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Exhibit No. 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 26th day of August,
1997 (this "Agreement"), by and among UNITED SECURITY
BANCORPORATION (the "Company"), COMMUNITY BAN CORPORATION
("Community "), and BANK OF PULLMAN (the "Bank").
RECITALS:
(A) THE COMPANY. The Company is a corporation duly organized and
existing in good standing under the laws of the State of
Washington, with its principal executive offices located in
Spokane, Washington. The Company is a bank holding company
registered with the Board of Governors of the Federal Reserve
System ("Federal Reserve Board") under the Bank Holding Company
Act of 1956 (the "BHCA"), as amended. As of the date hereof, the
Company has 15,000,000 authorized shares of common stock of $0.01
par value per share ("Company Common Stock") (no other class of
capital stock being authorized), of which 3,682,341 shares of
Company Common Stock are issued and outstanding.
(B) COMMUNITY. Community is a corporation duly organized and
existing in good standing under the laws of the State of
Washington, with its principal executive offices located in
Pullman, Washington. Community is a bank holding company
registered with the Federal Reserve Board under the BHCA. As of
the date hereof, Community has 1,000,000 authorized shares of
common stock, no par value per share ("Community Common Stock")
(no other class of capital stock being authorized), of which
300,000 shares of Community Common Stock are issued and
outstanding.
(C) THE BANK. The Bank is an Idaho State banking corporation
duly organized and existing under the laws of the State of Idaho,
with is principal executive offices located in Pullman,
Washington. As of the date hereof, the Bank has 18,000
authorized and outstanding shares of common stock with a par
value of $25.00 per share ("Bank Common Stock") (no other class
of capital stock being authorized) issued and outstanding.
Community owns all of the issued and outstanding shares of Bank
Common Stock.
(E) VOTING AGREEMENT. As a condition and an inducement to the
Company's willingness to enter into this Agreement, each member
of the Board of Directors of Community has entered into an
agreement with the Company pursuant to which, among other things,
they have agreed to vote in favor of approval of the transactions
contemplated by this Agreement at the Community Meeting (as
hereinafter defined).
(F) RIGHTS, ETC. Except as Previously Disclosed (as hereinafter
defined) in Schedule 3.01(C), there are no shares of capital
stock of Community or the Bank authorized and reserved for
issuance, neither Community nor the Bank has any Rights (as
defined below) issued or outstanding and neither Community nor
the Bank has any commitment to authorize, issue or sell any such
shares or any Rights, except pursuant to this Agreement. The
term "Rights" means securities or obligations convertible into or
exchangeable for, or giving any person any right to subscribe for
or acquire, or any options, calls or commitments relating to,
shares of capital stock.
(G) APPROVALS. The Board of Directors of each of Community, the
Bank and the Company has approved, at meetings of each of such
Boards of Directors, this Agreement and has authorized the
execution hereof in counterparts.
In consideration of their mutual promises and obligations, the
parties hereto adopt and make this Agreement and prescribe the
terms and conditions thereof and the manner and basis of carrying
it into effect, which shall be as follows:
I. THE MERGER
1.01 THE MERGER. Subject to the provisions of this Agreement, at
the Effective Time (as herein after defined), Community shall be
merged with and into a wholly-owned subsidiary of the Company
("Merger Co.") pursuant to the terms and conditions set forth
herein and pursuant to the Plan of Merger attached hereto as
Exhibit A (the "Merger"). Upon consummation of the
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Corporate Merger, the separate existence of Merger Co. shall
cease and
Community shall survive (the "Surviving Corporation") in
accordance with the provisions of, and with the effect provided
in chapter 23B.11 of the Revised Code of Washington ("RCW"). On
the Effective Date, the certificate of incorporation and bylaws
of the Surviving Corporation will be Community's Certificate of
Incorporation and Bylaws in effect immediately before the
Effective Date. The Surviving Corporation's name will be
Community Ban Corporation, and the Continuing Corporation's
principal office will be Community's principal office. On the
Effective Date the directors and officers of Merger Co. will
become the directors and officers of the Surviving Corporation.
On the Effective Date, (1) all issued and outstanding shares of
Community Common Stock will be canceled and will be deemed only
to represent the right to receive cash from Merger Co. as
provided in this Agreement and (2) Merger Co.'s shares then
issued and outstanding will become issued and outstanding shares
of the Surviving Corporation and will constitute all of the
issued and outstanding shares of the Surviving Corporation. By
virtue of the Merger, Community will become the Company's wholly-
owned subsidiary.
1.02 CONSIDERATION.
(A) Purchase Price. The aggregate amount of cash ("Purchase
Price") to be received by Community's shareholders in the Merger
will be calculated on the Effective Date in accordance with the
following formulas, whichever applies:
(1) If the tangible equity capital of Community and the Bank on a
consolidated basis ("Tangible Equity Capital") as of the
Effective Date, determined in accordance with generally accepted
accounting principals, consistently applied ("GAAP"), is at least
$6,727,000, then:
P = $11,955,000
(2) If Tangible Equity Capital as of the Effective Date,
determined in accordance with GAAP, is below $6,727,000, then:
P = $11,955,000 - [($6,727,000 - C) x 1.25]
(3) Notwithstanding Subsection 1.02(A)(2), if the legal and
accounting expenses and fee paid to Columbia Financial Advisors,
Inc. (including the fee for the fairness opinion) incurred by
Community in connection with the Merger exceed $305,000, the
Purchase Price will be reduced by $1 for every $1 of such expense
in excess of $305,000. Actual "out of pocket" expenses incurred
in conjunction with the acquisition shall not be deemed to be
part of the "fee basket" and may be paid out of interim earnings.
The "out of pocket" expenses shall not exceed $5,000.
(4) For purposes of the formulas set forth in this Subsection
1.02, the following apply:
(i) C is Tangible Equity Capital as of the Effective date,
determined in accordance with GAAP, rounded to the nearest $1,000
(rounding up if the higher $1,000 is within $501, otherwise
rounding down).
(ii) P is the Purchase Price. P will be rounded to the nearest
dollar, rounding down if the first decimal is four or less or up
if it is five or more.
1.03 CONVERSION OF COMMUNITY SHARES. At and as of the Effective
Time, each Community share of Common Stock (other than any (i)
shares that have not been voted in favor of approval of this
Agreement and with respect to which dissenters' rights have been
perfected in accordance with chapter 23B.13 RCW ("Dissenters'
Shares") or (ii) shares held by Community or any of its
subsidiaries or by the Company or any of its subsidiaries, in
each case other than in a fiduciary capacity or as a result of
debt previously contracted ("Excluded Shares")) shall be
converted into the right to receive cash upon the surrender of
the holder's certificate or certificates in accordance with
Subsection 1.04. Each share of Community Common Stock held of
record on the Effective Date will entitle the holder to receive
an amount (rounded to the nearest ▇▇▇▇▇, rounding down if the
third decimal is four or less or up if it
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is five or more) equal to the quotient obtained by dividing the
Purchase Price by the aggregate number of shares of Community
Common Stock (other than Dissenters' Shares and Excluded Shares)
(the "Merger Consideration") that on the Effective Date are
issued and outstanding. No shares of Community Common Stock
shall be deemed to be outstanding or have any rights other than
those set forth above in this Section 1.03 after the Effective
Time.
