agreement would have a material impact on
the calculation of the Taxes of the Surviving Corporation or any of its
Subsidiaries after the Effective Time.
4.10 EMPLOYEE BENEFIT PLANS. Each of the CBSI Plans complies with the
requirements of applicable law, including ERISA and the Code, except where the
failure to so comply would not, in individually or in the aggregate, have a
Material Adverse Effect on CBSI. For purposes of this Agreement, the term "CBSI
PLAN" means each bonus, incentive compensation, severance pay, medical or other
insurance program, retirement plan, or other employee benefit plan program,
agreement or arrangement sponsored, maintained or contributed to by CBSI or any
trade or business, whether or not incorporated, that together with CBSI or any
of its Subsidiaries would be deemed a "single employer" under Section 414 of the
Code or under which CBSI or any ERISA Affiliate has any liability or obligation.
No liability under Title IV of ERISA has been incurred by CBSI or any ERISA
Affiliate that has not been satisfied in full, and no condition exists that
presents a material risk to CBSI or any ERISA Affiliate of incurring any such
liability. Full payment has been made, or will be made in accordance with
Section 404(a)(6) of the Code of all amounts that CBSI or any ERISA Affiliate is
required to pay under Section 412 of the Code or under the terms of the CBSI
Plans, and no accumulated funding deficiency (within the meaning of Section 412
of the Code) exists with respect to any CBSI Plan.
4.11 LEGAL PROCEEDINGS. Except as Previously Disclosed, there are no
actions, suits or proceedings instituted, pending or, to the knowledge of CBSI,
threatened against CBSI or any of its Subsidiaries or against any asset,
interest or right of CBSI or any of its Subsidiaries that, if decided against
CBSI or any of its Subsidiaries, would, individually or in the aggregate, have a
Material Adverse Effect on CBSI. There are no actual or threatened actions,
suits or proceedings which present a claim to restrain or prohibit the
transactions contemplated herein or to impose any material liability or
restrictions in connection therewith.
4.12 COMPLIANCE WITH LAWS. Each of CBSI and its Subsidiaries is in
compliance with all statutes and regulations applicable to the conduct of its
business, except where the failure to so comply would not, individually or in
the aggregate, have a Material Adverse Effect on CBSI. Neither CBSI nor any of
its Subsidiaries has received notification from any agency or department of
federal, state or local government (i) asserting a violation of any such statute
or regulation, (ii) threatening to revoke any license, franchise, permit or
32
government authorization or (iii) in any way restricting or limiting its
operations, except where such violation, revocation, restrictions or limitations
would not, individually or in the aggregate, have a Material Adverse Effect on
CBSI. Neither CBSI nor any of its Subsidiaries is subject to, or has received
any communication contemplating, any regulatory or supervisory cease and desist
order, agreement, directive, memorandum of understanding or commitment which
would, individually or in the aggregate, have a Material Adverse Effect on CBSI.
4.13 BROKERS AND FINDERS. Neither CBSI nor any of its Subsidiaries, nor
any of their respective officers, directors or employees, has engaged any
broker, finder or financial advisor or become obligated to or incurred any
liability for any fees or commissions in connection with the transactions
contemplated herein, except for the firm of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ LLC, to
provide financial advice with respect to the transaction provided for in this
Agreement.
4.14 ENVIRONMENTAL LIABILITY. Neither CBSI nor any of its Subsidiaries
has received any written notice of any legal, administrative, arbitral or other
proceeding, claim or action and, to the knowledge of CBSI, there is no
governmental investigation of any nature pending, in each case that would
reasonably be expected to result in the imposition on CBSI or any of its
Subsidiaries of any liability arising under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended; there are no facts or circumstances which would reasonably be
expected to form the basis for any such proceeding, claim, action or
governmental investigation that would impose any such liability; and neither
CBSI nor any of its Subsidiaries is subject to any agreement, order, judgment,
decree or memorandum by or with any court, governmental authority, regulatory
agency or third party imposing any such liability.
4.15 CERTAIN INFORMATION. When the Registration Statement or any
post-effective amendment thereto shall become effective, and at all times
subsequent to such effectiveness up to and including the time of the GNBC
Shareholders' Meeting to vote upon the approval of this Agreement, such
Registration Statement and all amendments or supplements thereto, with respect
to all information set forth or incorporated by reference therein furnished by
CBSI relating to CBSI or any of its Subsidiaries, (i) shall comply in all
material respects with the applicable provisions of the Securities Laws, and
(ii) shall not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements contained therein, in the light of the circumstances under which they
were made, not misleading. All information concerning CBSI and its directors,
officers, and shareholders included (or submitted for inclusion) in any
application and furnished by it pursuant to SECTIONS 5.2 or 5.3 of this
Agreement shall be true, correct and complete in all material respects.
4.16 TAX TREATMENT. As of the date of this Agreement, CBSI knows of no
reason relating to it which would reasonably cause it to believe that the Merger
will not qualify as a reorganization under Section 368(a) of the Code.
4.17 CAPITALIZATION. On the date hereof, CBSI and Community Bank are
"well capitalized" as such term is defined in the rules and regulations
33
promulgated by the Federal Reserve Board and the FDIC. On the Closing Date, CBSI
and Community Bank will at least be "adequately capitalized" as such term is
defined in such rules and regulations.
4.18 CRA, ANTI-MONEY LAUNDERING AND CUSTOMER INFORMATION SECURITY.
Neither CBSI nor Community Bank is aware of, has been advised of, or has reason
to believe that any facts or circumstances exist which would cause Community
Bank: (i) to be deemed not to be in satisfactory compliance in any material
respect with the CRA and the regulations promulgated thereunder, or to be
assigned a rating for CRA purposes by federal or state bank regulators of lower
than "satisfactory," or (ii) to be deemed to be operating in violation in any
material respect of the USA Patriot Act and the regulations promulgated
thereunder, any order issued with respect to anti-money laundering by the U.S.
Treasury's Office of Foreign Assets Control, or any other applicable anti-money
laundering statute, rule or regulation; or (iii) to be deemed not to be in
satisfactory compliance in any material respect with the privacy of customer
information requirements contained in Title V of the ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act of
1999 and regulations promulgated thereunder as well as the provisions of the
Information Security Program adopted by Community Bank pursuant to 12 CFR Part
364. Furthermore, the Board of Directors of Community Bank has adopted, and
Community Bank has implemented, an anti-money laundering program that meets the
requirements in all material respects of Section 352 of the USA Patriot Act and
the regulations thereunder.
