AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SUN BANCORP, INC.,
SUN BANK,
SUN ACQUISITION CORPORATION,
STEELTON BANCORP, INC.,
AND
MECHANICS SAVINGS BANK
TABLE OF CONTENTS
Page
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I. REORGANIZATION AND MERGER 2
(a) Merger of Sun Acquisition and Steelton 2
(b) Effective Date 2
(c) Conversion of Steelton Common Stock 3
(d) Sun Common Stock 4
(e) Sun Acquisition Common Stock 4
(f) Exchange of Stock Certificates 4
(g) Stock Options, Stock Option Plans, and Related Matters 6
(h) Shareholders' Meetings 6
(i) Proxy Statement 6
(j) Cooperation, Regulatory Approvals 7
(k) Steelton Liquidation 8
(l) Mechanics Merger 8
(m) Dissenting Shares 8
2. REPRESENTATIONS AND WARRANTIES BY SUN AND SUN
ACQUISITION 8
(a) Organization, Good Standing, Authority, Insurance, Etc. 8
(b) Agreement, Authority, Absence of Conflicts 8
(c) Sufficient Resources 9
(d) Sun Acquisition Representations and Warranties 9
(e) Ownership of Steelton Common Stock 9
(f) Full Disclosure 10
(g) CRA Rating 10
(h) Tax Treatment 10
3. REPRESENTATIONS AND WARRANTIES BY STEELTON
AND MECHANICS 10
(a) Organization, Good Standing, Authority, Deposit
Insurance, Etc. 10
(b) Capitalization, Investments 11
(c) Financial Statements and Exchange Act Reports 11
(d) Absence of Certain Developments 12
(e) Taxes 13
(f) Litigation 14
(g) Brokerage 14
(h) Properties 14
(i) Compliance with Applicable Laws 15
(j) Contracts and Commitments, Etc. 16
(k) Insurance 16
ii
(l) No Guarantees 16
(m) Examination Reports 16
(n) Agreement, Authority, Absence of Conflicts 17
(o) Reporting 17
(p) Full Disclosure 17
(q) Employee Benefit Plans 17
(r) Labor Matters 19
(s) Environmental Matters 19
(t) Proceedings 21
(u) Undisclosed Liabilities 21
(v) Financial Institutions Bond 21
(w) Repurchase Agreements 21
(x) Assumability of Leases and Contracts 22
(y) Loans 22
(z) Loan Portfolio 22
(aa) Trademarks, Trade Names 22
(bb) Accuracy of Representations 23
(cc) Absence of Questionable Payments 23
(dd) Powers of Attorney, Guarantees 23
(ee) CRA Compliance 23
(ff) Derivatives 23
(gg) Loan Loss Reserves 23
4. ACCESS TO AND INFORMATION CONCERNING PROPERTIES,
RECORDS, ETC. 23
5. AFFIRMATIVE COVENANTS OF SUN 24
6. AFFIRMATIVE COVENANTS OF STEELTON AND MECHANICS 25
(a) Conduct of Business 25
(b) Preservation of Business 25
(c) Properties 26
(d) Insurance 26
(e) Contracts, Etc. 26
(f) Financial Statements 26
(g) Laws, Rules, Etc. 27
(h) Corporate Existence 27
(i) Notices 27
(j) Best Efforts 27
(k) Amend Corporate Documents 28
(l) Terminate Stock Plans 28
(m) Steelton Benefit Plans 29
(n) Good Faith Cooperative Effort to Revise Structure 29
iii
(o) Change in Control 29
7. NEGATIVE COVENANTS OF STEELTON AND MECHANICS 29
8. CONDITIONS TO THE OBLIGATIONS OF SUN, SUN ACQUISITION,
STEELTON, AND MECHANICS 32
(a) Approval of Shareholders 32
(b) Approval of Regulatory Agencies 33
(c) Dissenters' Rights 33
(d) Antitrust Laws 33
(e) Suits, Actions 33
(f) Statutes, Orders 33
(g) Other Requirements 33
(h) Payment of Retention Bonuses 33
(i) Vacation 33
9. CONDITIONS TO THE OBLIGATIONS OF SUN AND
SUN ACQUISITION 33
(a) Representations, Warranties and Covenants 34
(b) Opinion of Special Counsel 34
(c) Suit, Action, Etc. 34
(d) Financial Statements. 34
(e) Tax Ruling or Opinion 35
(f) Closing Documents 35
(g) Outstanding Stock Options 35
(h) Effectiveness of Transactions 35
10. CONDITIONS TO THE OBLIGATIONS OF STEELTON AND FIRST
FEDERAL 35
(a) Representations and Warranties 35
(b) Opinion of Counsel 36
(c) Suit, Action, Etc. 36
(d) Deposit into Payment Fund 36
(e) Steelton Fairness Opinion 36
11. TERMINATION OF AGREEMENT 36
12. EXPENSES 38
13. CONFIDENTIALITY 39
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. 39
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15. CERTAIN POST-MERGER AGREEMENTS 39
(a) Employees 39
(b) Existing Employment Agreements 40
(c) Board of Directors of Sun 41
(d) Sun Bank Advisory Board 41
(e) Deferred Compensation Agreements 41
(f) Indemnification and Insurance 41
(g) Adjustments 41
16. ENTIRE AGREEMENT 42
17. PUBLICITY 42
18. AMENDMENT AND WAIVER 42
19. CERTAIN DEFINITIONS AND INTERPRETATIONS 42
20. GOVERNING LAW 43
21. COMMUNICATIONS 43
22. SUCCESSORS AND ASSIGNS 44
23. HEADINGS, ETC. 44
24. SEVERABILITY 45
25. NO THIRD PARTY BENEFICIARY 45
26. COUNTERPARTS 45
27. FURTHER ASSURANCES 45
EXHIBITS
AGREEMENT AND PLAN OF MERGER OF SUN ACQUISITION CORPORATION WITH AND INTO
STEELTON BANCORP, INC.