1.04 CERTIFICATES.
(A) Each certificate evidencing Community Common Stock (other
than Dissenters' Shares or Excluded Shares) will, on and after
the Effective Date, be deemed for all corporate purposes to
represent and evidence only the right to receive the
consideration set forth in this Section 1.03, until the Community
shareholder surrenders the certificate to an agent designated by
the Company to effect the exchange of Community Common Stock for
cash ("Exchange Agent"), together with a properly completed and
executed form of transmittal letter. The Exchange Agent shall,
within ten (10) business days of receipt of the certificate
evidencing Community Common Stock and transmittal letter, effect
the exchange and issue the consideration set forth in Subsection
1.03 to the holder of such Community Common Stock. Until any
such certificate evidencing Community Common Stock is so
surrendered with a transmittal letter, the holder of such
Community Common stock will not have any right to receive the
consideration set forth in Subsection 1.03.
(B) If any holder of Community Common Stock presents the Exchange
Agent with a certificate evidencing Community Common Stock shares
issued in a name other than their own, the person requesting this
exchange must first: (1) establish to the Exchange Agent's
satisfaction the right to receive the consideration set forth in
Subsection 1.03; and (2) either pay to the Exchange Agent any
transfer or other taxes required in order to effect the exchange
or establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not applicable.
(C) 180 days after the Effective Time and thereafter, all former
stockholders of Community shall be entitled to look to the
Company (subject to abandoned property, escheat, and other
similar laws) as general creditors with respect to the cash
payable upon surrender of their certificates.
(D) The Company shall pay all charges and expenses of the
Exchange Agent.
1.05 STOCKHOLDER RIGHTS; STOCK TRANSFERS. At the Effective Time,
holders of Community Common Stock shall cease to be, and shall
have no rights as, stockholders of Community, other than to
receive the consideration provided under this Section I, without
interest. After the Effective Time, there shall be no transfers
on the stock transfer books of Community of the shares of
Community Common Stock which were issued and outstanding
immediately prior to the Effective Time.
1.06 EXCLUDED SHARES; DISSENTERS' SHARES. Each of the Excluded
Shares shall be canceled and retired at the Effective Time, and
no consideration shall be issued in exchange therefor.
Dissenters' Shares shall be purchased and paid for in accordance
with chapter 23B.13 RCW.
1.07 EFFECTIVE DATE. Subject to the conditions to the
obligations of the parties to effect the Merger as set forth in
Section V, the effective date (the "Effective Date") of the
Merger shall be such date as the Company shall notify Community
in writing not less than five (5) days prior thereto, which date
shall not be more than thirty (30) days after such conditions
have been satisfied or waived in writing. Prior to the Effective
Date, the Company and Community shall execute and deliver to the
Secretary of State of the State of Washington, the Articles of
Merger in accordance with applicable law. The time on the
Effective Date at which the Merger becomes effective is referred
to as the "Effective Time."
1.08 CLOSING.
The closing of the transactions contemplated by this Agreement
will occur on
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the Effective Date. On the Effective Date, all properly executed
documents required by this Agreement will be delivered to the
proper party in form consistent with this Agreement. If any
party fails to deliver a required document on or before the
Effective Date, then the Merger will not occur unless the
adversely affected party waives the default. Unless the Company
and Community agree otherwise, the Closing will occur at the
Company's main office, N. ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, at 10:30 a.m. on the Effective Date.
II. ACTIONS PENDING CONSUMMATIONII. ACTIONS PENDING
CONSUMMATIONII. ACTIONS PENDING CONSUMMATIONII. ACTIONS PENDING
CONSUMMATIONII. ACTIONS PENDING CONSUMMATIONII. ACTIONS PENDING
CONSUMMATION. ACTIONS PENDING CONSUMMATION. ACTIONS PENDING
CONSUMMATION. ACTIONS PENDING CONSUMMATION
Without the prior written consent of the Company, each of
Community and the Bank shall conduct its and each of the
Community Subsidiaries' (as hereinafter defined) business in the
ordinary and usual course consistent with past practice and shall
use its best efforts to maintain and preserve its and each of the
Community Subsidiaries' business organization, employees, and
advantageous business relationships and retain the services of
its and each of the Community Subsidiaries' officers and key
employees, and each of Community and the Bank will not, and will
cause each of the Community Subsidiaries not to, agree to:
2.01 CAPITAL STOCK. Except for or as otherwise permitted in or
expressly contemplated by this Agreement or as Previously
Disclosed in Schedule 3.01(C), issue, sell or otherwise permit to
become outstanding any additional shares of capital stock of
Community, the Bank or any of the Community Subsidiaries, or any
Rights with respect thereto, or enter into any agreement with
respect to the foregoing, or permit any additional shares of
Community Common Stock to become subject to grants of employee
stock options, stock appreciation rights or similar stock based
employee compensation rights.
2.02 DIVIDENDS, ETC. Make, declare or pay any dividend on or in
respect of, or declare or make any distribution on, or directly
or indirectly combine, redeem, reclassify, purchase or otherwise
acquire any shares of in capital stock or, other than as
permitted in or contemplated by this Agreement, authorize the
creation or issuance of, or issue, any additional shares of its
capital stock or any Rights with respect thereto.
2.03 INDEBTEDNESS; LIABILITIES; ETC. Other than in the ordinary
course of business consistent with past practice, incur any
indebtedness for borrowed money, assume, guarantee, endorse or
otherwise as an accommodation become responsible or liable for
the obligations of any other individual, corporation or other
entity.
2.04 LINE OF BUSINESS; OPERATING PROCEDURES; ETC. Change its
lending, investment, liability management or other material
banking policies in any material respect except such changes as
are directed by any regulatory agency or are in accordance and in
an effort to comply with Section 4.07, make or commit to incur
any other capital expenditures beyond those Previously Disclosed
in Schedule 2.04 other than in the ordinary course of business
and not exceeding $5,000 individually or $25,000 in the
aggregate, or make or commit to incur any discretionary
expenditure other than in the ordinary course of business
consistent with past practice.
2.05 LIENS AND ENCUMBRANCES. Impose, or suffer the imposition,
on any shares of capital stock of any of the Community
Subsidiaries, or on any of its or the Community Subsidiaries'
other assets, any lien, charge or encumbrance, or permit any such
lien, charge or encumbrance to exist.
2.06 COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Except as
Previously Disclosed in Schedule 2.06, enter into or amend any
employment, severance or similar agreement or arrangement with
any of its directors, officers or employees, or grant any salary
or wage increase, amend the terms of any stock option or increase
any employee benefit (including incentive or bonus
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payments), except normal individual increases in regular
compensation to employees in the ordinary course of business
consistent with past practice.