4.19 AGREEMENTS WITH AND EXAMINATION BY BANKING AUTHORITIES. Neither
CBSI nor any of its Subsidiaries is a party to any commitment, letter (other
than letters addressed to regulated depository institutions generally), written
agreement, memorandum of understanding, order to cease and desist with, is
subject to any order or directive specifically naming or referring to CBSI or
any of its Subsidiaries by, has been required to adopt any board resolution by,
any federal or state governmental entity charged with the supervision or
regulation of banks or bank holding companies or engaged in the insurance of
bank deposits which is currently in effect and restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, loan loss
allowances or reserves, ability to perform its obligations hereunder, and
neither CBSI nor any of its Subsidiaries has received written notification from
any such federal or state governmental entity that any such Person may be
required to enter into, or otherwise be subject to, any such commitment, letter,
written agreement, memorandum of understanding or cease or desist order. Neither
CBSI nor any of its Subsidiaries has been informed by any bank regulator that it
is contemplating issuing or requesting any such order, directive, agreement,
memorandum of understanding, commitment letter or similar submission. Neither
CBSI nor any of its Subsidiaries is a party to any agreement or arrangement
entered into in connection with the consummation of a federally assisted
acquisition of a depository institution pursuant to which CBSI or any of its
Subsidiaries is entitled to receive financial assistance or indemnification from
any governmental agency. Except for the Bank Examinations conducted by the
Federal Reserve Board, the FDIC, or the OCC in the regular course of the
business of CBSI and its Subsidiaries, since January 1, 2001, no bank regulator
has initiated any proceeding or, to the best knowledge of CBSI, investigation
into the business or operations of the CBSI or any of its Subsidiaries. CBSI and
its Subsidiaries have resolved all material violations, criticisms or exceptions
by any bank regulator with respect to any Bank Examination.
34
4.20 MERGER CONSIDERATION. CBSI will have, at the Effective Time,
unissued shares of Common Stock and shares of Common Stock held in its treasury
that are not reserved for any other purpose sufficient to issue the number of
shares of CBSI Common Stock contemplated by ARTICLE II, and a sufficient amount
of cash to pay the amount contemplated by ARTICLE II.
4.21 DISCLOSURE. None of the representations and warranties of CBSI
contained in this Agreement or any of the Transaction Documents to which it is a
party, or any of the written information or documents furnished by CBSI to GNBC
in connection therewith, taken as a whole, contains or will contain any untrue
statement of a material fact, or omits to state any material fact required to be
stated or necessary to make any such information or document, in light of the
circumstances, not misleading.
ARTICLE V
COVENANTS
5.1 SHAREHOLDERS' MEETING. GNBC shall call and give notice of the GNBC
Shareholders' Meeting as promptly as practicable after the Registration
Statement contemplated by SECTION 5.2 is first declared effective by the SEC,
but in no event later than 10 days after the date of such effectiveness (the
"EFFECTIVE DATE"), for the purpose of voting upon the approval of this
Agreement, and GNBC shall use all reasonable efforts to hold the GNBC
Shareholders' Meeting as soon as practicable after the Effective Date, subject
to the applicable notice requirements under the PBCL. Subject to the fiduciary
duties of the Board of Directors of GNBC, as determined after consultation with
consultation with outside counsel and financial advisors, (i) the Board of
Directors of GNBC shall recommend that the shareholders vote in favor of the
approval of this Agreement, and (ii) GNBC shall solicit from its shareholders
proxies in favor of approval of this Agreement and shall take all other action
necessary or desirable to secure the vote of shareholders to obtain such
approval. Notwithstanding any withdrawal, modification or change in any
recommendation of the Board of Directors of GNBC, GNBC agrees to hold the GNBC
Shareholders' Meeting within the time period specified above unless this
Agreement is terminated in accordance with its terms.
5.2 PROXY STATEMENT; REGISTRATION STATEMENT. As promptly as practicable
after the date hereof, CBSI shall prepare and file the Registration Statement
with the SEC, and GNBC shall cooperate in the preparation of the Registration
Statement, which shall include the Proxy Statement/Prospectus to be mailed to
the shareholders of GNBC in connection with obtaining their approval of this
Agreement. CBSI shall provide, before filing with the SEC the Registration
Statement or any amendment thereto, a reasonable opportunity to GNBC and its
counsel to review and comment thereon. CBSI will advise GNBC, promptly after it
receives notice thereof, of the time when the Registration Statement or any
post-effective amendment thereto has become effective or any supplement or
amendment has been filed, of the issuance of any stop order, of the suspension
of qualification of the CBSI Common Stock issuable in connection with the Merger
35
for offering or sale in any jurisdiction, or the initiation or threat of any
proceeding for any such purpose, or of any request by the SEC for the amendment
or supplement of the Registration Statement or for additional information. If,
at any time prior to the Effective Time, any event or circumstance relating to a
party to this Agreement, or its directors, officers or 5% or greater
shareholders, shall be discovered by such party that pursuant to the Securities
Act or the Exchange Act should be set forth in an amendment or a supplement to
the Registration Statement or the Proxy Statement/Prospectus included therein,
such party shall promptly notify the other party. To the extent applicable, CBSI
shall take all actions necessary to register or qualify the shares of CBSI
Common Stock to be issued in the Merger pursuant to all applicable state "blue
sky" or securities laws and shall maintain such registrations or qualifications
in effect for all purposes hereof. CBSI shall apply for, and shall use
reasonable best efforts to obtain, approval to list the shares of CBSI Common
Stock to be issued in the Merger on the NYSE, subject to official notice of
issuance, prior to the Effective Time.
5.3 APPLICATIONS. As promptly as practicable after the date hereof, and
after a reasonable opportunity for review by the other party and its counsel,
CBSI and GNBC shall submit any requisite applications for prior approval of, and
notices with respect to, the transactions contemplated herein to the OCC and the
Federal Reserve Board, and each of the parties hereto shall, and shall cause its
Subsidiaries to, submit any applications, notices or other filings to any other
state or federal government agency, department or body, the approval of which is
required or desirable for consummation of the Merger and the Bank Merger. GNBC
and CBSI each represents and warrants to the other that all information
concerning it and its directors, officers, shareholders and Subsidiaries
included (or submitted for inclusion) in any such application and furnished by
it shall be true, correct and complete in all material respects. Each party
agrees to consult with the other parties with respect to obtaining all necessary
approvals and consents and each will keep the other apprised of the status of
matters relating to such approvals and consents.
36
5.4 BEST EFFORTS.
(a) Subject to the terms and conditions of this Agreement,
CBSI and GNBC shall each use reasonable best efforts in good faith to (i)
furnish such information as may be required or desirable in connection with the
preparation of the documents referred to in SECTIONS 5.2 and 5.3 above, and (ii)
take or cause to be taken all action necessary or desirable on its part so as to
permit consummation of the Merger at the earliest possible date, including,
without limitation, (1) obtaining the consent or approval of Person whose
consent or approval is required for consummation of the transactions
contemplated hereby, provided that GNBC shall not agree to make any payments or
modifications to agreements in connection therewith without the prior written
consent of CBSI, which consent shall not be unreasonably withheld, and (2)
requesting the delivery of appropriate opinions, consents and letters from its
counsel and independent auditors. Subject to the terms and conditions of this
Agreement, no party hereto shall take or fail to take, or cause or permit its
Subsidiaries to take or fail to take, or to the best of its ability permit to be
taken or omitted to be taken by any third party, any action that would
substantially impair the prospects of completing the Merger pursuant to this
Agreement, that would materially delay such completion, or that would adversely
affect the qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code. In the event that either party has taken any action,
whether before, on or after the date hereof, that would adversely affect such
qualification, each party shall take such action as the other party may
reasonably request to cure such effect to the extent curable without a Material
Adverse Effect on either of the parties.
