AGREEMENT AND PLAN OF MERGER BY AND BETWEEN COMMUNITY BANK SYSTEM, INC. AND MERCHANTS BANCSHARES, INC. Dated as of October 22, 2016

 

 

auditing practices, and (B) no attorney representing Merchants or any of its Subsidiaries, whether or not employed by Merchants or any of its Subsidiaries, has reported evidence of a material violation of Securities Laws, breach of fiduciary duty or similar violation by Merchants or any of its officers, directors, employees or agents to the Board of Directors of Merchants or any committee thereof or to the Knowledge of Merchants, to any director or officer of Merchants.

(ii)

Neither Merchants nor any of its Subsidiaries has received any notice of assessment or proposed assessment in connection with any Tax that has not been paid or otherwise settled, withdrawn, or resolved, and there is no threatened or pending dispute, action, suit, proceeding, claim, investigation, audit, examination, or other Litigation regarding any Tax of Merchants, any of its Subsidiaries or the assets of Merchants or any of its Subsidiaries.  No officer or employee responsible for Tax matters of Merchants or any of its Subsidiaries expects any Taxing Authority to assess any additional Tax for any period for which a Tax Return has been filed. There are no agreements, waivers or other arrangements providing for an extension of time with respect to the assessment of any Tax or deficiency against Merchants or any of its Subsidiaries that are currently in force, and neither Merchants nor any of its Subsidiaries has waived or extended the applicable statute of limitations for the assessment or collection of any Tax or agreed to a Tax assessment or deficiency.

(iii)

Neither Merchants nor any of its Subsidiaries is a party to a Tax allocation, sharing, indemnification or similar agreement or any agreement (other than an agreement solely between Merchants and its Subsidiaries) pursuant to which it has any obligation to any Person with respect to Taxes, and neither Merchants nor any of its

 

 

 

Subsidiaries has been a member of an affiliated group filing a consolidated federal, state or local income Tax Return or any combined, affiliated or unitary group for any Tax purpose (other than the group of which it is currently a member), and neither Merchants nor any of its Subsidiaries has any Tax liability under Treasury Regulation Section 1.1502-6 or any similar provision of Law, or as a transferee or successor, by Contract or otherwise, other than with respect to the group of which Merchants is the parent.  None of Merchants and its Subsidiaries have any deferred gain or loss arising out of any deferred intercompany transaction, as described in Treasury Regulation Section 1.1502-13, or, in the case of any of its Subsidiaries, have an excess loss account in its stock, as described in Treasury Regulation Section 1.1502-19.

(iv)

Merchants and its Subsidiaries have withheld and paid over to the appropriate Taxing Authority all material amounts of Taxes required to have been withheld and paid over by them, and have complied in all material respects with all information reporting and backup withholding requirements under all applicable federal, state, local and foreign Laws in connection with amounts paid or owing to any Person, including Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee or independent contractor, and Taxes required to be withheld and paid pursuant to Sections 1441, 1442 and 3406 of the Code or similar provisions under state, local or foreign Law.

(v)

Neither Merchants nor any of its Subsidiaries has been a party to any distribution occurring during the five (5)-year period ending on the date hereof in which the parties to such distribution treated the distribution as one to which Section 355 of the Code applied. No Liens for Taxes exist with respect to any assets of Merchants or any of its Subsidiaries, except for statutory Liens for Taxes not yet due and payable.

(vi)

Neither Merchants nor any of its Subsidiaries is a "controlled foreign corporation" within the meaning of the Section 957(a) of the Code.  Merchants and each of its Subsidiaries have complied with all of the income inclusion and Tax reporting provisions of the U.S. anti-deferral Tax regimes, including the controlled foreign corporation, passive foreign investment company and foreign personal holding company regimes.

(vii)

Neither Merchants nor any of its Subsidiaries is or has ever been a United States real property holding corporation within the meaning of Section 897(c) of the Code or any comparable provision of state Tax Law.  Neither Merchants nor any of its Subsidiaries has been or will be required to include any item in income or exclude any item of deduction from taxable income for any Tax period (or portion thereof) ending after the Closing Date: (A) pursuant to Section 481 of the Code or any comparable provision under state, local or foreign Tax Law; (B) as a result of any "closing agreement" as described in Section 7121 of the Code or any comparable provision under state, local, or foreign Tax Law, executed on or prior to the Closing Date; (C) with respect to any intercompany transaction or excess loss account described in Treasury Regulations under Section 1502 of the Code or any comparable provision under state, local, or foreign Tax Law; (D) with respect to any installment sale or open transaction

 

 

 

disposition made on or prior to the Closing Date; or (E) with respect to any prepaid amount received on or prior to the Closing Date.

(viii)

Neither Merchants nor any of its Subsidiaries has participated in any reportable transaction, as defined in Treasury Regulation Section 1.6011-4(b)(1) or any comparable provision of state or local Tax Law.

(i)

Except as, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on Merchants:  (A) Merchants and each of its Subsidiaries and their respective Facilities and properties are, and for the past five (5) years have been, in compliance with all Environmental Laws; and (B) neither Merchants nor its Subsidiaries has received any written notice from any Person alleging that its respective Facilities or properties are in violation of, or require environmental investigation or remediation under, Environmental Laws.

(ii)

Except as, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on Merchants, during the period of Merchants' or any of its Subsidiaries' ownership or operation (including but not limited to ownership or operation, directly or indirectly, in a fiduciary capacity) of their respective properties and Facilities, there have been no releases, discharges, spillages or disposals of Hazardous Material on, under or affecting such properties or Facilities.

(ii)

Merchants and each of its Subsidiaries are, and at all times since December 31, 2013 have been, in compliance in all material respects with all Laws applicable to their businesses, operations, properties or assets, including the Federal Reserve Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, the Bank Secrecy Act, the Truth in Lending Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Fair Credit Reporting Act and all other applicable fair lending Laws and other Laws relating to discriminatory business practices.

 

 

 

(iv)

Neither Merchants nor any of its Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has been since December 31, 2013, a recipient of any supervisory letter from, or since December 31, 2013, has adopted any policies, procedures or board resolutions at the request or suggestion of, any Regulatory Authority or other Governmental Authority that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business (each, whether or not set forth in the Merchants Disclosure Letter, a "Merchants Regulatory Agreement"), nor has Merchants or any of its Subsidiaries been advised in writing or, to the Knowledge of Merchants, orally, since December 31, 2013, by any Regulatory Authority or other Governmental Authority that it is considering issuing, initiating, ordering or requesting any such Merchants Regulatory Agreement.

(v)	Merchants Bank has been in existence as a Vermont chartered bank for at least five (5) years.  Each of Merchants and Merchants Bank is "adequately capitalized" (as defined in applicable bank regulations) as of the date hereof.

(vi)

Neither Merchants nor any of its Subsidiaries (nor to Merchants' Knowledge any of their respective directors, executives, Representatives, agents or employees) (A) has used or is using any corporate funds for any illegal contribution, gift, entertainment or other unlawful expense relating to political activity, (B) has used or is using any corporate funds for any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, (C) has violated or is violating any provision of the Foreign Corrupt Practices Act of 1977, as amended, or any other applicable anti-bribery or anti-corruption Laws (collectively, the "Anti-Corruption Laws") or (D) has made any bribe, unlawful rebate, payoff, influence payment, kickback or other unlawful payment.  Merchants and its Subsidiaries have established and maintain a system of internal controls designed to provide reasonable assurances regarding compliance by Merchants and its Subsidiaries with all applicable Anti-Corruption Laws.

(vii)

Merchants and its Subsidiaries are and since December 31, 2011 have been conducting operations at all times in compliance in all material respects with applicable financial recordkeeping and reporting requirements of all money laundering Laws administered or enforced by any Governmental Authority in jurisdictions where Merchants and its Subsidiaries conduct business (collectively, the "Anti-Money Laundering Laws").  Merchants and its Subsidiaries have established and maintain a

 

 

 

system of internal controls designed to ensure compliance by Merchants and its Subsidiaries with applicable financial recordkeeping and reporting requirements of the Anti-Money Laundering Laws.

(viii)

Except as required by the Bank Secrecy Act, to Merchants' Knowledge, no employee of Merchants or any of its Subsidiaries has provided or is providing information to any law enforcement agency regarding the commission or possible commission of any crime or the violation or possible violation of any applicable Law by Merchants or any of its Subsidiaries or any employee thereof acting in its capacity as such.  Neither Merchants nor any of its Subsidiaries nor any officer, employee, contractor, subcontractor or agent of Merchants or any such Subsidiary has discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against any employee of Merchants or any of its Subsidiaries in the terms and conditions of employment because of any act of such employee described in 18 U.S.C. Section 1514A(a).

(ix)

Neither Merchants nor any of its Subsidiaries nor to the Knowledge of Merchants, any director, officer, agent, employee or any other Person acting on behalf of Merchants or any of its Subsidiaries, is currently the subject or the target of any sanctions administered or enforced by any Governmental Authority (collectively, "Sanctions"), nor is Merchants or any of its Subsidiaries located, organized or resident in a country or territory that is the subject or the target of Sanctions (each, a "Sanctioned Country").  For the past five (5) years, Merchants and its Subsidiaries have not knowingly engaged in, are not now knowingly engaged in and will not engage in, any dealings or transactions with any Person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.  Merchants and its Subsidiaries have established and maintain a system of internal controls designed to provide reasonable assurances regarding compliance by Merchants and its Subsidiaries with all applicable Sanctions.

(ii)	There is no unfair labor practice charge or other material Litigation regarding Service Providers against Merchants or any of its Subsidiaries pending, or to

 

 

 

the Knowledge of Merchants, threatened, before any court, arbitrator or Governmental Authority (including the National Labor Relations Board).  Neither Merchants nor any of its Subsidiaries has failed to comply with any collective bargaining agreement or any other similar agreement with any labor organization, group or association and there are no grievances pending, or to the Knowledge of Merchants, threatened, under any such agreement.

(iii)

Merchants and its Subsidiaries are and have been since December 31, 2013 in compliance in all material respects with, and to the Knowledge of Merchants are not under investigation with respect to, applicable Laws with respect to employment and employee matters, including employment practices, employee benefits, labor relations, terms and conditions of employment, Tax withholding, discrimination, equal employment, fair employment practices, immigration, employee classification, human rights, pay equity, workers' compensation, employee safety and health, facility closings and layoffs (including the Worker Adjustment and Retraining Notification Act of 1988 (together with any other similar Laws, "WARN")) and wages and hours.  During the ninety (90) day period prior to the date hereof, neither Merchants nor any of its Subsidiaries has effectuated or announced or has plans to effectuate or announce (A) a "plant closing", (B) a "mass layoff" or (C) any other transaction, layoff, reduction in force or employment terminations sufficient in number to trigger application under WARN.  No Service Providers provide services to Merchants or any of its Subsidiaries outside of the United States.