2.07 BENEFIT PLANS. Except as Previously Disclosed in Schedule
2.07, enter into or modify (except as may be required by
applicable law) any pension, retirement, stock option, stock
purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust
agreement related thereto, in respect of any of its directors,
officers or other employees, including, without limitation,
taking any action that accelerates the vesting or exercise of any
benefits payable thereunder.
2.08 CONTINUANCE OF BUSINESS. Dispose of or discontinue any
portion of its assets, business or properties, which is material
to Community and the Community Subsidiaries taken as a whole, or
merge or consolidate with, or acquire all or any portion of, the
business or property of any other entity which is material to
Community and the Community Subsidiaries taken as a whole (except
foreclosures or acquisitions by the Bank in a fiduciary capacity
in each case in the ordinary course of business consistent with
past practice).
2.09 AMENDMENTS. Amend its Articles of Incorporation, Charter or
Bylaws.
2.10 CLAIMS. Settle any claim, litigation, action or proceeding
involving any liability for money damages in excess of $25,000 or
restrictions upon the operations of Community or any Community
Subsidiary.
2.11 CONTRACTS. Except as Previously Disclosed on Schedule 2.11,
enter into, renew, terminate or make any change in any material
contract, agreement or lease, except in the ordinary course of
business consistent with past practice with respect to contracts,
agreements and leases that are terminable by it without penalty
on more than sixty (60) days prior written notice.
2.12 LOANS. Extend credit other than in accordance with existing
lending policies, except that the Bank shall not, without the
prior written consent of the Company, make any new loan or
modify, restructure or renew any existing loan to any borrower if
the amount of the resulting loan, when aggregated with all other
loans or extensions of credit to such person (or which would be
required to be aggregated for loans to one borrower limitations)
would be in excess of $800,000.
2.13 DEPOSIT RATES. Change the pricing structure of its deposit
liabilities, except in the ordinary course of business consistent
with past practice.
III. REPRESENTATIONS AND WARRANTIES
3.01 REPRESENTATIONS AND WARRANTIES OF COMMUNITY AND THE BANK.
Each of Community and the Bank hereby represents and warrants to
the Company as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to it are true and correct.
(B) ORGANIZATION, STANDING, AND AUTHORITY. It is duly qualified
to do business and is in good standing in the States of the
United States and foreign jurisdictions where the failure to be
duly qualified individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect (as hereinafter defined)
on it. Each of Community and the Community Subsidiaries has in
effect all federal, state, local, and foreign governmental
authorizations necessary for it to own or lease its properties
and uses and to carry on its business as it is now conducted, the
absence of which, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on it.
(C) SHARES. With respect to Community, the outstanding shares of
it are validly issued and outstanding, fully paid and
nonassessable. With respect to the Bank, except as Previously
Disclosed in Schedule 3.01(C), the outstanding shares of it are
validly issued and outstanding and fully paid. Except as
Previously Disclosed in Schedule 3.01(C), there are no shares of
capital stock or other equity securities of Community or the Bank
outstanding. Further, no
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options or rights to acquire equity securities of Community
Common Stock or equity securities of the Bank are outstanding as
of the date of this agreement.
(D) COMMUNITY SUBSIDIARIES. Community has Previously Disclosed
in Schedule 3.01(D), a list of all the subsidiaries of Community
(each a "Community Subsidiary" and, collectively, the "Community
Subsidiaries"). No equity securities of any of the Community
Subsidiaries are or may become required to be issued (other than
to Community or a wholly-owned Community Subsidiary) by reason of
any Rights with respect thereto. There are no contracts,
commitments, understandings or arrangements by which any of the
Community Subsidiaries is or may be bound to sell or otherwise
issue any shares of its capital stock, and there are no
contracts, commitments, understandings or arrangements relating
to the rights of Community or the Bank, as applicable, to vote or
to dispose of such shares. All of the shares of capital stock of
each Community Subsidiary held by Community or a Community
Subsidiary are fully paid and nonassessable and are owned by
Community or a Community Subsidiary free and clear of any charge,
mortgage, pledge, security interest, restriction, claim, lien or
encumbrance. Each Community Subsidiary is in good standing under
the laws of the jurisdiction in which it is incorporated or
organized, and is duly qualified to do business and in good
standing in the jurisdictions where the failure to be duly
qualified is reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect on it. Except as Previously
Disclosed in Schedule 3.01(D), Community does not own
beneficially, directly or indirectly, any shares of any equity
securities or similar interests of any corporation, bank,
partnership, joint venture, business trust, association or other
organization. The deposits of the Bank are insured by the Bank
Insurance Fund (the "BIF") of the Federal Deposit Insurance
Corporation (the "FDIC"). The term "Community Subsidiary" means
any business entity five percent (5%) or more of the equity
interests of which are owned directly or indirectly by Community.
(E) CORPORATE POWER. It and each of the Community Subsidiaries
has the corporate power and authority to carry on its business as
it is now being conducted and to own all its material properties
and assets.
(F) CORPORATE AUTHORITY. Subject to any necessary receipt of
approval by its stockholders referred to in Section 5.01, this
Agreement has been authorized by all necessary corporate action
of it and is a valid and binding agreement of it enforceable
against it in accordance with its terms, subject as to
enforcement as to bankruptcy, insolvency, and other similar laws
of general applicability relating to or affecting creditors'
rights and to general equity principles.
(G) NO DEFAULTS. Subject to the approval by its stockholders
referred to in Section 5.01, the required regulatory approvals
referred to in Section 5.02, and except as Previously Disclosed
in Schedule 3.01(G), the execution, delivery, and performance of
this Agreement and the consummation by it of the transactions
contemplated hereby, does not and will not (i) constitute a
breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of it or of any of
the Community Subsidiaries or to which it or any of the Community
Subsidiaries or its or their properties is subject or bound,
which breach, violation or default is reasonably likely,
individually or in the aggregate, to have a Material Adverse
Effect on it, (ii) constitute a breach or violation of, or a
default under, its Articles of Incorporation, Charter or Bylaws,
or (iii) require any consent or approval under any such law,
rule, regulation, judgment, decree, order, governmental permit or
license or the consent or approval of any other party to any such
agreement, indenture or instrument, other than any such consent
or approval, which if not obtained, would not be reasonably
likely, individually or in the
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aggregate, to have a Material Adverse Effect on Community.