(b) Each party hereto shall give prompt notice to the other
party of (i) the occurrence, or failure to occur, of any event which occurrence
or failure would be reasonably likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate at any time from the date
hereof to the Closing Date such that the condition set forth in SECTION 6.2(A)
or 6.3(A), as applicable, would not be met if such failure to be true or
accurate were to occur or be continuing on the Closing Date, and (ii) any
material failure of any party to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder, and each party
shall use all reasonable best efforts in good faith to remedy such failure.
(c) From the date of this Agreement through the Effective
Time, to the extent permitted by law, GNBC shall cause Grange National Bank to
provide such assistance to Community Bank as reasonably necessary for Community
Bank to prepare for the conversion and transfer in connection with the Merger
all information concerning the loans, deposits and other assets and liabilities
of Grange National Bank into Community Bank's own data processing system, with a
view to facilitating the integration of Community Bank's and Grange National
Bank's systems and otherwise combining Community Bank's and Grange National
Bank's operations upon consummation of the Merger. Such assistance shall include
providing Community Bank with computer file instructions with respect to the
information in its data processing system regarding the assets and liabilities
of Grange National Bank, together with operational procedures designed to
implement the transfer of such information to Community Bank, provided that the
confidentiality of customer information shall be preserved and no information
shall be transferred until the Effective Time. After execution of this
Agreement, Grange National Bank and Community Bank shall each designate an
37
individual to serve as liaison concerning the transfer of data processing
information and other similar operational matters.
(d) Each party shall provide, and shall request its auditors
to provide, the other party with such historical financial information regarding
it (and related audit reports and consents) as the other party may reasonably
request for disclosure purposes under the Securities Laws.
5.5 INVESTIGATION AND CONFIDENTIALITY. GNBC and CBSI each will keep the
other advised of all material developments relevant to its and its Subsidiaries'
businesses and to consummation of the transactions contemplated herein. GNBC and
CBSI each may make or cause to be made such investigation of the financial and
legal condition of the other as such party reasonably deems necessary or
advisable in connection with the transactions contemplated herein, PROVIDED,
HOWEVER, that such investigation shall be reasonably related to such
transactions and the party conducting such investigation shall use its
reasonable best efforts to minimize any disruptions to the operations of the
other party. CBSI and GNBC agree to furnish the other and the other's advisors
with such financial data and other information with respect to its business and
properties as such other party shall from time to time reasonably request. No
investigation pursuant to this SECTION 5.5 or otherwise shall affect or be
deemed to modify any representation or warranty made by, or the conditions to
the obligations to consummate the Merger of, any party hereto. Each party hereto
shall hold all information furnished by the other party or any of such party's
Subsidiaries or representatives pursuant to this Agreement in confidence and in
accordance with the confidentiality agreement dated March 6, 2003, between GNBC
and CBSI (the "CONFIDENTIALITY AGREEMENT").
5.6 PRESS RELEASES AND OTHER PUBLIC DISCLOSURES. GNBC and CBSI shall
agree with each other as to the form and substance of any press release related
to this Agreement or the transactions contemplated hereby, and shall consult and
agree with each other as to the form and substance of other public disclosures
related thereto, including without limitation, any communications with
securities market professionals and investors, PROVIDED, HOWEVER, that nothing
contained herein shall prohibit any party, following notification to the other
parties, from making any disclosure which is required by applicable law or NYSE
rules.
5.7 ACTIONS PENDING THE MERGER.
(a) Prior to the Closing Date, and except as otherwise
provided for by this Agreement or consented to or approved in writing by the
other party hereto, each of CBSI and GNBC shall, and shall cause each of its
Subsidiaries to, use its reasonable best efforts to preserve its properties,
business and relationships with customers, vendors, employees and other Persons.
(b) Except with the prior written consent of CBSI (which
consent will not be unreasonably withheld) or as expressly permitted by this
Agreement or as Previously Disclosed, GNBC shall not, and shall not permit any
of its Subsidiaries to:
38
(1) carry on its business other than in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, or incur an obligation in excess of $25,000 in the aggregate or which
requires performance over more than one year (other than loans and investments
booked in the usual, regular and ordinary course of business), provided, that
nothing in this SECTION 5.7(B)(1) shall prevent GNBC from entering into a lease
for the proposed branch office in Clarks Summit, Pennsylvania on terms mutually
acceptable to GNBC and CBSI;
(2) declare, set aside, make or pay any dividend or
other distribution in respect of its capital stock or earnings other than its
regular quarterly cash dividends on GNBC Common Stock in amounts not in excess
of $0.18 per share;
(3) issue any shares of its capital stock or permit
any treasury shares to become outstanding, other than (i) pursuant to the
exercise of Stock Options which are outstanding on the date hereof, (ii)
pursuant to GNBC's Dividend Reinvestment and Stock Purchase Plan, or (iii)
issuance of up to an aggregate of 100 treasury shares for educational and
similar purposes; redeem, purchase or otherwise acquire any shares of its
capital stock or any securities or obligations convertible into or exchangeable
for any shares of its capital stock;
(4) incur any additional debt obligation or other
obligation for borrowed money other than in the ordinary course of business
consistent with past practice;
(5) issue, grant or authorize any Rights (or amend or
modify the terms or exercisability of any outstanding Rights) or effect any
recapitalization, reclassification, stock dividend, stock split or like change
in capitalization, or redeem, repurchase or otherwise acquire any shares of its
capital stock;
(6) amend or otherwise change its certificate of
incorporation or articles of association or bylaws; impose, or suffer the
imposition, on any share of capital stock of GNBC of any lien, charge or
encumbrance;
(7) merge or consolidate with, or acquire control
over, any Person or create any Subsidiary;
(8) waive or release any material right or cancel or
compromise any material debt or claim other than in the ordinary course of
business consistent with past practice with prior notice to CBSI;
(9) sell, liquidate, pledge or encumber or dispose
of, or acquire any, assets with a value in excess of $25,000 (other than assets
acquired in foreclosure, in lieu of foreclosure or other legal proceedings
relating to collateral for loans in each case in the ordinary course of business
consistent with past practice); make any capital expenditure in excess of
$25,000 in the aggregate; or establish new branches or other similar facilities,
close existing branches or similar facilities or enter into or modify any leases
or other contracts relating thereto;
39
(10) increase the rate of compensation of, pay or
agree to pay any bonus to, or provide any additional employee benefit or
incentive (including without limitation, any "change of control" or severance
payment) to, any of its directors, officers or employees except as required by
law or contractual obligation in effect as of the date hereof; or become party
to, adopt, terminate, amend, or commit itself to, any pension, retirement,
profit sharing or welfare benefit plan or agreement or employment agreement,
other than in the ordinary course of business consistent with past practice
(including, without limitation, pursuant to the terms of the existing incentive
plans for management employees and directors as in effect on the date hereof,
correct and complete copies of which have previously been provided to GNBC) or
except as required by existing plans or agreements; or accelerate the vesting of
any deferred compensation; PROVIDED, HOWEVER, that nothing in this SECTION
5.7(B)(10) shall be construed to prevent GNBC from permitting one or more
directors to change the change-of-control payment election under their Amended
and Restated Deferred Fee Agreements;
(11) change its lending, investment, asset/liability
management or other material banking policies in any material respect except as
may be required by changes in applicable law;
(12) change its methods of accounting in effect at
December 31, 2002, except as required by changes in generally accepted
accounting principles concurred in by its independent certified public
accountants, or change any of its methods of reporting income, deductions or
other items for federal income tax purposes from those employed in the
preparation of its federal income tax returns for the year ended December 31,
2002, except as required by applicable law;
(13) take any action that will result in any of its
representations or warranties in this Agreement being or becoming untrue in any
material respects at any time prior to the Effective Time, or in any of the
conditions to the Merger set forth in ARTICLE VI not being satisfied, except as
may be required by law; or
(14) agree to do any of the foregoing or take any
other action which would in any manner interfere with, impede, delay, or make
more costly the consummation of the transactions contemplated hereby.