(ii)

Since December 31, 2013, all Merchants Benefit Plans have been administered in all material respects in compliance with their terms and with the applicable provisions of ERISA, the Code and all other applicable Laws and no events have occurred with respect to any Merchants Benefit Plan that could reasonably be expected to result in payment or assessment by or against Merchants or any of its Subsidiaries of any material excise taxes under ERISA or the Code.  There are no pending or, to the Knowledge of Merchants, threatened Litigation, governmental audits or investigations or other proceedings or participant claims (other than claims for benefits in the ordinary course of business) with respect to or against any Merchants Benefit Plan or its assets.  No prohibited transaction (within the meaning of Section 406 of ERISA and Section 4975 of the Code) or any breach of a fiduciary duty has occurred with respect to any Merchants Benefit Plan that has caused or would reasonably be expected to cause Merchants or any of its Subsidiaries to incur any material Liability under ERISA or the

 

 

 

Code.  Each Merchants Benefit Plan that is a "non-qualified deferred compensation plan" (as defined for purposes of Section 409A of the Code) is in all material respects in documentary compliance with, and has been operated and administered in all material respects in compliance with, Section 409A of the Code and the applicable guidance issued thereunder.  All amounts due and payable under any Merchants Benefit Plan have been timely paid except as would not result in a material Liability of Merchants or its Subsidiaries.

(iii)

Each Merchants Benefit Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter with respect to its tax-qualified status and the tax-exempt status of any related trust, or has pending or has time remaining in which to file, an application for such determination from the IRS, and, to the Knowledge of Merchants, there are no facts or circumstances that would reasonably be expected to cause any such determination letter to be revoked or not be reissued.

(iv)

With respect to each Merchants Benefit Plan that is subject to Title IV of ERISA or Section 412 of the Code (each, a "Title IV Plan"), (A) no Liability to PBGC (other than Liability for premiums) has been incurred and all premiums required to be paid to PBGC have been timely paid, (B) Merchants or its relevant ERISA Affiliate has satisfied the minimum funding standard under ERISA and the Code, (C) the assets of such Title IV Plan, as determined in the most recent valuation, equaled or exceeded the accumulated benefit obligations of such Title IV Plan, (D) such Title IV Plan is not in "at risk status" and (E) neither Merchants nor its ERISA Affiliates has received written or, to the Knowledge of Merchants, oral notice from PBGC, nor is Merchants otherwise aware, that an event or condition exists that would constitute grounds for termination of such Title IV Plan by PBGC.  No reportable event under Section 4043 of ERISA has occurred with respect to any Merchants Benefit Plan other than any reportable event for which the requirement of notice to PBGC has been waived nor has any event described in 4062 of ERISA occurred.  None of the assets of Merchants or any of its Subsidiaries are subject to any Lien by reason of a failure to make timely installments or other payments to a Title IV Plan.  Neither Merchants nor any of its ERISA Affiliates has engaged in any transaction described in Section 4069 of the Code nor has incurred or reasonably expects to incur, any Liability arising in connection with the termination of a Title IV Plan.  Neither Merchants nor any of its ERISA Affiliates (nor any predecessor thereto) sponsors, maintains, administers or contributes to or has any obligation to contribute to (nor in the past six years, sponsored, maintained, administered or contributed to or had any obligation to contribute to) any "multiemployer plan," as such term is defined in Section 3(37) of ERISA, "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.

(v)

Neither Merchants nor any of its ERISA Affiliates has any current or projected obligations or Liability for post-employment or post-retirement health, medical, or life insurance benefits under any Merchants Benefit Plan, other than with respect to benefit coverage mandated by Section 4980B of the Code.

 

 

 

(vi)

The consummation of the transactions contemplated by this Agreement will not (either alone or together with any other event) (A) entitle any Service Provider to severance pay or similar payment, (B) enhance any benefits or accelerate the time of payment or vesting or trigger any payment of funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any other obligation pursuant to, any Merchants Benefit Plan or otherwise or (C) result in any violation of, or default under, or limit the right of Merchants or its Subsidiaries, or, after the Effective Time, Community or any of its Subsidiaries, to amend, modify or terminate any Merchants Benefit Plan.  There is no Contract, plan or arrangement covering any Service Provider that, individually or collectively, would entitle any Service Provider to any tax gross-up or similar payment from Merchants or any of its Subsidiaries or that could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 162(m) or Section 280G of the Code.

 

 

described above: (w) the Contract is valid and binding on Merchants or the applicable Subsidiary party thereto and, to the Knowledge of Merchants, each other party thereto and is in full force and effect, enforceable in accordance with its terms (except in all cases as such enforceability may be limited by (1) bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship and other Laws now or hereafter in effect relating to or affecting the enforcement of creditors' rights generally and (2) general equitable principles and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought); (x) neither Merchants nor any of its Subsidiaries is in Default thereunder; (y) neither Merchants nor any of its Subsidiaries has repudiated or waived any material provision of any such Contract; and (z) no other party to any such Contract is, to the Knowledge of Merchants, in Default in any material respect or has repudiated or waived any material provision of any such Contract.  No Consent is required by any such Contract for the execution, delivery or performance of this Agreement or the Bank Merger Agreement or the consummation of the Merger or the Bank Merger or the other transactions contemplated hereby or thereby.  All indebtedness for money borrowed of Merchants and its Subsidiaries is prepayable without penalty or premium.

(ii)

All interest rate swaps, caps, floors, collars, option agreements, futures, and forward contracts, and other similar risk management arrangements, Contracts or agreements, whether entered into for Merchants' own account or for the account of one or more of its Subsidiaries or their respective customers, were entered into (A) in the ordinary course of business consistent with past practice and in accordance with prudent business practices and all applicable Laws and (B) with counterparties believed to be financially responsible, and each of them is enforceable in accordance with its terms (except in all cases as such enforceability may be limited by (1) bankruptcy, insolvency, reorganization, moratorium, receivership, conservatorship and other Laws now or hereafter in effect relating to or affecting the enforcement of creditors' rights generally and (2) general equitable principles and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought), and is in full force and effect.  Neither Merchants nor any of its Subsidiaries, nor to the Knowledge of Merchants, any other party thereto, is in Default of any of its obligations under any such agreement or arrangement.

 

 

or its Subsidiaries' business, except where the failure to possess such rights, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Merchants.  Neither Merchants nor any of its Subsidiaries has (A) licensed to any Person in source code form any Intellectual Property owned by Merchants or any of its Subsidiaries or (B) entered into any exclusive agreements relating to Intellectual Property owned by Merchants or its Subsidiaries.

(ii)

Section 3.2(m)(ii) of the Merchants Disclosure Letter lists all patents and patent applications, all registered and material unregistered trademarks and applications therefor, trade names and service marks, registered copyrights and applications therefor, domain names, web sites and mask works owned by or exclusively licensed to Merchants or its Subsidiaries included in its Intellectual Property, including the jurisdictions in which each such Intellectual Property right has been issued or registered or in which any application for such issuance and registration has been filed.  Except as, individually or in the aggregate, has not had and would not reasonably be expected to have a Material Adverse Effect on Merchants, no royalties or other continuing payment obligations are due in respect of any third-party patents, trademarks or copyrights, including software.

(iii)

All patents, registered trademarks, registered service marks and registered copyrights held by Merchants and its Subsidiaries are valid and subsisting.  Since December 31, 2013, neither Merchants nor any of its Subsidiaries (A) has been sued in any Litigation which involves a claim of infringement of any patents, trademarks, service marks, copyrights or violation of any trade secret or other proprietary right of any third party or (B) has brought any Litigation for infringement of its Intellectual Property or breach of any license or other Contract involving its Intellectual Property against any third party.

(ii)	True and complete lists of all Loans as of June 30, 2016 and on a monthly basis thereafter, and of the investment portfolios of Merchants and each of its Subsidiaries as of such date, are disclosed in Section 3.2(n)(ii) of the Merchants

 

 

 

Disclosure Letter.  Except as specifically set forth in Section 3.2(n)(ii) of the Merchants Disclosure Letter, neither Merchants nor any of its Subsidiaries is a party to any Loan that, as of the most recent month-end prior to the date of this Agreement, (A) was delinquent by more than thirty (30) days in the payment of principal and/or interest, (B) to the Knowledge of Merchants, was otherwise in material default for more than thirty (30) days, (C) was on nonaccrual status or classified as "substandard," "doubtful," "loss," "other assets specially mentioned," "special mention," "criticized," "classified," "watch list" or any comparable classification by Merchants or any of its Subsidiaries or any Regulatory Authority having jurisdiction over Merchants or any of its Subsidiaries, (D) was an obligation of any director, executive officer or five percent (5%) stockholder of Merchants or any of its Subsidiaries who is subject to Regulation O of the Federal Reserve Board (12 C.F.R. Part 215), or any Person controlling, controlled by or under common control with any of the foregoing, (E) was in violation of any Law within such Law's statute of limitations period that materially and adversely affects the value of the Loan, (F) has had its respective terms to maturity accelerated or with respect to which Merchants or any Subsidiary of Merchants has notified the borrower of its intention to accelerate the Loan or declare a default, (G) has been terminated or amended by Merchants or any Subsidiary of Merchants during the past twelve (12) months by reason of a default or adverse developments in the condition of the borrower or other events or circumstances affecting the credit of the borrower (except for modifications and amendments contained in the loan file, true and complete copies of which have been made available to Community), (H) has a borrower, customer or other party to such Loan which has notified Merchants or any Subsidiary of Merchants during the past twelve (12) months of, or has asserted against Merchants, in writing, or to the Knowledge of Merchants, orally, any "lender liability" claim that, if valid, would materially and adversely affect the value of the Loan, (I) has, during the past two (2) years, had its interest rate terms reduced and/or the maturity dates extended subsequent to the agreement under which the Loan was originally created due to concerns regarding the borrower's ability to pay in accordance with such initial terms (except for reductions, extensions, modifications and amendments contained in the loan file, true and complete copies of which have been made available to Community), (J) in connection therewith, has a specific reserve allocation, or (K) was classified by Merchants as "other real estate owned," including all other assets currently held that were acquired through foreclosure or in lieu of foreclosure (such Loans described in subsections (A) through (K), "Delinquent Loans").