(H) FINANCIAL REPORTS. Except as Previously Disclosed in
Schedule 3.01(H), (i) as to Community, its audited consolidated
balance sheets as of December 31, 1996, and related consolidated
statements of income and changes in stockholders' equity and cash
flows for the years ended December 31, 1996, and unaudited
consolidated balance sheets as of June 30, 1997, and related
consolidated statements of income and changes in stockholders'
equity and cash flows for the interim period ended June 30, 1997,
and (ii) as to the Bank, its call reports for the fiscal years
ended December 31, 1996, and 1995, and all other financial
reports filed or to be filed subsequent to December 31, 1996, in
the form or to be filed with the FDIC (together, the "Community
Financial Reports") did not and will 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
made therein, in light of the circumstances under which they were
made, not misleading; and each of the balance sheets in or
incorporated by reference into the Community Financial Reports
(including the related notes and schedules thereto) fairly
presents and will fairly present the financial position of the
entity or entities to which it relates as of its date and each of
the statements of income and changes in stockholders' equity and
cash flows or equivalent statements in the Community Financial
Reports (including any related notes and schedules thereto)
fairly presents and will fairly present the results of
operations, changes stockholders' equity and cash flows, as the
case may be, of the entity or entities to which it relates for
the periods set forth therein, in each case in accordance with
generally accepted accounting principles consistently applied
during the periods involved, except in each case as may be noted
therein, subject to normal and recurring year-end audit
adjustments in the case of unaudited statements. The amount of
any obligation of Community or the Bank with respect to any
employment, severance, retirement, deferred compensation or
similar arrangements where such obligation is contingent upon,
triggered by or accelerated by a change in control of Community
or the Bank is reflected in the Community Financial Reports as of
December 31, 1996. There are no extraordinary or nonrecurring
gains or profits that were earned by Community or the Bank after
December 31, 1996, that are reflected in the Community Financial
Reports as of June 30, 1997.
(I) ABSENCE OF UNDISCLOSED LIABILITIES. None of Community or the
Community Subsidiaries has any obligation or liability
(contingent or otherwise) that, individually or in the aggregate,
is reasonably likely to have a Material Adverse Effect on it,
except (i) as reflected in Community Financial Reports prior to
the date of this Agreement, and (ii) for commitments and
obligations made, or liabilities incurred, in the ordinary course
of its business consistent with past practice since December 31,
1996. Since December 31, 1996, none of Community or the
Community Subsidiaries has incurred or paid any obligation or
liability (including any obligation or liability incurred in
connection with any acquisitions in which any form of direct
financial assistance of the federal government or any agency
thereof has been provided to any Community Subsidiary) which,
individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on it.
(J) NO EVENTS. Except as Previously Disclosed on Schedule
3.01(J), since December 31, 1996, no events have occurred which,
individually or in the aggregate, have had or are reasonably
likely to have a Material Adverse Effect on it.
(K) PROPERTIES. Except as reserved against in the Community
Financial Reports, Community and the Community Subsidiaries
have good and marketable title, free and clear of all liens,
encumbrances, charges, defaults, or equities of any character, to
all of the properties and assets, tangible and intangible,
reflected in the Community Financial Reports as being owned by
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Community or the Community Subsidiaries as of the dates thereof
other than those that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect on it, except
those properties or assets sold or otherwise disposed of in the
ordinary course of business. All buildings and all material
fixtures, equipment, and other property and assets which are held
under leases or subleases by any of Community or the Community
Subsidiaries are held under valid leases or subleases enforceable
in accordance with their respective terms, other than any such
exceptions to validity or enforceability that, individually or in
the aggregate, are not reasonably likely to have a Material
Adverse Effect on Community.
(L) LITIGATION; REGULATORY ACTION. Except as Previously
Disclosed in Schedule 3.01(L), no litigation, proceeding or
controversy before any court or governmental agency is pending
which, individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect on Community or which alleges
claims under any fair lending law or other law relating to
discrimination, including, without limitation, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment
Act, and the Home Mortgage Disclosure Act, and, to the best of
its knowledge, no such litigation, proceeding or controversy has
been threatened; and except as Previously Disclosed in Schedule
3.01(L), neither it nor any of the Community Subsidiaries or any
of its or their material properties or their officers, directors
or controlling persons is a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar
arrangement with, or a commitment letter or similar submission
to, any federal or state governmental agency or authority charged
with the supervision or regulation of depository institutions or
engaged in the insurance of deposits together with any and all
agencies or departments of federal, state or local government
(including, without limitation, the FHL Bank, the Federal Reserve
Board, the FDIC, the Internal Revenue Service, the Department of
Revenue of the State of Idaho, the Securities Exchange Commission
and any other federal or state bank, or other financial
institution, insurance and securities regulatory authorities (the
"Regulatory Authorities")) and neither it nor any of the
Community Subsidiaries has been advised by any of such Regulatory
Authorities that such authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum or
understanding, commitment letter or similar submission.
(M) COMPLIANCE WITH LAWS. Except as Previously Disclosed in
Schedule 3.01(M), each of Community and the Community
Subsidiaries:
(1) has all permits, licenses, authorizations, orders, and
approvals of, and has made all filings, applications, and
registrations with, all Regulatory Authorities that are required
in order to permit it to own its businesses presently conducted
and that are material to the business of Community and the
Community Subsidiaries taken as a whole; all such permits,
licenses, certificates of authority, orders and approvals are in
full force and effect and, to the best of its knowledge, no
suspension or cancellation of any of them is threatened; and all
such filings, applications, and registrations are current;
(2) has received no notification or communication from any
Regulatory Authority or the staff thereof (i) asserting that any
of Community or the Community Subsidiaries is not in compliance
with any of the statutes, regulations or ordinances which such
Regulatory Authority enforces, which, as a result of such
noncompliance in any such instance, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect
on Community, (ii) threatening to revoke any license, franchise,
permit or governmental authorization, which revocation,
individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on Community
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or the Community Subsidiaries, or (iii) requiring any of
Community or the Community Subsidiaries (or any of its
officers, directors or controlling persons) to enter into a cease
and desist order, agreement or memorandum of understanding (or
requiring the board of directors thereof to adopt any resolution
or policy);
(3) is not required to give prior notice to any federal banking
agency of the proposed addition of an individual to its board of
directors or the employment of an individual as a senior
executive; and
(4) is in compliance in all material respects with all fair
lending laws or other laws relating to discrimination, including,
without limitation, the Truth in Lending Act, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment
Act, and the Home Mortgage Disclosure Act.
(N) MATERIAL CONTRACTS.
(1) Except as Previously Disclosed in Schedule 3.01(N), (and with
a true and correct copy of the document or other item in question
attached to such Schedule), neither Community nor any Community
Subsidiary is a party or subject to any of the following (whether
written or oral, express or implied):
(i) any agreement, arrangement or commitment (a) not made in the
ordinary course of business or (b) pursuant to which Community
or any Community Subsidiary is or may become obligated to invest
in or contribute capital to any Community Subsidiary or any other
entity;
(ii) any agreement, indenture or other instrument not disclosed
in the Community Financial Reports relating to the borrowing of
money by Community or any Community Subsidiary or the guarantee
by Community or any Community Subsidiary of any such obligation
(other than trade payables or instruments related to transactions
entered into in the ordinary course of business by any Community
Subsidiary, such as deposits, Fed Funds borrowings and repurchase
agreements);
(iii) any contract containing covenants that limit the
ability of Community or any Community Subsidiary to compete in
any line of business or with any person or containing any
restriction of the geographical area in which, or method by
which, Community or any Community Subsidiary may carry on its
business (other than as may be required by law or any applicable
Regulatory Authority);
(iv) any contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K
promulgated by the Securities and Exchange Commission ("SEC");
(v) any lease with annual rental payments aggregating $5,000 or
more;
(vi) consulting agreement (other than data processing, software
programming, and licensing contracts entered into in the ordinary
course of business) involving the payment of more than $5,000 per
annum;
(vii) any agreement with any executive officer or other key
employee of Community or any Community Subsidiary the benefit of
which are contingent, or the terms of which are materially
altered or any payments or rights are accelerated, upon the
occurrence of a transaction involving Community or any of
Community Subsidiaries of the nature contemplated by this
Agreement;
(viii) any agreement with respect any executive officer of
Community or any Community Subsidiary providing any term of
employment or compensation guarantee extending for a period
longer than one (1) year; or
(ix) agreement or plan, including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase
plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated
by this Agreement.