(c) CBSI shall not, except with the prior written consent of
GNBC (which consent shall not unreasonably be withheld), as Previously Disclosed
or as expressly permitted by this Agreement, carry on its business other than in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted; PROVIDED, HOWEVER, that nothing herein shall be construed
to prevent CBSI from acquiring or agreeing to acquire any Person, by merging or
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, such Person or taking actions reasonably
related thereto, so long as such transaction would not materially delay or
prevent the consummation of the transactions contemplated by this Agreement.
40
5.8 CERTAIN POLICIES. Prior to the Effective Time, GNBC shall,
consistent with generally accepted accounting principles and on a basis mutually
satisfactory to it and CBSI, modify and change its loan, litigation and real
estate valuation policies and practices (including loan classifications and
levels of reserves) so as to be applied on a basis that is consistent with that
of CBSI. Prior to the Effective Time, GNBC and CBSI shall review the adequacy of
reserves for loan losses currently established by GNBC and, if deemed warranted
by both parties under generally accepted accounting principles, GNBC shall make
mutually acceptable changes to such reserves. GNBC shall cooperate with CBSI in
planned actions discussed as part of the due diligence process which are
designed to improve the short and long-term profitability of GNBC and eliminate
or reduce any potential earnings per share dilution of CBSI upon consummation of
the Merger, including but not limited to those actions set forth on SCHEDULE 5.8
hereto. Notwithstanding anything to the contrary herein, GNBC shall not be
required to take any of the actions contemplated by this SECTION 5.8 until and
unless both (i) the shareholders of GNBC have approved this Agreement and the
Merger at the GNBC Shareholders' Meeting, and (ii) the condition contemplated by
SECTION 6.1(B) has been satisfied.
5.9 CLOSING; ARTICLES OF MERGER. The transactions contemplated by this
Agreement shall be consummated at a closing to be held at the offices of the law
firm of Bond, ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, PLLC, One Lincoln Center, Syracuse, New York on
the first business day, or other mutually agreeable time, following satisfaction
or waiver of the conditions to consummation of the Merger set forth in ARTICLE
VI hereof.
5.10 AFFILIATES. As soon as practicable after the date hereof, GNBC and
CBSI shall cooperate and use their best reasonable efforts to identify those
Persons who may be deemed to be "affiliates" of GNBC within the meaning of Rule
145 promulgated by the SEC under the Securities Act. GNBC shall use its best
reasonable efforts to cause each person so identified to deliver to CBSI no
later than 30 days after the date hereof, an Affiliates Agreement, substantially
in the form attached hereto as EXHIBIT B (collectively, the "AFFILIATES
AGREEMENT").
5.11 EMPLOYEE BENEFITS; DIRECTORS AND MANAGEMENT; INDEMNIFICATION.
(a) The current employees of GNBC or any of its Subsidiaries
who continue as employees of CBSI or its Subsidiaries after the Effective Time
shall be given credit for past service with GNBC for purposes of determining
eligibility for and vesting of employee benefits (but not for pension benefit
accrual purposes) under all CBSI Plans in which such employees participate
following the Merger. In the event that the employment of any current employee
of GNBC or any of its Subsidiaries shall be terminated without cause after the
Effective Time, such employees shall be entitled to receive benefits under
CBSI's severance plan (without duplication, however, with any payment under any
severance or separation plan or program maintained by GNBC) in accordance with
its terms.
(b) Prior to the Effective Time, GNBC shall take all actions
that may be requested by CBSI in writing upon advance notice of not less than 30
days with respect to (i) causing one or more GNBC Plans to terminate as of the
Effective Time or for benefit accrual and entitlements to cease as of the
41
Effective Time, (ii) causing the continuation on and after the Effective Time of
any contract, arrangement or insurance policy relating to any GNBC Plan for such
period as may be requested by CBSI, or (iii) cooperating with CBSI to facilitate
the merger of any GNBC Plan into any CBSI Plan as of or following the Effective
Time. To the extent required, GNBC shall amend its Stock Option Plans to permit
the assumption of Stock Options pursuant to SECTION 2.3 hereof. Each GNBC Plan
that is not terminated or amended pursuant to clause (i) above, or merged into a
CBSI Plan pursuant to clause (iii) above, shall be assumed by CBSI to the extent
permitted by the terms of the GNBC Plan; provided that, to the extent necessary,
each GNBC Plan shall be amended, effective prior to the Effective Time, to
provide that GNBC and its successors shall have the right to amend and/or
terminate each such plan at any time. CBSI agrees to assume the obligations of
GNBC under each of its Amended and Restated Deferred Fee Agreements and Amended
and Restated Supplemental Executive Retirement Agreements.
(c) Prior to the Effective Time, CBSI shall cause its Board of
Directors and Community Bank's Board of Directors to take all requisite actions
to (i) expand the size thereof by two directors and appoint two individuals (the
"GNBC DIRECTORS") as directors of CBSI and Community Bank to fill the vacancies
created thereby, effective as of the Effective Time, and (ii) elect ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ to serve as CBSI's President of Pennsylvania Banking pursuant to the
Employment Agreement. The GNBC Directors shall be nominated by GNBC and be
acceptable to CBSI, provided that such persons remain qualified to serve under
applicable law and regulations and CBSI's Bylaws. The initial term of one GNBC
Director shall expire at the 2005 annual meeting of stockholders of CBSI, and
the initial term of the other GNBC Director shall expire at the 2006 annual
meeting of stockholders of CBSI, provided that (i) each GNBC Director remains
qualified to serve under applicable law and regulations and CBSI's Bylaws, and
(ii) subject to the exercise of the fiduciary duties of CBSI's Board of
Directors, CBSI shall cause its Board to nominate, and to recommend for
re-nomination, each of the GNBC Directors for at least one additional three-year
term to immediately succeed the initial term set forth above (together with the
initial term, the "DESIGNATED TERM"). In the event that any GNBC Directors
resigns or otherwise becomes ineligible to serve (other than as a result of the
failure to be re-elected by the stockholders of CBSI following the re-nomination
and recommendation of such GNBC Director in accordance with the preceding
sentence), a majority of the members of the Advisory Board shall be entitled to
select an individual to serve as his replacement (a "SUBSTITUTE GNBC DIRECTOR")
for the Designated Term. Any Substitute GNBC Director must be reasonably
acceptable to CBSI and must meet all qualifications for serving on the Board of
CBSI and Community Bank that may generally apply to nominees and directors of
CBSI and Community Bank, respectively, at that time. Nothing contained in this
SECTION 5.11(C) shall be construed to limit the ability of the respective Boards
of Directors of CBSI and Community Bank to further increase the size of such
Boards from time to time as they may deem appropriate.