(iii)

Each outstanding Loan (including Loans held for resale to investors) in which Merchants or any of its Subsidiaries is the creditor was solicited and originated, and is and has been administered and, where applicable, serviced, and the relevant loan or other similar files are being maintained, in all material respects, in accordance with the relevant notes or other credit or security documents, the written underwriting standards of Merchants and its Subsidiaries (and, in the case of Loans held for resale to investors, the underwriting standards, if any, of the applicable investors) and with all applicable federal, state and local Laws.

(iv)	None of the agreements pursuant to which Merchants or any of its Subsidiaries has sold Loans or pools of Loans or participations in Loans or pools of

 

 

 

Loans contains any obligation to repurchase such Loans or interests therein solely on account of a payment default by the obligor on any such Loan, and neither Merchants nor any of its Subsidiaries has received written notice of any pending claim for it to repurchase Loans or interests therein.

(v)

Neither Merchants nor any of its Subsidiaries is now nor has it ever been since December 31, 2013, subject to any material fine, suspension, settlement or other Contract or other administrative agreement or sanction by, or any reduction in any loan purchase commitment from, any Governmental Authority or Regulatory Authority relating to the origination, sale or servicing of mortgage or consumer Loans.

 

 

identifiable natural person, including, but not limited to "personally identifiable financial information" as that term is defined in 12 CFR Part 1016.

(ii)

The Technology Systems (for a period of eighteen (18) months prior to the Effective Time) have not suffered unplanned disruption causing a Material Adverse Effect on Merchants.  Except for ongoing payments due under Contracts with third parties, the Technology Systems are free from any Liens (other than Permitted Liens).  Access to business-critical parts of the Technology Systems is not shared with any third party.

(iii)

Merchants has furnished to Community a true and correct copy of Merchants' disaster recovery and business continuity arrangements.

(iv)

Neither Merchants nor any of its Subsidiaries has received notice of or is aware of any material circumstances, including the execution of this Agreement or the Bank Merger Agreement or the consummation of the transactions contemplated hereby or thereby, that would enable any third party to terminate any of Merchants' or any of its Subsidiaries' agreements or arrangements relating to the Technology Systems (including maintenance and support).

 

 

 

 

each such lease is valid without Default thereunder by the lessee or, to the Knowledge of Merchants, the lessor. There are no pending or, to the Knowledge of Merchants, threatened condemnation proceedings against the Merchants Real Property.  Merchants has previously made available to Community a true and complete list of all Merchants Real Property as of the date of this Agreement.

 

 

thereto, with respect to all information set forth or incorporated by reference therein furnished by Merchants relating to Merchants 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 Merchants and its directors, officers, and stockholders included (or submitted for inclusion) in any application and furnished by it pursuant to Section 4.5 or 4.8 of this Agreement shall be true, correct and complete in all material respects.

(ii)

Each of Merchants and its Subsidiaries has good title in all material respects to all securities and commodities owned by it (except those sold under repurchase agreements), free and clear of any Lien, except as set forth in the financial statements included in the Merchants Reports or to the extent such securities or commodities are pledged in the ordinary course of business consistent with past practice to secure obligations of Merchants or its Subsidiaries.  Such securities and commodities are valued on the books of Merchants in accordance with GAAP in all material respects.

(iii)

Merchants and its Subsidiaries and their respective businesses employ investment, securities, commodities, risk management and other policies, practices and procedures that Merchants believes are prudent and reasonable in the context of such businesses and Merchants and its Subsidiaries have, since December 31, 2013, been in compliance in all material respects with such policies, practices and procedures.  Prior to the date of this Agreement, Merchants has made available to Community the material terms of such policies, practices and procedures.

 

 

"forward-looking statements" disclaimer or any other statements that are similarly forward-looking in nature), Community hereby represents and warrants to Merchants as follows:

(ii)

Community's Board of Directors has duly approved and declared advisable this Agreement and the Merger and the other transactions contemplated hereby, including the Bank Merger Agreement and the Bank Merger.  Community Bank's Board of Directors has duly approved and declared advisable the Bank Merger Agreement, the Bank Merger and the other transactions contemplated hereby and thereby.

(iii)

Neither the execution and delivery of this Agreement or the Bank Merger Agreement by Community or Community Bank, as applicable, nor the consummation by either of them of the transactions contemplated hereby, nor compliance by them with any

 

 

 

of the provisions hereof, will (A) violate, conflict with or result in a breach of any provision of the Organizational Documents of Community or Community Bank, (B) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien (other than Permitted Liens) upon any of the respective properties or assets of Community or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, Contract, Permit or other instrument or obligation to which Community or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound, or (C) subject to receipt of the Requisite Regulatory Approvals and the expiration of any waiting period required by Law as described in clause (iv) below, violate any Law or Order applicable to Community or Community Bank or any of their respective material assets, except, in the case of clauses (B) and (C), as individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on the ability of Community to perform its obligations under this Agreement or to timely consummate the Merger.

(iv)

Other than in connection or compliance with the provisions of the Securities Laws, and other than (A) the Requisite Regulatory Approvals, (B) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware as required by the DGCL and (C) as set forth in Section 3.3(b)(iv)(C) of the Community Disclosure Letter, no Order of, or Consent of, to or with any Governmental Authority or other third party is necessary in connection with the execution, delivery or performance of this Agreement or the Bank Merger Agreement by Community or Community Bank, as applicable, or the consummation by Community or Community Bank, as applicable, of the Merger, the Bank Merger and the other transactions contemplated by this Agreement and the Bank Merger Agreement.

 

 

preemptive or contractual) capable of becoming a Contract or Right for the purchase, subscription or issuance of any securities of Community.  All of the outstanding shares of Community Common Stock are duly and validly issued and outstanding and are fully paid (or will be fully paid when vested) and, except as expressly provided otherwise under applicable Law, nonassessable under the DGCL.  None of the outstanding shares of Community Common Stock have been issued in violation of any preemptive rights of the current or past stockholders of Community.  All of the outstanding shares of Community Common Stock and all Rights to acquire shares of Community Common Stock have been issued in compliance in all material respects with all applicable federal and state Securities Laws.  All issued and outstanding shares of capital stock of Community's Subsidiaries have been duly authorized and are validly issued, fully paid and (except as provided in 12 U.S.C. Section 55) nonassessable.  The outstanding capital stock of each of Community's Subsidiaries has been issued in compliance with all legal requirements and is not subject to any preemptive or similar rights.  Community owns all of the issued and outstanding shares of capital stock or other ownership interests of all of its material Subsidiaries, free and clear of all Liens (other than Permitted Liens).

(ii)

An accurate copy of each final SEC Report filed with or furnished by Community or any of its Subsidiaries to the SEC since December 31, 2013 pursuant to the Securities Act or the Exchange Act (the "Community Reports") is publicly available.  No Community Report, as of the date thereof (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of the relevant meetings, respectively), contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, except

 

 

 

that information filed or furnished as of a later date (but before the date of this Agreement) shall be deemed to modify information as of an earlier date.  As of their respective dates, all of the Community Reports complied in all material respects with the published rules and regulations of the SEC with respect thereto.  As of the date of this Agreement, no executive officer of Community has failed in any respect to make the certifications required of him or her under Section 302 or 906 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act.

(iii)

The financial statements of Community and its Subsidiaries included (or incorporated by reference) in the Community Reports (including the related notes, where applicable) (A) have been prepared from, and are in accordance with, the books and records of Community and its Subsidiaries, (B) fairly present in all material respects the consolidated results of operations, cash flows, changes in stockholders' equity and consolidated financial position of Community and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth (subject in the case of unaudited statements to year-end audit adjustments normal in nature and amount), (C) complied, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto and (D) have been prepared in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto.  The books and records of Community and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions.  PricewaterhouseCoopers LLP has not resigned (or informed Community that it intends to resign) or been dismissed as independent public accountants of Community as a result of or in connection with any disagreements with Community on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.

(iv)

Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on Community, neither Community nor any of its Subsidiaries has any Liability (whether absolute, accrued, contingent or otherwise and whether due or to become due) required by GAAP to be included on a consolidated balance sheet of Community, except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Community included in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2016 (including any notes thereto), and for liabilities incurred (A) in the ordinary course of business consistent with past practice since June 30, 2016, or (B) in connection with this Agreement and the transactions contemplated hereby.

(v)

The records, systems, controls, data and information of Community and its Subsidiaries are recorded, stored, maintained and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of Community or its Subsidiaries or accountants (including all means of access thereto and therefrom), except for any non exclusive ownership and nondirect control that, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect on Community.  Community (A) has implemented and maintains disclosure controls and

 

 

 

procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that material information relating to Community, including its Subsidiaries, is made known to the chief executive officer and the chief financial officer of Community by others within those entities as appropriate to allow timely decisions regarding required disclosures and to make the certifications required by the Exchange Act and Sections 302 and 906 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act, and (B) has disclosed, based on its most recent evaluation prior to the date hereof, to Community's outside auditors and the audit committee of Community's Board of Directors (x) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which are reasonably likely to adversely affect Community's ability to record, process, summarize and report financial information, and (y) to the Knowledge of Community, any fraud, whether or not material, that involves management or other employees who have a significant role in Community's internal controls over financial reporting.  To the Knowledge of Community, there is no reason to believe that Community's outside auditors and its chief executive officer and chief financial officer will not be able to give the certifications and attestations required pursuant to the rules and regulations adopted pursuant to Section 404 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act, without qualification, when next due.

(vi)

Since December 31, 2013, (A) neither Community nor any of its Subsidiaries, nor, to the Knowledge of Community, any director, officer, auditor, accountant or Representative of Community or any of its Subsidiaries, has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods (including with respect to loan loss reserves, write-downs, charge-offs and accruals) of Community or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that Community or any of its Subsidiaries has engaged in questionable accounting or auditing practices, and (B) no attorney representing Community or any of its Subsidiaries, whether or not employed by Community or any of its Subsidiaries, has reported evidence of a material violation of Securities Laws, breach of fiduciary duty or similar violation by Community or any of its officers, directors, employees or agents to the Board of Directors of Community or any committee thereof or to the Knowledge of Community, to any director or officer of Community.

 

 

all Laws applicable to their businesses, operations, properties, assets and employees.  Community and each of its Subsidiaries have in effect all Permits necessary for them to own, lease or operate their material properties and assets and to carry on their businesses and operations as now conducted and, to Community's Knowledge, there has occurred no Default under any material Permit applicable to their respective businesses or employees conducting their respective businesses.

(ii)

Neither Community nor any of its Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has been since December 31, 2013, a recipient of any supervisory letter from, or since December 31, 2013, has adopted any policies, procedures or board resolutions at the request or suggestion of any Regulatory Authority or other Governmental Authority that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business (each, whether or not set forth in the Community Disclosure Letter, a "Community Regulatory Agreement"), nor has Community or any of its Subsidiaries been advised in writing or, to the Knowledge of Community, orally, since December 31, 2013, by any Regulatory Authority or other Governmental Authority that it is considering issuing, initiating, ordering or requesting any such Community Regulatory Agreement.