(2) Except as Previously Disclosed on Schedule 3.01(N), no
officer or director of Community or any "associate" (as such term
is defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of any
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such officer or director, has any material interest in any
material contract or property (real or personal), tangible or
intangible, used in or pertaining to the business of Community or
any Community Subsidiary.
(3) None of Community or the Community Subsidiaries is in default
under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party, by
which its respective assets, business or operations may be bound
or affected, or under which it or any of its respective assets,
business or operations receives benefits, which default,
individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on Community, and there has not occurred
any event that, with the lapse of time or the giving of notice or
both, would constitute such a default. Except as Previously
Disclosed in Schedule 3.01(N), neither Community nor any
Community Subsidiary is subject to or bound by any contract
containing covenants which limit the ability of Community or any
Community Subsidiary to compete in any line of business or with
any person or which involve any restriction of geographical area
in which, or method by which, Community or any Community
Subsidiary may carry on its business (other than as may be
required by law or any applicable Authority).
(O) REPORTS. Since December 31, 1994, each of Community and the
Community Subsidiaries has filed all reports and statements,
together with any amendments required to be made with respect
thereto, that it was required to file with (i) the FDIC, (ii) the
FHL Bank and the FHL Bank System, (iii) the Federal Reserve
Board, and (iv) any other applicable Regulatory Authorities. As
of their respective dates (and without giving effect to any
amendments or modifications filed after the date of this
Agreement with respect to reports and documents filed before the
date of this Agreement), each of such reports and documents,
including the financial statements, exhibits, and schedules
thereto, complied in all material respects with all of the
statutes, rules, and regulations enforced or promulgated by the
Regulatory Authority with which they were filed and did not
contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were
made, not misleading.
(P) NO BROKERS. Except as Previously Disclosed on Schedule
3.01(P), all negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by it
directly with the other parties hereto and no action has been
taken by it that would give rise to any valid claim against any
party hereto for a brokerage commission, finder's fee or other
like payment.
(Q) EMPLOYEE BENEFIT PLANS.
(1) Schedule 3.01 (Q)(1) contains a complete list of all bonus,
deferred compensation, pension, retirement profit-sharing, thrift
savings, employee stock ownership, stock bonus, stock purchase
restricted stock, and stock option plans, all employment or
severance contracts, all personnel codes, practices, procedures,
policies, manuals, affirmative action programs, and similar
materials, all medical, dental, health, and life insurance plans,
all other employee benefit plans, contracts or arrangements and
any applicable "change of control" or similar provisions in any
plan, contract or arrangement maintained or contributed to by it
or any of the Community Subsidiaries for the benefit of
employees, former employees, directors, former directors or their
beneficiaries (the "Compensation and Benefit Plans"). True and
complete copies of all Compensation and Benefit Plans, including,
but not limited to, any trust instruments and/or insurance
contracts, if any, forming a part thereof and all amendments
thereto have been supplied to the Company.
(2) All "employee benefit plans" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), other than "multi-employer plans" within the
meaning of Section 3(37) of ERISA
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("Multi-employer Plans"), covering employees or former employees
of it and the Community Subsidiaries (the "ERISA Plans"), to the
extent subject to ERISA, are in all material respects in
compliance with ERISA. Except as Previously Disclosed in
Schedule 3.01(Q)(2) each ERISA Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") and which is intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), has received a favorable determination letter from
the Internal Revenue Service (the "IRS"), and it is not aware of
any circumstances reasonably likely to result in the revocation
or denial of any such favorable determination letter or the
inability to receive such a favorable determination letter.
Prior to the Effective Date, Community and the Bank shall deliver
or make available to the Company the most recent annual report
(Form 5500 Series) and accompanying schedules of each ERISA Plan
as filed with the IRS or a written explanation of why such annual
report is not required. There is no material pending or, to its
knowledge, threatened litigation relating to the ERISA Plans.
Neither it nor any of the Community Subsidiaries has engaged in a
transaction with respect to any ERISA Plan that could subject it
or any of the Community Subsidiaries to a tax or penalty imposed
by either Section 4975 of the Code or Section 502(i) of ERISA in
an amount which would be material.
(3) No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by it or any of the Community
Subsidiaries with respect to any ongoing, frozen or terminated to
"single-employer plan," within the meaning of Section 4001(a)(15)
of ERISA, currently or formerly maintained by any of them, or the
single-employer plan of any entity which is considered one
employer with it under Section 4001(a)(15) of ERISA or Section
414 of the Code (an "ERISA Affiliate"). Neither it nor any of
the Community Subsidiaries presently contributes to a
Multiemployer Plan, nor have they contributed to such a plan
within the past five (5) calendar years. No notice of a
"reportable event," within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived,
has been required to be filed for any Pension Plan or by any
ERISA Affiliate within the past 12-month period.
(4) All contributions required to be made under the terms of any
ERISA Plan have been timely made. Neither any Pension Plan nor
any single-employer plan of an ERISA Affiliate has an
"accumulated funding deficiency" (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither it nor any of the Community Subsidiaries has provided, or
is required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Code.
(5) Under each Pension Plan which is a single-employer plan, as
of the last day of the most recent plan year, the actuarially
determined present value of all "benefit liabilities," within the
meaning of Section 4001(a)(16) of ERISA (as determined on the
basis of the actuarial assumptions contained in the plan's most
recent actuarial valuation) did not exceed the then current value
of the assets of such plan and there has been no material change
in the financial condition of such plan since the last day of the
most recent plan year.
(6) Neither it nor any of the Community Subsidiaries has any
obligations for retiree health and life benefits under any plan,
except as set forth in Schedule 3.01(Q)(6). There are no
restrictions on the right of it or any of the Community
Subsidiaries to amend or terminate any such plan without
incurring any liability thereunder.
(7) Except as Previously Disclosed in Schedule 3.01(Q)(7),
neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i)
result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or
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otherwise) becoming due to any director or any employee of it or
any of the Community Subsidiaries under any Compensation and
Benefit Plan or otherwise from it or any of the Community
Subsidiaries, (ii) increase any benefits otherwise payable under
any Compensation and Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such
benefit.
(R) NO KNOWLEDGE. It knows of no reason why the regulatory
approvals referred to in Section 5.02 should not be obtained.