(d) (1) In the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit,
proceeding or investigation in which any person (the "INDEMNIFIED PARTY") who is
now, or has been at any time prior to the date of this Agreement, or who becomes
prior to the Effective Time, a director or officer of GNBC is, or is threatened
42
to be, made a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to (i) the fact that he is or was a director, officer or
employee of GNBC or any of its Subsidiaries, or (ii) this Agreement or any of
the transactions contemplated hereby, whether in any case asserted or arising
before or after the Effective Time, the parties hereto agree to cooperate and
use their best efforts to defend against and respond thereto. For a period of
five years after the Effective Time, CBSI shall indemnify and hold harmless, to
the fullest extent permitted by law, each such Indemnified Party against any
losses, claims, damages, liabilities, costs, expenses (including reasonable
attorney's fees and expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to the fullest
extent permitted by the DGCL upon receipt of any undertaking required by the
DGCL), judgments, fines and amounts paid in settlement in connection with any
such threatened or actual claim, action, suit, proceeding or investigation, and
in the event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective Time),
the Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with CBSI; PROVIDED, HOWEVER, that (1) CBSI shall have the right to
assume the defense thereof and upon such assumption CBSI shall not be liable to
any Indemnified Party for any legal expenses of other counsel or any other
expenses subsequently incurred by any Indemnified Party in connection with the
defense thereof, except that if CBSI elects not to assume such defense or
counsel for the Indemnified Parties reasonably advises the Indemnified Parties
that there are issues which raise conflicts of interest between CBSI and the
Indemnified Parties, the Indemnified Parties may retain counsel reasonably
satisfactory to them after notification, and CBSI shall pay the reasonable fees
and expenses of such counsel for the Indemnified Parties, (2) CBSI shall be
obligated pursuant to this paragraph to pay for only one firm of counsel for all
Indemnified Parties, (3) CBSI shall not be liable for any settlement effected
without its prior written consent, and (4) CBSI shall have no obligation
hereunder to any Indemnified Party when and if a court of competent jurisdiction
shall ultimately determine, and such determination shall have become final and
nonappealable, that indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law. Any Indemnified Party
wishing to claim indemnification under this SECTION 5.11(D), upon becoming aware
of any such claim, action, suit, proceeding or investigation, shall promptly
notify CBSI thereof, provided that the failure of any Indemnified Party to so
notify CBSI shall relieve it of its obligations to indemnify hereunder to the
extent that such failure materially prejudices CBSI.
(2) CBSI agrees that all rights to indemnification
and all limitations on liability existing in favor of the directors, officers
and employees of GNBC and any of its Subsidiaries as provided in their
respective certificates of incorporation, bylaws or similar governing documents
as in effect as of the date of this Agreement with respect to matters occurring
prior to the Effective Time shall survive the Merger, and shall continue in full
force and effect, and shall be honored by such entities or their respective
successors as if they were the indemnifying party thereunder, without any
amendment thereto, for a period of three years from the Effective Time.
(3) CBSI will use its reasonable best efforts
directly or indirectly to cause the persons who served as directors or officers
of GNBC on or before the Effective Time to be covered by GNBC's existing
directors' and officers' liability insurance policy (provided that CBSI may
43
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are not less advantageous than such
policy) but in no event shall any insured person be entitled under this Section
to insurance coverage more favorable than that provided to him or her in such
capacities as of the date hereof with respect to acts or omissions resulting
from their service as such on or prior to the Effective Time. Such insurance
coverage shall commence at the Effective Time and will be provided for a period
of no less than four years after the Effective Time; PROVIDED, HOWEVER, that in
no event shall CBSI be required to expend more than the current amount expended
by GNBC to maintain or procure insurance coverage pursuant hereto. GNBC agrees
to renew any such existing insurance or to purchase any "discovery period"
insurance provided for thereunder at CBSI's request.
5.12 DIVIDENDS. After the date of this Agreement, CBSI and GNBC shall
coordinate with the other the declaration of any dividends in respect of CBSI
Common Stock and GNBC Common Stock and the record dates and payment dates
relating thereto, it being the intention of the parties hereto that holders of
GNBC Common Stock shall not receive dividends other than regular dividends
thereon, or fail to receive such regular dividends, for any calendar quarter
prior to the Effective Time with respect to their shares of GNBC Common Stock
and for any calendar quarter following the Effective Time with respect to any
shares of CBSI Common Stock that such holder receives as Merger Consideration.
5.13 ADVISORY BOARD. Promptly following the Effective Time, CBSI shall
cause to be formed an advisory board (the "ADVISORY BOARD") and invite each
member of GNBC's Board of Directors (other than the GNBC Directors) to serve on
the Advisory Board. The Advisory Board shall be comprised of the Directors of
GNBC who accept the invitation to serve on it, and the President and Chief
Executive Officer of CBSI. The purpose and function of the Advisory Board will
be to advise Community Bank on deposit, lending and financial services
activities in GNBC's former market area and to insure a smooth transition of
business relationships in connection with the Merger and the continued
development of business relationships throughout such market area. Each member
of the Advisory Board, other than the President and Chief Executive Officer of
CBSI, shall be paid for each meeting he or she actually attends an amount equal
to (i) $10,000, divided by (ii) the number of meetings held in any given year
(which shall not exceed 12 per year), in cash, in consideration for his or her
services on the Advisory Board. The term of the Advisory Board shall be for a
three-year period following the Effective Time. CBSI may, in its sole
discretion, merge the Advisory Board with the advisory board established in
connection with CBSI's previous acquisition of First Liberty Bankcorp.
5.14 TAKEOVER LAWS. No party hereto shall take any action that would
cause the transactions contemplated by this Agreement or any of the Transaction
Documents to be subject to the requirements imposed by any Takeover Law, and
each of them shall take all necessary steps within its control to exempt (or
ensure the continued exemption of) all such transactions from, or if necessary
challenge the validity or applicability of, any applicable Takeover Law, as now
or hereafter in effect. For purposes of this Section, "TAKEOVER LAW" shall mean
any legal requirement related to mergers, business combinations, sale of
control, affiliate transactions, or antitrust laws or regulations which is
applicable to the transactions contemplated by this Agreement.
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5.15 NO SOLICITATION.