(iii)

Neither Community nor any of its Subsidiaries (nor, to the Knowledge of Community, any of their respective directors, executives, Representatives, agents or employees) (A) has used or is using any corporate funds for any illegal contributions, gifts, entertainment or other unlawful expenses relating to political activity, (B) has used or is using any corporate funds for any direct or indirect unlawful payments to any foreign or domestic governmental officials or employees, (C) has violated or is violating any provision of the Foreign Corrupt Practices Act of 1977, (D) has established or maintained, or is maintaining, any unlawful fund of corporate monies or other properties or (E) has made any bribe, unlawful rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

 

 

 

 

necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading.  All information concerning Community and its directors, officers, and stockholders included (or submitted for inclusion) in any application and furnished by it pursuant to Section 4.5 or 4.8 of this Agreement shall be true, correct and complete in all material respects.

(ii)

Neither Community nor any of its Subsidiaries has received any notice of assessment or proposed assessment in connection with any Tax that has not been paid or otherwise settled, withdrawn, or resolved, and there is no threatened or pending dispute, action, suit, proceeding, claim, investigation, audit, examination, or other Litigation regarding any Tax of Community, any of its Subsidiaries or the assets of Community or any of its Subsidiaries.  No officer or employee responsible for Tax matters of Community or any of its Subsidiaries expects any Taxing Authority to assess any

 

 

 

additional Tax for any period for which a Tax Return has been filed. There are no agreements, waivers or other arrangements providing for an extension of time with respect to the assessment of any Tax or deficiency against Community or any of its Subsidiaries that are currently in force, and neither Community nor any of its Subsidiaries has waived or extended the applicable statute of limitations for the assessment or collection of any Tax or agreed to a Tax assessment or deficiency.

(iii)

Neither Community nor any of its Subsidiaries is a party to a Tax allocation, sharing, indemnification or similar agreement or any agreement (other than an agreement solely between Community and its Subsidiaries) pursuant to which it has any obligation to any Person with respect to Taxes, and neither Community nor any of its Subsidiaries has been a member of an affiliated group filing a consolidated federal, state or local income Tax Return or any combined, affiliated or unitary group for any Tax purpose (other than the group of which it is currently a member), and neither Community nor any of its Subsidiaries has any Tax liability under Treasury Regulation Section 1.1502-6 or any similar provision of Law, or as a transferee or successor, by Contract or otherwise, other than with respect to the group of which Community is the parent.  None of Community and its Subsidiaries have any deferred gain or loss arising out of any deferred intercompany transaction, as described in Treasury Regulation Section 1.1502-13, or, in the case of any of its Subsidiaries, have an excess loss account in its stock, as described in Treasury Regulation Section 1.1502-19.

(iv)

Community and its Subsidiaries have withheld and paid over to the appropriate Taxing Authority all material amounts of Taxes required to have been withheld and paid over by them, and have complied in all material respects with all information reporting and backup withholding requirements under all applicable federal, state, local and foreign Laws in connection with amounts paid or owing to any Person, including Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee or independent contractor, and Taxes required to be withheld and paid pursuant to Sections 1441, 1442 and 3406 of the Code or similar provisions under state, local or foreign Law.

(v)

Neither Community nor any of its Subsidiaries has been a party to any distribution occurring during the five (5)-year period ending on the date hereof in which the parties to such distribution treated the distribution as one to which Section 355 of the Code applied. No Liens for Taxes exist with respect to any assets of Community or any of its Subsidiaries, except for statutory Liens for Taxes not yet due and payable.

(vi)

Neither Community nor any of its Subsidiaries is a "controlled foreign corporation" within the meaning of Section 957(a) of the Code.  Community and each of its Subsidiaries have complied with all of the income inclusion and Tax reporting provisions of the U.S. anti-deferral Tax regimes, including the controlled foreign corporation, passive foreign investment company and foreign personal holding company regimes.

 

 

 

(vii)

Neither Community nor any of its Subsidiaries has participated in any reportable transaction, as defined in Treasury Regulation Section 1.6011-4(b)(1) or any comparable provision of state or local Tax Law.

 

 

not permit any of its Subsidiaries to, without the prior written consent of Community (which consent shall not be unreasonably withheld, conditioned or delayed):

 

 

 

 

 

 

      

 

 

soon as reasonably practicable after the Registration Statement is declared effective by the SEC for the purpose of obtaining the Merchants Stockholder Approval and, if so desired and mutually agreed (or otherwise required by Law), upon other matters of the type customarily brought before an annual or special meeting of stockholders to adopt a merger agreement, and Merchants shall use its reasonable best efforts to cause such meeting to occur as soon as reasonably practicable.  The Board of Directors of Merchants shall use its reasonable best efforts to obtain from the stockholders of Merchants the Merchants Stockholder Approval, including by communicating to its stockholders the Merchants Directors' Recommendation (and including such recommendation in the Proxy Statement), and Merchants shall engage a proxy solicitor reasonably acceptable to Community to assist in the solicitation of proxies from stockholders relating to the Merchants Stockholder Approval; provided, however, that, prior to receipt of the Merchants Stockholder Approval and subject to Sections 6.1 and 6.2, if the Board of Directors of Merchants, after receiving the advice of its outside counsel and, with respect to financial matters, its financial advisor, determines in good faith that, because of (x) the receipt of an Acquisition Proposal that constitutes a Superior Proposal or (y) the occurrence of an Intervening Event, failure to take such action would be inconsistent with its fiduciary duties under applicable Law, the Board of Directors of Merchants may (A) make an Adverse Recommendation Change (although the resolutions approving this Agreement as of the date hereof may not be rescinded or amended), in which event the Board of Directors of Merchants may communicate the basis for its Adverse Recommendation Change to Merchants' stockholders in the Proxy Statement or an appropriate amendment or supplement thereto to the extent required by Law or (B) solely in the case of a Superior Proposal that did not result from a breach by Merchants of its obligations under Section 4.12(a), cause Merchants to terminate this Agreement pursuant to Section 6.1(i) and authorize Merchants to enter into a definitive agreement with respect to such Superior Proposal (it being understood and agreed that no such termination shall be effective unless in advance of or concurrently with such termination Merchants pays or causes to be paid to Community the Termination Fee and otherwise complies with Section 6.1(i) and Section 6.2(c)); provided further, that the Board of Directors of Merchants (including any committee thereof) may not take any actions under the foregoing proviso unless (i) it gives Community at least four (4) Business Days' prior written notice of its intention to take such action and a reasonably detailed description of the Acquisition Proposal or Intervening Event giving rise to its determination to take such action (including, in the case of an Acquisition Proposal, the latest material terms and conditions and the identity of the third party in any such Acquisition Proposal (including an unredacted copy of all proposed agreements and other documents with respect to such Acquisition Proposal) or any amendment or modification thereof) and (ii) at the end of such notice period, the Board of Directors of Merchants takes into account in good faith any amendment or modification to this Agreement proposed by Community and after receiving the advice of its outside counsel and, with respect to financial matters, its financial advisor, determines in good faith that it would nevertheless be inconsistent with its fiduciary duties under applicable Law to fail to take such action.  During the four (4) Business Day notice period referred to in clause (i) above, Merchants shall, and shall cause its financial and legal advisors to, negotiate with Community in good faith (to the extent Community seeks to negotiate) regarding any revisions to the terms of the transactions contemplated by this Agreement proposed by Community.  Any material amendment to any Acquisition Proposal or material development with respect to any Intervening Event will be deemed to be a new Acquisition Proposal or Intervening Event, as the case may be, for purposes of this Section 4.5(a) and will require a new

 

notice period as referred to in this Section 4.5(a), except that any reference to four (4) Business Days shall instead be three (3) Business Days.

 

 

contemplated hereby and shall take such charges in accordance with GAAP, as such Parties mutually agree upon.

 

 

 

 

cause or constitute a breach of any of its representations, warranties, covenants, or agreements contained herein; provided, that any failure to give notice in accordance with the foregoing with respect to any breach shall not be deemed to constitute the failure of any condition set forth in Section 5.2(a) or 5.2(b), or Section 5.3(a) or 5.3(b), as the case may be, to be satisfied, or otherwise constitute a breach of this Agreement by such Party due to its failure to give such notice unless the underlying breach would independently result in a failure of the conditions set forth in Section 5.2(a) or 5.2(b), or Section 5.3(a) or 5.3(b), as the case may be, or give rise to a termination right under Section 6.1.

 

 

Recommendation Change effected in accordance with Section 4.5(a) or with respect to its receipt and consideration of any Acquisition Proposal in accordance with Section 4.12(e).

 

 

discussion or negotiation that is reasonably likely to lead to or that contemplates an Acquisition Proposal, in each case together with the terms and conditions of such Acquisition Proposal, request, inquiry, proposal or offer, and shall furnish Community with a copy of such Acquisition Proposal (or, where such Acquisition Proposal is not in writing, with a description of the material terms and conditions thereof).  Merchants shall keep Community informed (orally and in writing) in all material respects on a timely basis of the status and details (including, within twenty four (24) hours after the occurrence of any amendment, modification, development, discussion or negotiation) of any such Acquisition Proposal, request, inquiry, proposal or offer, including furnishing copies of any written inquiries, correspondence and draft documentation, and written summaries of any material oral inquiries or discussions.  Without limiting any of the foregoing, Merchants shall promptly (and in any event within twenty four (24) hours) notify Community orally and in writing if it determines to begin providing information or to engage in discussions or negotiations concerning an Acquisition Proposal and shall in no event begin providing such information or engaging in such discussions or negotiations prior to providing such notice.

 

 

hereby, and each shall take all necessary steps to exempt (or ensure the continued exemption of) the Merger and the other transactions contemplated hereby from any applicable Takeover Law now or hereafter in effect.  If any Takeover Law may become, or may purport to be, applicable to the transactions contemplated hereby, each Party and the members of their respective Boards of Directors will grant such approvals and take such actions as are necessary so that the transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects of any Takeover Law on any of the transactions contemplated by this Agreement, including, if necessary, challenging the validity or applicability of any such Takeover Law.

 

 

other documents issued, adopted or executed in connection with the implementation of this Section 4.14(c) shall be subject to Community's reasonable prior review and approval, which shall not be unreasonably withheld, conditioned or delayed.