(S) LABOR AGREEMENTS. Neither it nor any Community Subsidiary is
a party to, or is bound by any collective bargaining agreement,
contract or other agreement or understanding with a labor union
or labor organization, nor is it or any Community Subsidiary the
subject of a proceeding asserting that it or any such subsidiary
has committed an unfair labor practice (within the meaning of the
National Labor Relations Act) or seeking to compel it or such
subsidiary to bargain with any labor organization as to wages and
conditions of employment, nor is there any strike or other labor
dispute involving it or any Community Subsidiary, pending or, to
the best of its knowledge, threatened, nor is it aware of any
activity involving its or any Community Subsidiary's employees
seeking to certify a collective bargaining unit or engaging in
any other organization activity.
(T) ASSET CLASSIFICATION. It has Previously Disclosed in
Schedule 3.01(T) a list, accurate and complete in all material
respects, of the aggregate amounts of loans, extensions of credit
or other assets of Community and the Community Subsidiaries
that have been classified by it as of July 31, 1997 (the "Asset
Classification"); and no amounts of loans, extensions of credit
or other assets that have been classified as of July 31, 1997, by
any regulatory examiner as "Other Loans Specially Mentioned,"
"Substandard," "Doubtful," "Loss," or words of similar import are
excluded from the amounts disclosed in the Asset Classification,
other than amounts of loans, extensions of credit or other assets
that were charged off by Community or any Community Subsidiary
prior to July 31, 1997.
(U) ALLOWANCE FOR LOAN AND LEASE LOSSES. The allowance for loan
and lease losses shown on the consolidated balance sheets of
Community included in the December 31, 1996 Community Financial
Reports was, and the allowance for possible loan losses to be
shown on subsequent Community Financial Reports, will be,
adequate in the opinion of the Board of Directors and management
of Community, to provide for possible losses, net of recoveries
relating to loans previously charged off, on loans outstanding
(including accrued interest receivable) as of the date thereof.
(V) INSURANCE. Each of Community and the Community Subsidiaries
has taken all requisite action (including, without limitation,
the making of claims and the giving of notices) pursuant to its
directors' and officers' liability insurance policy or policies
in order to preserve all rights thereunder with respect to all
matters that are known to Community, except for such matters
which, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect on it. Previously
Disclosed in Schedule 3.01(V) is a list of all insurance policies
maintained by or for the benefit of Community or the Community
Subsidiaries or their directors, officers, employees or agents.
(W) STATE TAKEOVER LAWS; ARTICLES OF INCORPORATION. It has taken
all necessary action to exempt this Agreement and the
transactions contemplated hereby and thereby from, and this
Agreement and the transactions contemplated hereby are exempt
from, (i) any applicable state takeover laws, and (ii) any
supermajority provisions or other provisions imposing special
conditions on business combinations contained in Community's
Articles of Incorporation.
(X) NO FURTHER ACTION. It has taken all action so that the
entering into of this Agreement and the consummation of the
transactions contemplated hereby (including, without limitation,
the Merger), or any other action or
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combination of actions, or any other transactions, contemplated
hereby or thereby do not and will not (i) require a vote of
stockholders (other than as set forth in Section 5.01), or (ii)
result in the grant of any rights to any person under the
Articles of Incorporation, Charter or Bylaws of Community or any
Community Subsidiary or under any agreement to which Community
or any Community Subsidiary is a party, or (iii) restrict or
impair in any way the ability of the Company to exercise the
rights granted hereunder.
(Y) ENVIRONMENTAL MATTERS.
(1) To its knowledge, it and each of the Community Subsidiaries,
the Participation Facilities and the Loan/Fiduciary Properties
(each as defined below) are and have been, in compliance with all
Environmental Laws (as defined below), except for instances of
noncompliance which are not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect on Community.
(2) There is no proceeding pending or, to its knowledge,
threatened before any court, governmental agency or board or
other forum in which it or any of the Community Subsidiaries or
any Participation Facility has been, or with respect to
threatened proceedings, reasonably would be expected to be, named
as a defendant or potentially responsible party (i) for alleged
noncompliance (including by any predecessor) with any
Environmental Law, or (ii) relating to the release or threatened
release into the environment of any Hazardous Material (as
defined below), whether or not occurring at or on a site owned,
leased or operated by it or any of the Community Subsidiaries or
any Participation Facility, except for such proceedings pending
or threatened that are not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect on it or have
been Previously Disclosed in Schedule 3.01(Y)(2).
(3) There is no proceeding pending or, to its knowledge,
threatened before any court governmental agency or board or other
forum in which any Loan/Fiduciary Property (or it or any of the
Community Subsidiaries in respect of any Loan/Fiduciary Property)
has been, or with respect to threatened proceedings, reasonably
would be expected to be, named as a defendant or potentially
responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law, or (ii) relating to the
release or threatened release into the environment of any
Hazardous Material, whether or not occurring at or on a
Loan/Fiduciary Property, except for such proceedings pending or
threatened that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on it or have been
Previously Disclosed in Schedule 3.01(Y)(3).
(4) To its knowledge, there is no reasonable basis for any
proceeding of a type described in subparagraphs (2) or (3) above,
except as has been Previously Disclosed in Schedule 3.01(Y)(4).
(5) To its knowledge, during the period of (i) its or any of the
Community Subsidiaries' ownership or operation of any of their
respective current properties, (ii) its or any of the Community
Subsidiaries' participation in the management of any
Participation Facility, or (iii) its or any of Community
Subsidiaries' holding of a security or other interest in a
Loan/Fiduciary Property, there have been no releases of Hazardous
Material in, on, under or affecting any such property,
Participation Facility or Loan/Fiduciary Property, except for
such releases that are not reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect on it or have
been Previously Disclosed in Schedule 3.01(Y)(5).
(6) To its knowledge, prior to the period of (i) its or any of
the Community Subsidiaries' ownership or operation of any of
their respective current properties, (ii) its or any of the
Community Subsidiaries' participation in the management of any
Participation Facility, or (iii) its or any of the Community
Subsidiaries' holding of a security or other interest in a
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Loan/Fiduciary Property, there were no releases of Hazardous
Material in, on, under or affecting any such property,
Participation Facility or Loan/Fiduciary Proper, except for such
releases that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on it or have been
Previously Disclosed in Schedule 3.01(Y)(6).