(a) Subject to SECTION 5.15(B) hereof, from and after the date
of this Agreement until the earlier of the Closing or the termination of this
Agreement in accordance with its terms, neither GNBC nor any Person acting on
behalf of GNBC shall, directly or indirectly, (a) solicit, initiate or respond
to discussions or engage in negotiations with any Person (whether such
negotiations are initiated by GNBC or otherwise) or take any other action
intended or designed to facilitate the efforts of any Person, other than CBSI,
relating to the possible acquisition, recapitalization or other business
combination involving GNBC or any of its Subsidiaries (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) or any material
portion of its capital stock or assets (with any such efforts by any such
Person, including a firm proposal to make such an acquisition, to be referred to
as "TAKEOVER PROPOSAL"), (b) provide non-public information with respect to GNBC
or any of its Subsidiaries to any Person, other than CBSI and its professional
advisors or GNBC's professional advisors, or (c) enter into an agreement, or a
letter of intent or term sheet, with any Person, other than CBSI, providing for
a possible Takeover Proposal. If GNBC receives any offer or proposal relating to
a Takeover Proposal, GNBC shall immediately notify CBSI thereof, including
information as to the identity of the party making any such offer or proposal
and the specific terms of such offer or proposal, as the case may be.
(b) (i) Notwithstanding anything to the contrary contained in
SECTION 5.15(A), prior to the Closing or the termination of this Agreement in
accordance with its terms, GNBC may, to the extent the Board of Directors of
GNBC determines, in good faith, after consultation with outside legal counsel,
that the Board's fiduciary duties require it to do so, participate in
discussions or negotiations with, and, subject to the requirements of SECTION
5.15(C), furnish non-public information, and afford access to the properties,
books or records of GNBC or any of its Subsidiaries to any Person after such
Person has delivered to GNBC in writing, an unsolicited BONA FIDE Takeover
Proposal with respect to GNBC or any of its Subsidiaries (which has not been
withdrawn) which the Board of Directors of GNBC in its good faith judgment
determines, after reasonable inquiry and consultation with its financial advisor
(i) would be reasonably likely to result in a transaction more favorable than
that contemplated by this Agreement to the shareholders of GNBC (which judgment
must be reasonable), and (ii) that the Person making such Takeover Proposal is
financially capable of consummating such Takeover Proposal or that the financing
necessary to consummate such Takeover Proposal, to the extent required, is then
committed or is capable of being obtained by such Person (a "SUPERIOR
PROPOSAL"). In addition, notwithstanding the provisions of SECTION 5.15(A)
above, in connection with a submitted, written bona fide Takeover Proposal or
potential Takeover Proposal, GNBC shall refer any third party to this SECTION
5.15 or make a copy of this SECTION 5.15 available to such third party.
(ii) In the event GNBC or any of its Subsidiaries
receives a Superior Proposal, nothing contained in this Agreement (but subject
to the terms of this SECTION 5.15(B)) will prevent the Board of Directors of
GNBC from recommending such Superior Proposal to the shareholders of GNBC, if
the Board determines, in good faith, after consultation with outside legal
counsel, that such action is required by its fiduciary duties; in such case, the
45
Board of Directors of GNBC may withdraw, modify or refrain from making its
recommendations set forth in the relevant sections in this Agreement; PROVIDED,
HOWEVER, that GNBC shall (A) provide CBSI at least 48 hours prior notice of any
meeting of the Board of Directors of GNBC at which such Board of Directors is
reasonably expected to consider a Superior Proposal, (B) not recommend to its
shareholders a Superior Proposal for a period of not less than the greater of
two full business days and 48 hours after CBSI's receipt of a copy of such
Superior Proposal and the identity of the third party, and (C) not enter into a
definitive agreement relating to such Superior Proposal unless CBSI fails to
match the terms of the Superior Proposal within the greater of two full business
days and 48 hours after CBSI's receipt of a copy of such Superior Proposal and
the identity of the third party; and PROVIDED, FURTHER, that unless this
Agreement is terminated pursuant to ARTICLE VII, nothing contained in this
SECTION 5.15(B) shall limit GNBC's obligation to hold and convene a special
meeting of its shareholders (regardless of whether the recommendation of the
Board of Directors of GNBC shall have been withdrawn, modified or not yet made)
or to provide the shareholders of GNBC with material information relating to
such meeting.
(c) Notwithstanding anything to the contrary herein, neither
GNBC nor any of its Subsidiaries shall provide any non-public information to a
third party unless: (x) GNBC provides such non-public information pursuant to a
nondisclosure agreement with terms regarding the protection of oral or written
confidential information at least as restrictive as such terms in the
confidentiality agreement heretofore entered into by the parties hereto; and (y)
such non-public information has been previously delivered or made available to
CBSI.
5.16 TAX REPORTING. GNBC and CBSI agree to follow, and will cause
their respective Subsidiaries to follow, the Alternative Procedures contained in
Sections 5 of Rev. Proc. 96-60, 1996-2 C.B. 399 (covering Forms W-2, W-3, 941,
W-4 and W-5) and Rev. Proc. 99-50, 1999-52 I.R.B. 757 (Forms 1042-S, 1098, 1099,
5498 and W-2G), so that the successor entity under these procedures will file
combined Forms and statements to the maximum extent allowable, relieving the
predecessor of such filings.
5.17 FICA REPORTING. All employees of GNBC and its Subsidiaries who are
employed after the Merger by CBSI and its Subsidiaries shall be credited for
purposes of determining the contribution and benefit base (as determined under
section 230 of the Social Security Act) with all remuneration paid during the
same calendar years by any predecessor of CBSI and its Subsidiaries.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF CBSI AND GNBC. The
respective obligations of the parties to effect the Merger shall be subject to
satisfaction or waiver of the following conditions at or prior to the Closing
Date:
46
(a) All corporate action necessary to authorize the execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby and thereby, including without limitation the shareholder
approvals contemplated by SECTION 5.1 hereof, shall have been duly and validly
taken;
(b) The parties hereto shall have received all regulatory
approvals required or mutually deemed necessary in connection with the
transactions contemplated by this Agreement, all notice periods and waiting
periods required after the granting of any such approvals shall have passed and
all conditions contained in any such approval required to have been satisfied
prior to consummation of such transactions shall have been satisfied;
(c) The Registration Statement (including any post-effective
amendment thereto) shall be effective under the Securities Act, no stop order
suspending the effectiveness of such Registration Statement shall have been
issued and no proceeding shall be pending or threatened in writing by the
Commission to suspend the effectiveness of such Registration Statement, and CBSI
shall have received all "blue sky" or state securities approvals or other
authorizations, or confirmations as to the availability of an exemption from
registration requirements as may be necessary;
(d) There shall not have been instituted, pending or
threatened in writing any action or proceeding by any governmental authority or
administrative agency or in a court of competent jurisdiction, nor shall there
be in any effect any judgment, order, decree or injunction of any governmental
authority, administrative agency or court of competent jurisdiction, or any
other legal restraint, preventing or seeking to prevent the consummation of the
transactions contemplated by this Agreement;
(e) The shares of CBSI Common Stock issuable in the Merger
shall have been approved for listing on the NYSE, subject to official notice of
issuance; and
(f) CBSI shall have received an opinion of
PricewaterhouseCoopers LLP, and GNBC shall have received an opinion of ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ LLP, in each case in form and substance reasonably satisfactory to the
recipient, dated as of the date the Registration Statement is effective and on
the Closing Date, substantially to the effect that, on the basis of facts,
representations and assumptions set forth or referred to in such opinions, the
Merger will be treated for federal income tax purposes as a reorganization or
part of a reorganization within the meaning of Section 368(a) of the Code, and
that:
(1) GNBC and CBSI will each be a party to such
reorganization within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by CBSI
or GNBC as a result of the Merger (except for amounts resulting from any
required change in accounting methods, any income and deferred gain recognized
pursuant to Treasury regulations issued under Section 1502 of the Code, or other
exceptions as set forth in such opinion);
47
(3) No gain or loss will be recognized by GNBC
shareholders who receive only shares of CBSI Common Stock in exchange for their
shares of GNBC Common Stock, except that gain or loss will be recognized on
receipt of cash, if any, in lieu of fractional shares;
(4) Each GNBC shareholder's aggregate tax basis in
any shares of CBSI Common Stock received in the transaction will be the same as
the aggregate tax basis of the shares of GNBC Common Stock such shareholder
surrendered in the Merger, decreased by the amount of any cash received and any
tax basis allocable to the cash received for fractional shares of CBSI Common
Stock, and increased by the amount of gain recognized by the GNBC shareholder
with respect to cash received;
(5) Gain, but not loss, will be recognized by GNBC
shareholders on the exchange of GNBC Common Stock for CBSI Common Stock and cash
in an amount equal to the lesser of the GNBC shareholder's gain realized with
respect to such exchange or the amount of cash received; and
(6) Each GNBC shareholder's holding period in any
shares of CBSI Common Stock received in the transaction will, in each instance,
include the period during which the shares of GNBC Common Stock surrendered in
exchange therefor were held, provided that such shares of GNBC Common Stock were
held as capital assets by the shareholder at the Effective Time.