 

 

 the terms of the applicable plan, nor shall anything in this Section 4.14 be construed to require Community or any of its Subsidiaries to retain the employment of any particular Continuing Employee for any fixed period of time following the Effective Time.

 

 

 Indemnified Party is not entitled to indemnification.  The Indemnified Party shall reasonably cooperate with Community in the Indemnified Party's defense of any such claim, action, suit, proceeding or investigation.

 

 

 

 

shall be under any obligation to act in a manner that could reasonably be deemed to constitute anti-competitive behavior under federal or state antitrust Laws.

 

 

subject to the satisfaction of the following conditions, unless waived by Community pursuant to Section 7.6:

 

 

 to the satisfaction of the following conditions, unless waived by Merchants pursuant to Section 7.6:

 

 

 

 5:00 p.m., New York City time, on the Expiration Date, to extend the Expiration Date for an additional three (3) month period;

(i)	(A) The Community Market Value is less than (B) the Initial Community Market Value multiplied by 0.75; and

(ii)

(A) The number obtained by dividing the Community Market Value by the Initial Community Market Value (the "Community Ratio") is less than (B) the number obtained by dividing the Final Index Price by the Initial Index Price and subtracting 0.20 from such quotient (such number, the "Index Ratio"); subject, however, to the following four (4) sentences.  If Merchants elects to exercise its termination right pursuant to this Section 6.1(h), it shall give prompt written notice thereof to Community, but in any event not later than the end of the five (5) day period referred to above.  During the five (5) Business Day period commencing with its receipt of such notice, Community shall have the option of increasing the Stock Election

 

 

 

Consideration to equal the lesser of (A) a quotient (rounded to the nearest one-ten-thousandth), the numerator of which is equal to the product of the Stock Election Consideration (as then in effect) and the Index Ratio, and the denominator of which is equal to the Community Ratio, or (B) a quotient (rounded to the nearest one-ten-thousandth), the numerator of which is equal to the product of the Stock Election Consideration (as then in effect), the Initial Community Market Value and 0.75, and the denominator of which is the Community Market Value.  If the Stock Election Consideration is so increased, the Mixed Stock Consideration shall be automatically increased to equal the amount obtained by multiplying the increased Stock Election Consideration determined pursuant to the immediately preceding sentence by 0.70.  If within such five (5) Business Day period, Community delivers written notice to Merchants that it intends to proceed with the Merger by paying such additional consideration as contemplated by the two preceding sentences, then no termination shall have occurred pursuant to this Section 6.1(h), and this Agreement shall remain in full force and effect in accordance with its terms (except that the Stock Election Consideration and the Mixed Stock Consideration shall have been so modified). For purposes of this Section 6.1(h), the following terms shall have the meanings indicated below: "Community Market Value" means the volume-weighted average trading price of the Community Common Stock on the NYSE for the twenty (20) trading day period ending on and including the third (3rd) trading day immediately preceding the Determination Date. "Determination Date" means the later of (i) the date on which the last Requisite Regulatory Approval is obtained without regard to any requisite waiting period or (ii) the date on which the Merchants Stockholder Approval is obtained. "Final Index Price" means the average closing price of the Index for the same trading days used in calculating the Community Market Value. "Index" means the SNL Midcap U.S. Bank Index or, if such Index is not available, such substitute or similar Index as substantially replicates the SNL Midcap U.S. Bank Index. "Initial Community Market Value" means $47.70. "Initial Index Price" means $340.33. If Community or any company belonging to the Index declares or effects a stock dividend, reclassification, recapitalization, split-up, combination, exchange of shares or similar transaction between the date of this Agreement and the Determination Date, the prices for the common stock of such company shall be appropriately adjusted for the purposes of applying this Section 6.1(h); or

(ii)	By Merchants, prior to the receipt of the Merchants Stockholder Approval, in order to accept a Superior Proposal in accordance with, and subject to the terms and

 

 

conditions of, Section 4.5(a); provided, however, that Merchants shall substantially concurrently with such termination enter into a definitive agreement with respect to such Superior Proposal and concurrently with or prior to such termination Merchants shall pay or cause to be paid to Community the Termination Fee pursuant to Section 6.2(c).

 

The Party desiring to terminate this Agreement pursuant to clause (b), (c), (d), (e), (f), (g), (h) or (i) of this Section 6.1 shall give written notice of such termination to the other Party in accordance with Section 7.8, specifying the provision or provisions hereof pursuant to which such termination is effected.

 

 

be suffered by Community based upon, resulting from or arising out of the circumstances giving rise to such termination of this Agreement.  In no event shall Merchants be required to pay the Termination Fee on more than one occasion.

"2013 Warrants" means the warrants originally issued on April 30, 2013 by NUVO Bank & Trust Company (with respect to which Merchants issued replacement warrants on December 4, 2015) to purchase shares of Merchants Common Stock at a price per share of $20.69, expiring on April 30, 2017.

"Acceptable Confidentiality Agreement" means a confidentiality agreement containing terms substantially similar to and no less favorable in the aggregate to Merchants than the terms of the Confidentiality Agreement; provided, however, that such confidentiality agreement may contain additional provisions that permit Merchants to comply with the provisions of Sections 4.5 and 4.12.

"Acquisition Proposal" shall mean, other than the transactions contemplated by this Agreement, any offer, proposal or inquiry relating to, or any third party indication of interest in, (i) any acquisition or purchase, direct or indirect, of fifteen percent (15%) or more of the consolidated assets of Merchants and its Subsidiaries or fifteen percent (15%) or more of any class of equity or voting securities of Merchants or any of its Subsidiaries whose assets, individually or in the aggregate, constitute more than fifteen percent (15%) of the consolidated assets of Merchants, (ii) any tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in a third party beneficially owning fifteen percent (15%) or more of any class of equity or voting securities of Merchants or any of its Subsidiaries whose assets, individually or in the aggregate, constitute more than fifteen percent (15%) of the consolidated assets of Merchants, or (iii) any merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving Merchants or any of its Subsidiaries whose assets, individually or in the aggregate, constitute more than fifteen percent (15%) of the consolidated assets of Merchants.

 

 

"Affiliate" of a Person shall mean any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person.  For purposes of this definition, "control" (and its derivatives) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of equity, voting or other interests, as trustee or executor, by Contract or otherwise.

"Available Cash Election Amount" shall mean the difference between (a) the product of the Mixed Cash Consideration multiplied by the total number of shares of Merchants Common Stock (other than Merchants Shares to be cancelled in accordance with Section 2.1(b)) issued and outstanding immediately prior to the Effective Time, minus (b) the product of (i) the total number of Mixed Election Shares (it being understood, for the avoidance of doubt, that No Election Shares shall be deemed to be Mixed Election Shares for this purpose), multiplied by (ii) the Mixed Cash Consideration, minus (c) the product of (i) the total number of Dissenting Shares and Merchants Restricted Shares as of immediately prior to the Effective Time multiplied by (ii) the Per Share Merger Consideration Value.

"Average Trading Price" shall mean the volume-weighted average trading price of Community Common Stock on the NYSE during the twenty (20) trading day period ending on and including the third (3^rd) trading day immediately preceding the date upon which the Effective Time occurs.

"Benefit Plan" shall mean any "employee benefit plan" (as that term is defined in Section 3(3) of ERISA), including any plan that is a "multiemployer plan" as defined in Section 3(37) of ERISA, and any other employee benefit plan, policy, or agreement, whether or not covered by ERISA, and any pension, retirement, profit-sharing, deferred compensation, equity compensation, employment, stock purchase, gross-up, retention, incentive compensation, collective bargaining agreement, employee stock ownership, severance, change in control, vacation, bonus, or deferred compensation plan, policy, or arrangement, any medical, vision, dental, or other written health plan, any life insurance plan, fringe benefit plan, and any other employee program or agreement, whether formal or informal or written or oral.

"BHC Act" shall mean the federal Bank Holding Company Act of 1956, as amended, and rules and regulations thereunder.

"Business Day" shall mean any day that the NYSE is normally open for trading for a full day and that is not a Saturday, a Sunday or a day on which banks in New York, New York are authorized or required to close for regular banking business.

"Cash Election Amount" shall mean the product of the number of Cash Election Shares multiplied by the Cash Election Consideration.

"Code" shall mean the Internal Revenue Code of 1986, as amended, any successor statute thereto, and the rules and regulations thereunder.

"Community Benefit Plan" shall mean any Benefit Plan that is entered into, maintained by, sponsored in whole or in part by, or contributed to by Community or any Subsidiary or ERISA Affiliate thereof, or under which Community or any Subsidiary or ERISA

 

 

Affiliate thereof could reasonably be expected to have any obligation or Liability, whether actual or contingent, with respect to any employee of Community.

"Community Common Stock" or "Community Shares" shall mean the $1.00 par value per share common stock of Community.

"Confidentiality Agreement" shall mean that certain Confidentiality Agreement, dated June 13, 2016, by and between Community and Merchants.

"Consent" shall mean any filing, notice, registration, consent, approval, authorization, clearance, exemption, waiver, or similar affirmation with, to or by any Person pursuant to any Contract, Law, Order, or Permit.

"Contract" shall mean any written or oral agreement, arrangement, commitment, contract, indenture, instrument, lease, understanding, note, bond, license, mortgage, deed of trust or undertaking of any kind or character to which any Person is a party or that is binding on any Person or its capital stock, assets, or business.

"Default" shall mean (i) any breach or violation of or default under any Contract, Law, Order, or Permit, (ii) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a breach or violation of or default under any Contract, Law, Order, or Permit, or (iii) any occurrence of any event that with or without the passage of time or the giving of notice or both would give rise to a right to terminate or revoke, change the current terms of, or renegotiate, or to accelerate, increase, or impose any Liability under, any Contract, Law, Order, or Permit.

"Environmental Laws" shall mean all Laws relating to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface, or subsurface strata) and which are administered, interpreted, or enforced by the United States Environmental Protection Agency and state and local agencies with jurisdiction over, and including common Law in respect of, pollution or protection of the environment, including the Comprehensive Environmental Response, Compensation and Liability Act, as amended, the Resource Conservation and Recovery Act, as amended, and other Laws relating to emissions, discharges, releases, or threatened releases of any Hazardous Material, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of any Hazardous Material, including all requirements for Permits, licenses and other authorizations that may be required.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

"ERISA Affiliate" of any Person means any entity that is, or at any relevant time was, treated as a single employer with such Person under Section 414 of the Code.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

 

 

"Exhibits" A through C, inclusive, shall mean the Exhibits so marked, copies of which are attached to this Agreement.  Such Exhibits are hereby incorporated by reference herein and made a part hereof, and may be referred to in this Agreement and any other related instrument or document without being attached hereto.