(7) The following definitions apply for purposes of this Section
3.01(Y): "Loan/Fiduciary Property" means any property owned or
controlled by it or any of the Community Subsidiaries or in which
it or any of the Community Subsidiaries holds a security or other
interest, and, where required by the context, includes any such
property where Community or any of the Community Subsidiaries
constitutes the owner or operator of such property, but only with
respect to such property; "Participation Facility" means any
facility in which it or any of the Community Subsidiaries
participates in the management and, where required by the context
includes the owner or operator of such property, but only with
respect to such property; "Environmental Law" means (i) any
federal, state and local law, statute, ordinance, rule,
regulation, code, license, permit, authorization, approval,
consent legal doctrine, order judgment decree, injunction,
requirement or agreement with any governmental entity, relating
to (a) the protection, preservation or restoration of the
environment, (including, without limitation, air, water vapor,
surface water, groundwater drinking water supply, surface land,
subsurface land, plant and animal life or any other natural
resource), or to human health or safety, or (b) the exposure to,
or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production,
release or disposal of Hazardous Material, in each case as
amended and as now in effect and includes, without limitation,
the Federal Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act the Federal Water Pollution Control Act of
1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control
Act, and the Federal Insecticide, Fungicide and Rodenticide Act,
the Federal Occupational Safety and Health Act of 1970, each as
amended and as now in effect, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass
and strict liability) that may impose liability or obligations
for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Material; "Hazardous
Material" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law,
whether by type or quantity, and includes, without limitation,
any oil or other petroleum product, toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous
waste, special waste or petroleum or any derivative or by-
product thereof, radon, radioactive material, asbestos, asbestos
containing material, urea formaldehyde foam insulation, lead, and
polychlorinated biphenyl.
(Z) TAX REPORTS. Except as Previously Disclosed in Schedule
3.01(Z), (i) all reports and returns with respect to Taxes (as
defined below) that are required to be filed by or with respect
to it or the Community Subsidiaries including, without
limitation, consolidated federal income tax returns of it and the
Community Subsidiaries (collectively, the "Community Tax
Returns"), have been duly filed, or requests for extensions have
been timely filed and have not expired, except to the extent all
such failures to file, taken together, are not reasonably likely
to have a Material Adverse Effect on it, and such Community Tax
Returns were true, complete and accurate in all material
respects, (ii) all taxes (which shall mean federal, state, local
or foreign income, gross receipts, windfall profits, severance,
property,
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production, sales, use, license, excise, franchise, employment,
withholding or similar taxes imposed on the income, properties or
operations of it or the Community Subsidiaries, together with any
interest, additions, or penalties with respect thereto and any
interest in respect of such additions or penalties, collectively,
the "Taxes") shown to be due on Community Tax Returns have been
paid in full, (iii) the Community Tax Returns have been examined
by the Internal Revenue Service or the appropriate state, local
or foreign taxing authority or the period for assessment of the
Taxes in respect of which such Community Tax Returns were
required to be filed has expired, (iv) all Taxes due with respect
to completed and settled examinations have been paid in full, (v)
no issues have been raised by the relevant taxing authority in
connection with the examination of any of the Community Tax
Returns which are reasonably likely, individually or in the
aggregate, to result in a determination that would have a
Material Adverse Effect on it, except as reserved against in the
Community Financial Reports, and (vi) no waivers of statutes of
limitations (excluding such statutes that relate to years under
examination by the Internal Revenue Service) have been given by
or requested with respect to any Taxes of it or the Community
Subsidiaries.
(AA) ACCURACY OF INFORMATION. The statements with respect to
Community and the Community Subsidiaries contained in this
Agreement, the Schedules and any other written documents executed
and delivered by or on behalf of Company or the Bank pursuant to
the terms of this Agreement are true and correct in all material
respect; and such statements and documents do not omit any
material fact necessary to make the statements contained therein,
in light of the circumstances under which they were made, not
misleading.
(BB) DERIVATIVES CONTRACT. None of Community or the Community
Subsidiaries is a party to or has agreed to enter into an
exchange-traded or over-the-counter swap, forward, future,
option, cap, floor or collar financial contract or any other
contract not included on the balance sheet which is a derivative
contract (including various combinations thereof) (each a
"Derivatives Contract') or owns securities that are referred to
as "structured notes" except for those Derivatives Contracts and
structured notes Previously Disclosed in Schedule 3.01(BB),
including a list, as applicable, of any Community or Community
Subsidiary assets pledged as security for each such Derivatives
Contract.
(CC) ACCOUNTING CONTROLS. Each of Community and the Community
Subsidiaries has devised and maintained systems of internal
accounting controls sufficient to provide reasonable assurances
that (i) all material transactions are executed in accordance
with management's general or specific authorization; (ii) all
material transactions are recorded as necessary to permit the
preparation of financial statements in conformity with generally
accepted accounting principles consistently applied with respect
to banks or any other criteria applicable to such statements, and
to maintain proper accountability for items; (iii) access to the
material property and assets of Community and the Community
Subsidiaries is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded
accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect
to any differences.
(DD) DEPOSITS. Except as Previously Disclosed in Schedule
3.01(DD), none of the Bank's deposits is a brokered deposit as
defined in 12 CFR 337.6 or subject to any encumbrance, legal
testament or other legal process, and no portion of the deposits
represents a deposit by any affiliate ( as defined by the BHCA)
of the Bank.
(EE) MINUTE BOOK. The minute books of Community and the Bank
contain complete and accurate records of all meetings held and
other corporate action taken since, December 31, 1994, by their
respective stockholders, Boards of Directors and committees
thereof.
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(FF) AFFILIATE TRANSACTIONS. Except as Previously Disclosed on
Schedule 3.01(FF), no officer or director of Community or the
Bank or any "associate" of such person has any material interest
in any contract with Community or any Community Subsidiary or in
any real or personal property used in the business of Community
or any Community Subsidiary. For the purposes of this section,
"associate" of a person means (i) any corporation or organization
(other than Community or any Community Subsidiary) of which such
person is an officer or partner or is, directly or indirectly,
the beneficial owner of ten percent (10%) or more of any class of
equity securities, (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity, and
(iii) any relative or spouse of such person, or any relative of
such spouse, who has the same home as such person.
(GG) LOAN PORTFOLIO. To the knowledge of Community and the Bank:
(1) All evidences of indebtedness ("Loans") reflected as assets
on the books and records of Community or the Bank are in all
respects legal, valid and binding obligations of the respective
obligor named therein and no such indebtedness is subject to any
defenses which have been or may be asserted, except for defenses
arising from applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights generally and
general principles of equity.
(2) The Bank has good title to and is the sole owner of record of
each Loan or any participation interest shown as an asset on the
books and records of the Bank, free of any lien, encumbrance or
claim by any other person, except for Loan securing borrowings
from the FHLB Seattle or Loans subject to repurchase obligations
as Previously Disclosed in Schedule 3.01(GG)(2).
(3) Except as Previously Disclosed in Schedule 3.01(GG)(3) all
Loans reflected as assets on the books and records of the Bank
that are primarily secured by an interest in real property are
secured by a valid and perfected first lien.
(4) Except as Previously Disclosed in Schedule 3.01(GG)(4), no
Loan, all or any part of which is an asset of the Bank was, as of
December 31, 1996, more than thirty (30) days past due.
(5) Except as Previously Disclosed in Schedule 3.01(GG)(5), none
of the agreements pursuant to which the Bank has sold Loans or
pools of Loans or participation in Loans or pools of
participations of Loans, if any, contains any obligation to
repurchase such Loans or interests therein solely on account of a
payment default by the obligor on any such Loan.