(g) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, President and Chief Executive
Officer of GNBC, and CBSI and Community Bank shall have entered into an
Employment Agreement, substantially in the form attached hereto as EXHIBIT C
(the "EMPLOYMENT AGREEMENT").
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF GNBC. The obligations of
GNBC to effect the Merger shall be subject to satisfaction of the following
additional conditions at or prior to the Closing Date unless waived by GNBC
pursuant to SECTION 7.5 hereof:
(a) The representations and warranties of CBSI set forth in
ARTICLE IV hereof shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date (or, in the case of any representation and warranty which
specifically relates to an earlier date, as of such earlier date), except as
otherwise contemplated by this Agreement or consented to in writing by GNBC;
PROVIDED, HOWEVER, that (i) in determining whether or not the condition
contained in this paragraph (a) is satisfied, no effect shall be given to any
qualifications or exceptions in such representations and warranties relating to
materiality or Material Adverse Effect and (ii) the condition contained in this
paragraph (a) shall be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitute,
individually or in the aggregate, a Material Adverse Effect on CBSI;
48
(b) CBSI shall have in all material respects performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with at or prior to the Closing Date;
(c) GNBC shall have received a written fairness opinion, dated
as of the date of the Proxy Statement/Prospectus, from Sandler ▇'▇▇▇▇▇ &
Partners, L.P. to the effect that the Merger Consideration is fair, from a
financial point of view, to the shareholders of GNBC;
(d) CBSI shall have delivered to GNBC a certificate, dated the
Closing Date and signed by its President and Chief Executive Officer, to the
effect that the conditions set forth in paragraphs (a) and (b) of this Section
have been satisfied; and
(e) An opinion of Bond, ▇▇▇▇▇▇▇▇▇ & King, PLLC, concerning the
shares of CBSI Common Stock issuable in the Merger, shall be included as an
exhibit to the Registration Statement. Such opinion will provide in effect that
such shares have been duly authorized and, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable
and free and clear of any preemptive rights.
6.3 CONDITIONS PRECEDENT TO OBLIGATIONS OF CBSI.
The obligations of CBSI to effect the Merger shall be subject
to satisfaction of the following additional conditions at or prior to the
Closing Date, unless waived by CBSI pursuant to SECTION 7.5 hereof:
(a) The representations and warranties of GNBC set forth in
ARTICLE III hereof shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date (or, in the case of any representation and warranty which
specifically relates to an earlier date, as of such earlier date), except as
otherwise contemplated by this Agreement or consented to in writing by CBSI;
PROVIDED, HOWEVER, that (i) in determining whether or not the condition
contained in this paragraph (a) is satisfied, no effect shall be given to any
qualifications or exceptions in such representations and warranties relating to
materiality or Material Adverse Effect, and (ii) the condition contained in this
paragraph (a) shall be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitute,
individually or in the aggregate, a Material Adverse Effect on GNBC;
(b) GNBC shall have in all material respects performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with at or prior to the Closing Date;
(c) GNBC shall have delivered to CBSI a certificate, dated the
Closing Date and signed by its President and Chief Executive Officer, to the
effect that the conditions set forth in paragraphs (a) and (b) of this Section
have been satisfied;
49
(d) Dissenters' rights shall not have been exercised with
respect to more than five percent (5%) of the outstanding shares of GNBC Common
Stock; and
(e) To the extent that any material, lease, license, loan,
financing agreement or other contract or agreement to which GNBC is a party
requires the consent of or waiver from the other party thereto as a result of
the transactions contemplated by this Agreement, such consent or waiver shall
have been obtained, unless the failure to obtain such consent or waiver would
not, individually or in the aggregate, have a Material Adverse Effect on GNBC.
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, either before or after approval by the shareholders
of GNBC or CBSI:
(a) by the mutual written consent duly authorized by the
respective Boards of Directors of the parties hereto;
(b) by CBSI in writing, if GNBC has, or by GNBC in writing, if
CBSI has, breached (i) any covenant or agreement contained herein or (ii) any
representation or warranty contained herein, and in either case if (x) to the
extent that such breach is curable, such breach has not been cured within 30
days after the date on which written notice thereof is given to the breaching
party and (y) such breach would entitle the non-breaching party not to
consummate the transactions contemplated hereby under ARTICLE VI hereof;
(c) by any party hereto in writing, if the applications for
prior approval referred to in SECTION 5.3 hereof have been finally denied, and
the time period for appeals and requests for reconsideration has expired, or if
any governmental entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the Merger;
(d) by any party hereto in writing, if the respective
shareholders of GNBC or CBSI do not approve this Agreement and the transactions
contemplated thereby at the special meetings duly called for that purpose;
(e) by any party hereto in writing, if the Merger shall not
have been consummated by the close of business on December 31, 2003, unless the
failure to so consummate by such date shall be principally due to the failure of
the party seeking to terminate this Agreement to perform or observe the
covenants and agreements set forth herein;
(f) by CBSI in writing, if (i) the Board of Directors of GNBC
shall withdraw, modify or change its approval or recommendation of this
Agreement or the transactions contemplated thereby in a manner adverse to CBSI,
or GNBC shall have failed to include in the Joint Proxy Statement/Prospectus the
50
recommendation of its Board of Directors in favor of the approval of this
Agreement or the transactions contemplated thereby; (ii) following its receipt
of a Takeover Proposal or the public announcement of a Takeover Proposal, GNBC
shall fail to timely comply with the covenants contained in SECTION 5.2; (iii)
the Board of Directors of GNBC shall have recommended to the shareholders of
GNBC a Superior Proposal, or GNBC shall have executed a letter of intent, a
definitive agreement or similar document with respect to a Superior Proposal;
(iv) a tender offer or exchange offer for 25% or more of the outstanding shares
of GNBC Common Stock is commenced and GNBC shall not have sent to its
shareholders, within 10 business days after the commencement of such tender or
exchange offer, a statement that the Board of Directors of GNBC recommends
rejection of such tender or exchange offer; (v) a Takeover Proposal (other than
a tender or exchange offer covered by clause (iv) of this SECTION 7.1(F)) with
respect to GNBC is publicly announced and, upon CBSI's request, GNBC fails to
issue a press release announcing its opposition to such Takeover Proposal within
three (3) business days after such request; or (vi) the Board of Directors of
GNBC shall have resolved to take any action described in clauses (i) and (iii)
of this SECTION 7.1(f);
(g) by GNBC in writing, if the Board of Directors of GNBC
shall have recommended to the shareholders of GNBC a Superior Proposal, or GNBC
shall have executed a letter of intent, a definitive agreement or similar
document with respect to a Superior Proposal, in each case in accordance with
SECTION 5.15, provided that GNBC has complied with all provisions thereof; or
(h) by CBSI in writing, if the CBSI Market Price is less than
$28.50.