"Facilities" shall mean all buildings and improvements on the property of any Person.

"FDIC" shall mean the Federal Deposit Insurance Corporation.

"Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System (including any Federal Reserve Bank).

"FINRA" shall mean the Financial Industry Regulatory Authority.

"GAAP" shall mean accounting principles generally accepted in the United States of America, consistently applied during the periods involved.

"Governmental Authority" shall mean each Regulatory Authority and any other domestic or foreign court, arbitrator or arbitration panel, administrative agency, commission or other governmental authority or instrumentality (including the staff thereof), or any industry self-regulatory authority (including the staff thereof).

"Hazardous Material" shall mean (i) any hazardous substance, hazardous material, hazardous waste, regulated substance, or toxic substance (as those terms are defined by any applicable Environmental Laws), and (ii) any chemicals, pollutants, contaminants, petroleum, petroleum products that are or become regulated under any applicable local, state, or federal Law (and specifically shall include asbestos requiring abatement, removal, or encapsulation pursuant to the requirements of governmental authorities and any polychlorinated biphenyls).

"Intellectual Property" shall mean (i) any patents, copyrights, trademarks, service marks, maskworks or similar rights throughout the world, and applications or registrations for any of the foregoing, (ii) any proprietary interest, whether registered or unregistered, in know-how, copyrights, trade secrets, database rights, data in databases, website content, inventions, invention disclosures or applications, software (including source and object code), operating and manufacturing procedures, designs, specifications and the like, (iii) any proprietary interest in any similar intangible asset of a technical, scientific or creative nature, including slogans, logos and the like and (iv) any proprietary interest in or to any documents or other tangible media containing any of the foregoing.

"Intervening Event" shall mean any material event or development or material change in circumstances with respect to Merchants and its Subsidiaries, taken as a whole, that (i) arises or occurs after the date of this Agreement and was neither known by nor reasonably foreseeable to the Merchants Board of Directors as of or prior to the date hereof and (ii) does not relate to (A) any Acquisition Proposal or (B) any Requisite Regulatory Approval.

"ISS" shall mean Institutional Shareholder Services, Inc.

 

 

"Knowledge" shall mean (i) with respect to Merchants, the knowledge of the individuals listed in Section 7.1 of the Merchants Disclosure Letter, after reasonable inquiry, and (ii) with respect to Community, the knowledge of the individuals listed in Section 7.1 of the Community Disclosure Letter, after reasonable inquiry.

"Law" shall mean any code, law (including any rule of common law), ordinance, regulation, rule, or statute applicable to a Person or its assets, Liabilities, or business, including those promulgated, interpreted, or enforced by any Governmental Authority.

"Liability" shall mean any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost, or expense (including costs of investigation, collection, and defense), claim, deficiency, or guaranty of any type, whether accrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, or otherwise.

"Lien" shall mean any mortgage, pledge, claim, reservation, restriction (other than a restriction on transfers arising under the Securities Laws), security interest, lien, or encumbrance of any nature whatsoever of, on, or with respect to any property or property interest, other than Liens for property Taxes not yet due and payable.

"Litigation" shall mean any action, arbitration, cause of action, claim, complaint, criminal prosecution, demand letter, governmental or other examination or investigation, hearing, inquiry, administrative or other proceeding, or notice (written or oral) by any Person alleging potential Liability, but shall not include claims of entitlement under any Benefit Plans that are made or received in the ordinary course of business.

"Material Adverse Effect" on Merchants or Community, as the case may be, shall mean a material adverse effect on (i) the financial condition, property, business, assets (tangible or intangible), liabilities or results of operations of such Party and its Subsidiaries taken as a whole or (ii) the ability of such Party and its Subsidiaries to perform their obligations under this Agreement or to timely consummate the Merger, the Bank Merger, or the other transactions contemplated by this Agreement; provided, however, that "Material Adverse Effect" shall not be deemed to include: (x) for purposes of (i) above, (A) changes after the date of this Agreement in GAAP or regulatory accounting requirements generally applicable to banks and their holding companies, (B) changes after the date of this Agreement in Laws or interpretations of Laws by Governmental Authorities of general applicability to banks and their holding companies, (C) changes after the date of this Agreement in general economic or market conditions in the United States or any state or territory thereof, in each case generally affecting banks and their holding companies, (D) changes after the date of this Agreement in market interest rates, (E) changes resulting from the announcement or pendency of the Merger or the other transactions contemplated hereby (including the impact thereof on relationships with customers, Service Providers or partners) or actions or inactions expressly required by this Agreement, (F) changes resulting from any Stockholder Litigation, and (G) changes after the date of this Agreement resulting from any failure to meet internal projections or forecasts or estimates of revenues or earnings for any period (it being understood that the circumstances giving rise to such failure that are not otherwise excluded from the definition of Material Adverse Effect may be taken into account in determining whether there has been a Material Adverse Effect), except with respect to clauses (A), (B), (C) and (D) to the extent that the effects of such changes are disproportionately

 

 

 adverse to the financial condition, property, business, assets (tangible or intangible), liabilities or results of operations of such Party and its Subsidiaries taken as a whole, as compared to other banks and their holding companies; or (y) for purposes of (ii) above, the impact of actions and omissions of a Party (or any of its Subsidiaries) taken with the prior informed written consent of the other Party.

"Merchants Benefit Plan" shall mean any Benefit Plan that is entered into, maintained by, sponsored in whole or in part by, or contributed to by Merchants or any Subsidiary or ERISA Affiliate thereof, or under which Merchants or any Subsidiary or ERISA Affiliate thereof could reasonably be expected to have any obligation or Liability, whether actual or contingent, with respect to any Service Provider.

"Merchants Common Stock" or "Merchants Shares" shall mean the $0.01 par value per share common stock of Merchants.

"Merchants Deferred Share" shall mean a right to receive a share of Merchants Common Stock under any Director Deferred Compensation Plan that is outstanding immediately prior to the Effective Time.

"Merchants Insiders" shall mean those officers and directors of Merchants subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Merchants.

"Merchants Stockholder Approval" shall mean the adoption of this Agreement by the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of Merchants Common Stock.

"Merchants Warrants" means the 2013 Warrants and the Organizers' Warrants.

"NYSE" shall mean the New York Stock Exchange.

"OCC" shall mean the Office of the Comptroller of the Currency.

"Order" shall mean any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, ruling, or writ of any federal, state, local, or foreign or other court, arbitrator, mediator, tribunal, administrative agency, or other Governmental Authority.

"Organizational Documents" shall mean the articles of incorporation, certificate of incorporation, charter, bylaws or other similar governing instruments, in each case as amended as of the date specified, of any Person.

"Organizers' Warrants" means the warrants originally issued on April 25, 2008 by NUVO Bank & Trust Company (with respect to which Merchants issued replacement warrants on December 4, 2015), to purchase Merchants Common Stock at a price per share of $41.39, expiring on April 25, 2018.

"Party" shall mean Community, on the one hand, or Merchants, on the other hand, and "Parties" shall mean Community and Merchants.

 

 

"Permit" shall mean any federal, state, local, and foreign governmental approval, authorization, certificate, easement, filing, franchise, license, or permit from Governmental Authorities that are required for the operation of the businesses of a Person or its Subsidiaries.

"Person" shall mean any natural person or any legal, commercial, or governmental entity, including a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, or person acting in a representative capacity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.

"Proxy Statement" shall mean the proxy statement relating to the Merchants Stockholder Meeting (including any amendments or supplements thereto).

"Registration Statement" shall mean the Registration Statement on Form S-4, or other appropriate form, including any pre-effective or post-effective amendments or supplements thereto, filed with the SEC by Community under the Securities Act with respect to the shares of Community Common Stock to be issued to the holders of Merchants Common Stock in connection with the transactions contemplated by this Agreement.

"Regulatory Authorities" shall mean, collectively, the Federal Trade Commission, the United States Department of Justice, the Federal Reserve Board (including any Federal Reserve Bank), the OCC, the FDIC, the Consumer Financial Protection Bureau, the Internal Revenue Service, the Vermont Commissioner, the Massachusetts Commissioner of Banks, the New York Department of Financial Services, the Pennsylvania Department of Banking & Securities, any state attorney general, all federal and state regulatory agencies having jurisdiction over the Parties and their respective Subsidiaries, FINRA, and the SEC (including, in each case, the staff thereof).

"Representative" shall mean any investment banker, financial advisor, attorney, accountant, consultant, agent or other representative of a Person.

"Rights" shall mean, with respect to any Person, securities, or obligations convertible into or exercisable or exchangeable for, or giving any other Person any right to subscribe for or acquire, or any options, calls, restricted stock, deferred stock awards, stock units, phantom awards, dividend equivalents, or commitments relating to, or any stock appreciation right or other instrument the value of which is determined in whole or in part by reference to the market price or value of, shares of capital stock of such Person, whether vested or unvested or exercisable or unexercisable, and shall include Merchants Stock Options and Merchants Warrants.

"SEC" shall mean the United States Securities and Exchange Commission or any successor thereto.

"SEC Reports" shall mean all forms, proxy statements, registration statements, reports, schedules, and other documents filed, or required to be filed, by a Party or any of its Subsidiaries with the SEC.

 

 

"Securities Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations thereunder.

"Securities Laws" shall mean the Securities Act, the Exchange Act, the Investment Company Act of 1940, the Investment Advisers Act of 1940, and the Trust Indenture Act of 1939, each as amended, state securities and "Blue Sky" Laws, including in each case the rules and regulations thereunder.

"Service Provider" shall mean any current or former director, officer, employee or individual independent contractor or consultant of Merchants or any of its Subsidiaries.

"Subsidiary" or "Subsidiaries" shall have the meaning assigned in Rule 1-02(x) of Regulation S-X of the SEC.

"Superior Proposal" means any bona fide, unsolicited, written Acquisition Proposal for at least a majority of the outstanding shares of Merchants Common Stock on terms that the Board of Directors of Merchants concludes in good faith to be more favorable from a financial point of view to Merchants' stockholders than the Merger and the other transactions contemplated by this Agreement (including the terms, if any, proposed by Community to amend or modify the terms of the transactions contemplated by this Agreement), (i) after receiving the advice of its financial advisor (which shall be a nationally recognized investment banking firm), (ii) after taking into account the likelihood of consummation of such transaction on the terms set forth therein (as compared to, and with due regard for, the terms herein) and (iii) after taking into account all legal (with the advice of outside counsel), financial (including the financing terms of any such proposal), regulatory and other aspects of such proposal (including any expense reimbursement and break-up fee provisions and conditions to closing) and any other relevant factors permitted under applicable Law.