(6) Previously Disclosed on Schedule 3.01(GG)(6) are all Loans by
Community or the Bank to employees of Community or the Bank.
There are no Loans to any employee, officer, director or other
affiliate (as defined in Section 3.01(FF)) of Community or the
Bank on which the borrower is paying a rate other than that
reflected in the note or the relevant credit agreement or on
which the borrower is paying a rate which was below market at the
time the Loan was made; and, except as Previously Disclosed in
Schedule 3.01(GG)(6), all such Loans are and were made in
compliance with all applicable federal laws and regulations.
3.02 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MERGER CO.
The Company hereby represents and warrants to Community and the
Bank, as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to it are true and correct.
(B) ORGANIZATION. In the case of Merger Co., it will be a
corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation
as of the Effective Date.
(C) CORPORATE AUTHORITY. Subject to the required regulatory
approvals referred to in Section 5.02, this Agreement has been
authorized by all necessary corporate action of it and is a valid
and binding agreement of it enforceable against it in accordance
with its terms, subject as to enforcement as to
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bankruptcy, insolvency and other similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles.
(D) NO DEFAULTS. Subject to the approval by its stockholders
referred to in Section 5.01, the required regulatory approvals
referred to in Section 5.02 and the required filings under
federal and state securities' laws, the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby and thereby by it, do not and
will not (i) constitute a breach or violation of, or a default
under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or
instrument of it or of any of its subsidiaries or to which it or
any of its subsidiaries or properties is subject or bound, which
breach, violation or default is reasonably likely to have a
Material Adverse Effect on it, (ii) constitute a breach or
violation of, or a default under, its Certificate of
Incorporation, Charter or Bylaws, or (iii) require any consent or
approval under any such law, rule, regulation, judgment, decree,
order, governmental permit or license, or the consent or approval
of any other party to any such agreement, indenture or
instrument.
(E) FINANCIAL REPORTS. In the case of the Company, its Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1996, and all documents filed or to be filed under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form filed
with the SEC (in each such case, the "the Company Financial
Reports"), did not and will 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 made therein,
in light of the circumstances under which they were made, not
misleading; and each of the balance sheets in or incorporated by
reference into the Company Financial Reports (including the
related notes and schedules thereto) fairly presents and will
fairly present the financial position of the entity or entities
to which it relates as of its date and each of the statements of
income and changes in stockholders' equity and cash flows or
equivalent statements in the Company Financial Reports (including
any related notes and schedules thereto) fairly presents and will
fairly present the results of operations, changes in
stockholders' equity and changes in cash flows, as the case may
be, of the entity or entities to which it relates for the periods
set forth therein, in each case in accordance with generally
accepted accounting principles consistently applied to banks or
other criteria applicable to such statements during the periods
involved, except as may be noted therein, subject to normal and
recurring year-end audit adjustments in the case of unaudited
statements.
(F) NO EVENTS. Since December 31, 1996, no events have occurred
which, individually or in the aggregate, have had or are
reasonably likely to have a Material Adverse Effect on it.
(G) CORPORATE POWER. The Company has the corporate power and
authority to carry on its business as it is now being conducted
and to own all its material properties and assets.
(H) ACCURACY OF INFORMATION. The statements with respect to the
Company contained in this Agreement, the Schedules and any other
written documents executed and delivered by or on behalf of the
Company pursuant to the terms of this Agreement are true and
correct in all material respects, and such statements and
documents do not omit any material fact necessary to make the
statements contained therein, in light of the circumstances under
which they were made, not misleading.
IV. COVENANTS
Each of Community and the Bank hereby covenants to the Company
and the Company hereby covenants to Community and the Bank, that:
4.01 BEST EFFORTS. Each shall use its best efforts in good faith
to take promptly, or cause to be taken promptly, all actions, and
to do promptly, or cause to be done promptly, all things
necessary, proper or desirable, or
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advisable under applicable laws, so as to permit consummation of
the Merger as soon as practicable and to otherwise enable
consummation of the transactions contemplated hereby and shall
cooperate fully with the other parties hereto to that end.
4.02 COMMUNITY MEETING. With respect to Community it shall call
a special meeting (the "Community Meeting") of the holders of
Community Common Stock to be held as soon as practicable for
purposes of voting upon the transactions contemplated hereby and
Community shall use its best efforts to solicit and obtain the
votes of the holders of Community Common Stock in favor of the
transactions contemplated hereby and, subject to the exercise of
its fiduciary duties, the Board of Directors of Community shall
recommend approval of such transactions by such holders.
4.03 FINANCING. With respect to the Company, it will have, as
of the Effective Date, financing sufficient to pay the purchase
price in full.
4.04 PRESS RELEASES. Community and the Bank will not, without
the prior approval of the Company, and the Company will not,
without the prior approval of Community, issue any press release,
written statement for general circulation or correspondence to
shareholders relating to the transactions contemplated hereby,
except as otherwise required by law.
4.05 ACCESS; INFORMATION.
(A) Upon reasonable notice, Community and the Bank shall afford
the Company and its officers, employees, counsel, accountants and
other authorized representatives, access, during normal business
hours throughout the period up to the Effective Date, to all of
its and the Community Subsidiaries' properties, books, contracts,
commitments and records and, during such period, Community and
the Bank shall furnish promptly to the Company (i) a copy of each
material report, schedule and other document filed by Community
and the Community Subsidiaries with any Regulatory Authority, and
(ii) all other information concerning the business, properties
and personnel of Community and the Community Subsidiaries as the
Company may reasonably request, including an examination report
by any Regulatory Authority (to be reviewed at Bank premises with
no copies made), provided that no investigation pursuant to this
Section 4.05 shall affect or be deemed to modify or waive any
representation or warranty made by Community or the Bank or the
conditions to the obligations of Community and the Bank to
consummate the transactions contemplated by this Agreement.
(B) The Company will not use any information obtained pursuant to
this Section 4.05 for any purpose unrelated to the consummation
of the transactions contemplated by this Agreement and, if this
Agreement is terminated, will hold all information and documents
obtained pursuant to this paragraph in confidence (as provided in
Section 7.06) unless and until such time as such information or
documents become publicly available other than by reason of any
action or failure to act by the Company or as it is advised by
counsel that any such information or document is required by law
or applicable stock exchange rule to be disclosed, and in the
event of the termination of this Agreement, the Company will,
upon request by Community, deliver to Community all documents so
obtained by the Company or destroy such documents and, in the
case of destruction, will certify such fact to Community. In the
event the Agreement is terminated, the Company shall not use,
either directly or indirectly, any information or knowledge
obtained as a result of this investigation to the competitive
detriment of Community or the Bank.
4.06 ACQUISITION PROPOSALS. In the case of Community, without
the prior written consent of the Company, it shall not, and it
shall cause the Community Subsidiaries not to, solicit, initiate
or encourage inquiries or proposals with respect to, or furnish
any nonpublic information relating to or participate in any
negotiations or discussions concerning, any acquisition or
purchase of all or a substantial portion of the assets of, or a
substantial
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