7.2 EFFECT OF TERMINATION. In the event this Agreement and is
terminated pursuant to SECTION 7.1 hereof, this Agreement shall become void and
have no effect, except that (i) the provisions relating to confidentiality and
fees and expenses set forth in SECTIONS 5.5 and 7.3 hereof, respectively, shall
survive any such termination, and (ii) a termination pursuant to SECTION 7.1
shall not relieve the breaching party from liability for any willful breach of
such covenant or agreement or representation or warranty giving rise to such
termination.
7.3 FEES AND EXPENSES.
(a) Except as set forth in this SECTION 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including fees and expenses of its own financial
consultants, accountants and counsel) shall be paid by the party incurring such
expenses, whether or not such transactions are consummated, except that CBSI and
GNBC each shall bear and pay 50% of all printing and mailing costs and filing
fees associated with the Registration Statement and the Proxy
Statement/Prospectus and any amendment or supplement thereto.
(b) In the event that this Agreement is terminated by CBSI
pursuant to SECTION 7.1(F) or (G), or by either party pursuant to SECTION
7.1(B), (D) or (E) after a Takeover Proposal from a third party is received by
GNBC or any of its affiliates, or is made public (unless CBSI is then in breach
of its representations, warranties or covenants contained in this Agreement such
51
that conditions set forth in SECTION 6.2(A) or (B) would not be satisfied, and
GNBC shall have given written notice to that effect prior to such termination),
then GNBC shall pay in immediately available funds to an account designated by
CBSI, no later than three (3) business days after the date of such termination,
a fee equal to THREE MILLION ONE HUNDRED SIXTY-FIVE THOUSAND DOLLARS
($3,165,000), as liquidated damages and not as a penalty, plus all out-of-pocket
costs and expenses (including limitation, professional fees of legal counsel,
financial advisors and accountants, and their expenses) actually incurred by
CBSI and its Subsidiaries in connection with the Merger, the Bank Merger and
this Agreement, such costs and expenses not to exceed in the aggregate TWO
HUNDRED THOUSAND DOLLARS ($200,000).
7.4 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants in this Agreement or in any instrument
delivered pursuant hereto shall expire on, and be terminated and extinguished
at, the Effective Time other than covenants that by their terms are to survive
or be performed after the Effective Time; provided, that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive CBSI or GNBC (or any director, officer or
controlling person thereof) of any defense in law or equity which otherwise
would be available against the claims of any Person, including, without
limitation, any shareholder or former shareholder of either CBSI or GNBC, the
aforesaid representations, warranties and covenants being material inducements
to the consummation by CBSI and GNBC of the transactions contemplated herein.
7.5 WAIVER. Except where not permitted by law, CBSI or GNBC, by written
instrument signed by an executive officer of such party, may at any time
(whether before or after approval of this Agreement by the shareholders of GNBC)
extend the time for the performance of any of the obligations or other acts of
the other party, and may waive (i) any inaccuracies of such other party in the
representations or warranties contained in this Agreement or any document
delivered pursuant hereto, (ii) compliance with any of the covenants,
undertakings or agreements of such other party, or satisfaction of any of the
conditions precedent to its obligations, contained herein or (iii) the
performance by such other party of any of its obligations set out herein or
therein. No failure or delay on the part of any party hereto in the exercise of
any right hereunder shall impair such right or be construed as a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right.
7.6 AMENDMENT OR SUPPLEMENT. This Agreement may be amended or
supplemented at any time prior to the Effective Time only by mutual agreement of
the parties hereto or thereto. Any such amendment or supplement must be in
writing and approved by their respective Boards of Directors; PROVIDED, HOWEVER,
that, after approval of this Agreement by the shareholders of GNBC, no amendment
may be made which by law requires further approval by such shareholders without
obtaining such further approval.
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ARTICLE VIII
MISCELLANEOUS
8.1 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the transactions contemplated hereunder and
supersede all prior arrangements or understandings with respect thereto, written
or oral, other than documents referred to herein. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and thereto and their respective successors. Except as specifically set
forth herein, nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto and thereto, and their
respective successors, any rights, remedies, obligations or liabilities. This
Agreement shall constitute a plan of reorganization within the meaning of
Section 368 of the Code.
8.2 NO ASSIGNMENT. No party hereto may assign any of its rights
or obligations under this Agreement to any other person.
8.3 NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by facsimile transmission or overnight express or by registered or
certified mail, postage prepaid, addressed as follows:
If to GNBC:
Grange National Banc Corp.
▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a required copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ LLP
3200 The Mellon Bank Center
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to CBSI:
Community Bank System, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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With a required copy to:
Bond, ▇▇▇▇▇▇▇▇▇ & King, PLLC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
8.4 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
8.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.6 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and entirely to be performed within such jurisdiction, except to the extent
federal law may be applicable.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto, intending to be
legally bound hereby, have caused this Agreement to be executed by their duly
authorized officers, all as of the day and year first above written.
COMMUNITY BANK SYSTEM, INC.
By: /S/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
GRANGE NATIONAL BANC CORP.
By: /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: President and Chief Executive Officer
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SCHEDULE 5.8
Planned Actions to be Taken by GNBC
1. Cooperation in the sale and purchase of investment portfolio
securities and reinvestment of securities portfolio run-off, management of
deposit and borrowing position, and execution of securities leverage strategies.
2. Execution of lending strategies in cooperation with CBSI's personnel
which capitalize on GNBC's expertise, such as expansion of floor planning
relationships, agricultural lending, or other such products likely to be
acceptable and desired in GNBC's marketplace.
3. Presentation to CBSI by GNBC of opportunities to participate in
loans consistent with CBSI's desire and capacity.
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EXHIBIT A
FORM OF VOTING AGREEMENT
[ATTACHED]
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EXHIBIT B
FORM OF AFFILIATES AGREEMENT
[ATTACHED]
58
EXHIBIT C
FORM OF ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ EMPLOYMENT AGREEMENT
[ATTACHED]
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