"Tax" or "Taxes" shall mean all federal, state, local, and foreign taxes, charges, fees, levies, imposts, duties, or other like assessments, including assessments for unclaimed property, as well as income, gross receipts, excise, employment, sales, use, transfer, intangible, recording, license, payroll, franchise, severance, documentary, stamp, occupation, windfall profits, environmental, federal highway use, commercial rent, customs duties, capital stock, paid-up capital, profits, withholding, Social Security, single business and unemployment, disability, real property, personal property, registration, ad valorem, value added, alternative or add-on minimum, estimated, or other tax or governmental fee of any kind whatsoever, imposed by or required to be paid or withheld by the United States or any state, local, or foreign government or subdivision or agency thereof, whether disputed or not, including any related interest, penalties, and additions imposed thereon or with respect thereto, and including any Liability for Taxes of another Person pursuant to a contract, as a transferee or successor, under Treasury Regulation Section 1.1502-6 or analogous provision of state, local or foreign Law or otherwise.

"Tax Return" shall mean any report, return, information return, or other information provided or required to be provided to a Taxing Authority in connection with Taxes, including any return of an Affiliated or combined or unitary group that includes a Party or its Subsidiaries and including without limitation any estimated Tax return.

 

 

"Taxable Period" shall mean any period prescribed by any Taxing Authority.

"Taxing Authority" shall mean any federal, state, local, municipal, foreign, or other Governmental Authority, instrumentality, commission, board or body having jurisdiction over the Parties to impose or collect any Tax.

"Technology Systems" shall mean the electronic data processing, information, record keeping, communications, telecommunications, hardware, third-party software, networks, peripherals, portfolio trading and computer systems, including any outsourced systems and processes, and Intellectual Property used by Merchants.

"Vermont Commissioner" shall mean the Commissioner of the Department of Financial Regulation of the State of Vermont.

"Willful Breach" shall mean a material breach of, or failure to perform any of the covenants or other agreements contained in, this Agreement, that is a consequence of an act or failure to act by the breaching or non-performing party with actual knowledge, or knowledge that a person acting reasonably under the circumstances should have, that such party's act or failure to act would, or would be reasonably expected to, result in or constitute a breach of or failure of performance under this Agreement.

2013 Warrant Cash Payment	Section 2.8(b)(ii)
Adjusted 2013 Warrant Exercise Price	Section 2.8(b)(i)
Adjusted 2013 Warrant Share Number	Section 2.8(b)(ii)
Adjusted Organizers' Warrant Exercise Price	Section 2.8(a)
Adjusted Organizers' Warrant Share Number	Section 2.8(a)
Adverse Recommendation Change	Section 4.12(c)
Agreement	Preamble
Anti-Corruption Laws	Section 3.2(h)(vi)
Anti-Money Laundering Laws	Section 3.2(h)(vii)
Appraisal Rights	Section 2.4(a)
Bank Merger	Recitals
Bank Merger Agreement	Recitals
Book-Entry Shares	Section 2.3(b)
Capitalization Date	Section 3.2(c)(i)
Cash Election	Section 2.1(a)
Cash Election Consideration	Section 2.1(a)
Cash Election Share	Section 2.2(c)
Cash Fraction	Section 2.2(c)(i)
CECL	Section 3.2(o)
Certificate of Merger	Section 1.4
Closing	Section 1.3
Closing Date	Section 1.3
Community	Preamble

Community Bank	Recitals
Community Disclosure Letter	Section 3.1
Community Fundamental Representations	Section 5.3(a)
Community Market Value	Section 6.1(h)
Community Preferred Stock	Section 3.3(c)
Community Ratio	Section 6.1(h)
Community Regulatory Agreement	Section 3.3(f)(ii)
Community Reports	Section 3.3(d)(ii)
Continuing Employees	Section 4.14(a)
CRA	Section 3.2(p)
Delinquent Loans	Section 3.2(n)(ii)
Determination Date	Section 6.1(h)
DGCL	Recitals
Director Deferred Compensation Plans	Section 4.14(f)
Dissenting Shares	Section 2.4(a)
Effective Time	Section 1.4
Election Deadline	Section 2.2(c)
Election Form	Section 2.2(a)
Election Form Record Date	Section 2.2(a)
Exchange Agent	Section 2.3(a)
Exchange Fund	Section 2.3(a)
Expiration Date	Section 6.1(e)
Final Index Price	Section 6.1(h)
Fractional Share Consideration	Section 2.1(a)
Indemnified Party	Section 4.16(a)
Index	Section 6.1(h)
Index Ratio	Section 6.1(h)(ii)
Initial Community Market Value	Section 6.1(h)
Initial Index Price	Section 6.1(h)
IRS	Section 3.2(j)(i)
Loans	Section 3.2(n)(i)
Mailing Date	Section 2.2(a)
Materially Burdensome Regulatory Condition	Section 4.8(h)
Merchants	Preamble
Merchants Bank	Recitals
Merchants Certificates	Section 2.3(b)
Merchants Debentures	Section 4.17(a)
Merchants Director Designees	Section 1.5(b)
Merchants Directors' Recommendation	Section 3.2(b)(ii)
Merchants Disclosure Letter	Section 3.1
Merchants Financial Statements	Section 3.2(d)(iii)
Merchants Fundamental Representations	Section 5.2(a)
Merchants Owned Properties	Section 3.2(w)
Merchants Preferred Stock	Section 3.2(c)(i)
Merchants Real Property	Section 3.2(w)
Merchants Regulatory Agreement	Section 3.2(h)(iv)

Merchants Reports	Section 3.2(d)(ii)
Merchants Restricted Share	Section 2.5(b)
Merchants Stock Option	Section 2.5(a)
Merchants Stock Option Consideration	Section 2.5(a)
Merchants Stockholder Meeting	Section 4.5(a)
Merger	Recitals
Merger Consideration	Section 2.1(a)
Mixed Cash Consideration	Section 2.1(a)
Mixed Election	Section 2.1(a)
Mixed Election Consideration	Section 2.1(a)
Mixed Election Share	Section 2.2(c)
Mixed Stock Consideration	Section 2.1(a)
No Election Shares	Section 2.2(c)
NPPI	Section 3.2(q)
PBGC	Section 3.2(j)(i)
Per Share Merger Consideration Value	Section 2.5(a)
Permitted Liens	Section 3.2(w)
Premium Cap	Section 4.16(b)
Proposed Dissenting Shares	Section 2.4(a)
Replacement 2013 Warrant Certificate	Section 2.8(b)(iv)
Replacement Organizers' Warrant Certificate	Section 2.8(a)
Requisite Regulatory Approvals	Section 4.8(g)
Sanctioned Country	Section 3.2(h)(ix)
Sanctions	Section 3.2(h)(ix)
Stock Election	Section 2.1(a)
Stock Election Consideration	Section 2.1(a)
Stock Election Share	Section 2.2(c)
Stockholder Litigation	Section 4.3
Stockholder Support Agreement	Recitals
Surviving Corporation	Section 1.1
Takeover Laws	Section 3.2(u)
Termination Fee	Section 6.2(a)
Title IV Plan	Section 3.2(j)(iv)
WARN	Section 3.2(i)(iii)

 

 

 

 

To Community:


Community Bank System, Inc.
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Fax:  (▇▇▇) ▇▇▇-▇▇▇▇
Email:  ▇▇▇.▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Attention:  General Counsel

Copy to Counsel (which shall not constitute notice):


Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
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Fax:  (▇▇▇) ▇▇▇-▇▇▇▇
Email:  ▇▇▇▇▇▇.▇▇▇▇@▇▇▇.▇▇▇
Attention:  ▇▇▇▇▇▇ ▇. ▇▇▇▇

To Merchants:


Merchants Bancshares, Inc.
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Fax:  (▇▇▇) ▇▇▇-▇▇▇▇
Email:  ▇▇▇▇▇▇▇▇▇@▇▇▇▇.▇▇▇
Attention:  President & Chief Executive Officer

 

 

Copy to Counsel (which shall not constitute notice):


▇▇▇▇▇▇▇ Procter LLP
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▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Email:  ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇

▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇

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▇▇▇▇ ▇. ▇▇▇▇▇▇

 

 

for all purposes. Signatures of the Parties transmitted by facsimile or electronic transmission shall be deemed to be their original signatures for all purposes.

 

 

Parties hereto further agree that (i) by seeking the remedies provided for in this Section 7.15, a Party shall not in any respect waive its right to seek any other form of relief that may be available to a Party under this Agreement (including monetary damages) for breach of any of the provisions of this Agreement or in the event that this Agreement has been terminated or in the event that the remedies provided for in this Section 7.15 are not available or otherwise are not granted, and (ii) nothing set forth in this Section 7.15 shall require any Party to institute any proceeding for (or limit any Party's right to institute any proceeding for) specific performance under this Section 7.15 prior or as a condition to exercising any termination right under Article 6 (and pursuing damages after such termination (subject to Section 6.3)).

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf as of the day and year first above written.

By:

/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇ Name:  ▇▇▇▇ ▇▇▇▇▇▇▇▇ Title:   President & Chief Executive Officer

MERCHANTS BANCSHARES, INC.

By:

/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Name:  ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Title:   President & Chief Executive Officer

Exhibit A

THIS BANK AGREEMENT AND PLAN OF MERGER (this "Bank Plan of Merger"), dated as of [], 2016, is by and between COMMUNITY BANK, NATIONAL ASSOCIATION, a federally chartered national bank with its main office located at 57▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("Community Bank") and MERCHANTS BANK, a Vermont-chartered commercial bank with its main office located at 27▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ("Merchants Bank").

BACKGROUND

AGREEMENT

In consideration of the premises and of the mutual covenants and agreements herein contained, and in accordance with the applicable laws and regulations of the United States of America and the State of Vermont, Community Bank and Merchants Bank, intending to be legally bound hereby, agree to the following terms:

 

 

ARTICLE I

MERGER; BUSINESS

ARTICLE II

CHARTER AND BYLAWS

ARTICLE III

BOARD OF DIRECTORS AND OFFICERS

[Insert name, address, and occupation of each director of Continuing Bank serving until the next annual meeting of the shareholders.]

[Insert name and address of each officer of Continuing Bank.]

ARTICLE IV

CONVERSION OF SHARES

 

 

and after the Effective Date, continue to be issued and outstanding as a share of common stock of the Continuing Bank.

ARTICLE V

EFFECTIVE DATE OF THE MERGER

The Bank Merger shall become effective on the date ("Effective Date") on which the merger of Merchants with and into Community, pursuant to the Holding Company Merger Agreement, shall become effective, which date shall be subsequent to the date on which the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System (or any Federal Reserve Bank acting under a delegation of authority), in each case to the extent required by law, have approved the Bank Merger or waived any applicable approval requirement, and to the date of receipt of any other approvals required to consummate the Bank Merger.

ARTICLE VI

EFFECT OF THE BANK MERGER

On the Effective Date, the separate existence of Merchants Bank shall cease, and all of the property (real, personal and mixed) assets, rights, and powers of Merchants Bank shall transfer to and be vested in, and all liabilities, debts, duties, and obligations of Merchants Bank shall transfer to and be assumed by the Continuing Bank, all without further act or deed, as provided by operation of law under applicable laws and regulations.

ARTICLE VII

CONDITIONS PRECEDENT

The obligations of Community Bank and Merchants Bank to effect the Bank Merger shall be subject to consummation of the merger of Merchants with and into Community as set forth in the Holding Company Plan of Merger.

ARTICLE VIII

TERMINATION

This Bank Plan of Merger shall automatically terminate upon any termination of the Holding Company Plan of Merger.

 

 

ARTICLE IX

MISCELLANEOUS

[signature page follows]

IN WITNESS WHEREOF, Community Bank and Merchants Bank have caused this Bank Agreement and Plan of Merger to be executed by their duly authorized officers and their corporate seals to be hereunto affixed as of the date first written above.

COMMUNITY BANK, N.A.

Name:

Title:

MERCHANTS BANK

Name:

Title:

Exhibit B

STOCKHOLDER SUPPORT AGREEMENT SIGNATORIES

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▇▇▇▇▇▇▇ ▇▇▇▇▇▇

▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇

▇▇▇▇▇▇▇ ▇▇▇▇▇ III

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Exhibit C

STOCKHOLDER SUPPORT AGREEMENT

STOCKHOLDER SUPPORT AGREEMENT, dated as of October 22, 2016 (this "Agreement"), by and between Community Bank System, Inc., a Delaware corporation ("Community"), and the stockholder identified on the signature pages hereto (the "Stockholder").

WHEREAS, concurrently herewith, Merchants Bancshares, Inc., a Delaware corporation ("Merchants") and Community are entering into an Agreement and Plan of Merger, dated as of even date herewith (the "Merger Agreement"), pursuant to which Merchants will merge with and into Community on the terms and conditions set forth therein, with Community surviving such merger (the "Merger") and as provided therein Merchants Bank will merge with and into Community Bank (the "Bank Merger"), and, in connection with the Merger, the shares of common stock, par value $0.01 per share, of Merchants ("Merchants Common Stock") issued and outstanding immediately prior to the Effective Time, other than any shares to be cancelled pursuant to Section 2.1(b) of the Merger Agreement and other than any Proposed Dissenting Shares, will, without any further action on the part of the holder thereof, be cancelled and extinguished and automatically converted into the right to receive the Merger Consideration as set forth in the Merger Agreement;

WHEREAS, as of the date hereof, the Stockholder is the record and beneficial owner of, and has the sole right to vote and dispose of, the number of shares of Merchants Common Stock set forth on the signature page of the Stockholder hereto (such Merchants Common Stock, together with any other capital stock of Merchants acquired by the Stockholder after the date hereof whether acquired directly or indirectly, upon the exercise of options or warrants, conversion of convertible securities or otherwise, and any other securities issued by Merchants that are entitled to vote on the adoption of the Merger Agreement held or acquired by the Stockholder (whether acquired heretofore or hereafter), being collectively referred to herein as the "Shares");

WHEREAS, receiving the Merchants Stockholder Approval is a condition to the consummation of the transactions contemplated by the Merger Agreement; and

WHEREAS, as an inducement to Community to enter into the Merger Agreement and incur the obligations therein, Community has required that the Stockholder enter into this Agreement.

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

 

 

 

 exercise or conversion of any securities of Merchants, if any, after the date hereof shall automatically become subject to the terms of this Agreement.

(ii)	The proxy granted in this Section 1(e) shall automatically expire at the Expiration Time.

(i)

Capacity.  The Stockholder is an individual and has all requisite capacity, power and authority to enter into and perform his or her obligations under this Agreement.  No filing with, and no permit, authorization, consent or approval of, any Governmental Authority is necessary on the part of the Stockholder for the execution, delivery and performance of this Agreement by the Stockholder or the consummation by the Stockholder of the transactions contemplated hereby.

(ii)	Due Execution.  This Agreement has been duly executed and delivered by the Stockholder.

(iii)

Binding Agreement.  Assuming the due authorization, execution and delivery of this Agreement by Community, this Agreement constitutes the valid and binding agreement of the Stockholder, enforceable against the Stockholder in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar laws affecting the enforcement of creditors' rights generally and except that the

 

 

 

availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought).

 

(iv)

Non-Contravention.  The execution and delivery of this Agreement by the Stockholder does not, and the performance by the Stockholder of his or her obligations hereunder and the consummation by the Stockholder of the transactions contemplated hereby will not violate or conflict with, or constitute a default under, any agreement, instrument, contract or other obligation or any order, arbitration award, judgment or decree to which the Stockholder is a party or by which the Stockholder is bound, or to the knowledge of the Stockholder, any statute, rule or regulation to which the Stockholder is subject.  Except as contemplated by this Agreement, the Stockholder (a) has not entered into any voting agreement or voting trust with respect to any Shares or entered into any other contract relating to the voting of the Shares and (b) has not appointed or granted a proxy or power of attorney with respect to any Shares, in either case, which is inconsistent with the Stockholder's obligations pursuant to this Agreement.

(v)

Ownership of Shares.  Except for restrictions in favor of Community pursuant to this Agreement and restrictions in favor of Merchants with respect to any Merchants Restricted Shares, and except for such transfer restrictions of general applicability as may be provided under the Securities Act, and the "blue sky" laws of the various States of the United States, the Stockholder owns, beneficially and of record, all of the Stockholder's Shares, as applicable, free and clear of any proxy, voting restriction, adverse claim, pledge, security interest, voting trust or agreement, understanding or arrangement, or other encumbrance or lien and has sole voting power and sole power of disposition with respect to the Stockholder's Shares with no restrictions on the Stockholder's rights of voting or disposition pertaining thereto and no Person other than the Stockholder has any right to direct or approve the voting or disposition of any of the Stockholder's Owned Shares.  As of the date hereof, the number of Owned Shares equals the number of Shares set forth on the Stockholder's signature page hereto (inclusive of any Merchants Restricted Shares owned by the Stockholder as set forth on the Stockholder's signature page hereto), and would include, (i) if exercised, the number of shares of Merchants Common Stock issuable upon the exercise of Merchants Stock Options or Merchants Warrants as set forth on the Stockholder's signature page hereto and (ii) if settled in Merchants Common Stock, the number of shares of Merchants Common Stock issuable upon the settlement of Merchants Deferred Shares as set forth on the Stockholder's signature page hereto.

(vi)

Legal Actions.  As of the date hereof, there is no action, suit, investigation, complaint or other proceeding pending against the Stockholder or, to the knowledge of the Stockholder, threatened against the Stockholder that restricts or prohibits (or, if successful, would restrict or prohibit) the performance by the Stockholder of his or her obligations under this Agreement.

(vii)

Reliance.  The Stockholder understands and acknowledges that Community is entering into the Merger Agreement in reliance upon the Stockholder's execution and delivery of this Agreement and the representations and warranties of the Stockholder contained herein.

 

 

(i)

the Stockholder agrees not to take any action that would make any representation or warranty of the Stockholder contained herein untrue or incorrect in any material respect or have the effect of preventing, impeding, or, in any material respect, interfering with or adversely affecting the performance by the Stockholder of his or her obligations under this Agreement;

(ii)

the Stockholder hereby agrees, while this Agreement is in effect, to promptly notify Community of the number of any new shares of Merchants Common Stock acquired by the Stockholder, if any, after the date hereof.  Any such shares shall be subject to the terms of this Agreement as though owned by the Stockholder on the date hereof; and

(iii)

the Stockholder hereby authorizes Community and Merchants to publish and disclose in any announcement or disclosure required by the SEC and any proxy statement filed in connection with the transactions contemplated by the Merger Agreement the Stockholder's identity and ownership of the Owned Shares and the nature of the Stockholder's obligations under this Agreement.

 

 

(i)	To Community, to: Community Bank System, Inc. ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Attn: General Counsel Email: ▇▇▇.▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇

(ii)	with a copy (which shall not constitute notice) to:   Cadwalader, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇ LLP ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇ Email: ▇▇▇▇▇▇.▇▇▇▇@▇▇▇.▇▇▇ Fax Number: (▇▇▇) ▇▇▇-▇▇▇▇

(iii)

If to the Stockholder, to the address for the Stockholder set forth on the signature pages hereto.

 

 

(i)

This Agreement and all disputes or controversies arising out of or relating to this Agreement and the transactions contemplated hereby shall be governed by, and construed in accordance with, the internal Laws of the State of Delaware, without regard to any applicable conflicts of law principles that would result in the application of the Laws of another jurisdiction.

(ii)	Each of the parties hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Court of Chancery of the State

 

 

 

of Delaware or, if under applicable Law, exclusive jurisdiction over such matters is vested in the Federal courts, any Federal court located in the State of Delaware, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the agreements delivered in connection herewith or the transactions contemplated hereby or thereby or for recognition or enforcement of any judgment relating thereto, and each of the Parties hereby irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such courts, (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such Court of Chancery or, to the extent required by Law, in such Federal court, (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such action or proceeding in any such court, and (iv) waives, to the fullest extent permitted by Law, (x) any claim that such party is not personally subject to the jurisdiction of any such court, (y) any claim that such party and such party's property is immune from any legal process issued by any such court and (z) the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.  Each of the parties agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.  Each party irrevocably consents to service of process in the manner provided for notices in Section 6(b). Nothing in this Agreement will affect the right of any party to serve process in any other manner permitted by Law.

 

 

 

any way limit or affect actions the Stockholder or any of his or her Representatives may take in such Person's capacity as a director, officer, or employee of Merchants, including in exercising rights under the Merger Agreement, and no such actions or omissions shall be deemed a breach of this Agreement or be construed to prohibit, limit or restrict the Stockholder from exercising the Stockholder's fiduciary duties as a director or officer of Merchants.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date and year first written above.

By:

_______________________________________ Name:   Title:

[SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT]

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date and year first written above.

[NAME OF STOCKHOLDER]

By:

_______________________________________ Name: Address:

Shares of Merchants Common Stock:

Merchants Stock Options:

Merchants Restricted Shares:

Merchants Deferred Shares:

Merchants Warrants:

[SIGNATURE PAGE TO STOCKHOLDER SUPPORT AGREEMENT]