STEELTON BANCORP, INC. PLAN OF LIQUIDATION AND DISSOLUTION
AGREEMENT AND PLAN OF MERGER OF MECHANICS SAVINGS BANK WITH AND INTO SUN BANK
v
LEGAL OPINION FROM SPECIAL COUNSEL FOR SUN BANCORP, INC. AND SUN ACQUISITION
CORP.
LEGAL OPINION FROM SPECIAL COUNSEL FOR STEELTON BANCORP, INC. AND MECHANICS
SAVINGS BANK
vi
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (hereinafter "Agreement") is
dated as of December 20, 2002, by and among Sun Bancorp, Inc., a Pennsylvania
corporation ("Sun"), Sun Acquisition Corporation, a Pennsylvania corporation and
wholly-owned subsidiary of Sun ("Sun Acquisition"), Sun Bank, a
Pennsylvania-chartered bank and trust company and wholly-owned subsidiary of Sun
("Sun Bank"), Steelton Bancorp, Inc., a Pennsylvania corporation ("Steelton"),
and Mechanics Savings Bank, a federal stock savings bank and a wholly-owned
subsidiary of Steelton ("Mechanics") (collectively sometimes referred to as the
"Parties").
WHEREAS, the respective Boards of Directors of Sun, Sun Acquisition, Sun
Bank, Steelton, and Mechanics have approved and deem it advisable and in the
best interests of their respective companies to consummate the transactions
provided for in this Agreement and the exhibits hereto in the sequential order
and manner hereinafter provided;
WHEREAS, the respective Boards of Directors of Sun, Sun Acquisition and
Steelton have approved, and deem it advisable and in the best interests of the
Sun, Sun Acquisition and Steelton shareholders to consummate a merger of Sun
Acquisition with and into Steelton (the "Merger") pursuant to the terms and
subject to the conditions set forth in this Agreement and the Agreement and Plan
of Merger of Sun Acquisition with and into Steelton in the form attached hereto
as Exhibit 1 (the "Merger Agreement");
WHEREAS, subsequent to and immediately after the consummation of the
Merger, Steelton shall liquidate and dissolve in a transaction that is not
taxable and has no adverse tax consequences to the Parties hereto, such
liquidation to be undertaken and effectuated pursuant to the Steelton Bancorp,
Inc. Plan of Liquidation and Dissolution in the form attached hereto as Exhibit
2 (the "Steelton Plan of Liquidation");
WHEREAS, subsequent to and after the effectiveness of the Steelton Plan of
Liquidation, Mechanics shall merge with and into Sun Bank in a transaction that
is not taxable and has no adverse tax consequences to the Parties hereto, such
merger (the "Mechanics Merger") to be undertaken and effectuated pursuant to the
Agreement and Plan of Merger of Mechanics Savings Bank with and into Sun Bank in
the form attached hereto as Exhibit 3 (the "Mechanics Merger Agreement");
WHEREAS, the Parties desire and intend that the Merger, the Steelton Plan
of Liquidation and the Mechanics Merger (collectively the "Reorganization")
shall be effectuated in sequential order, each contingent upon effectiveness of
all; and
WHEREAS, the Parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby and governing the transactions contemplated
herein.
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NOW, THEREFORE, in consideration of the premises, mutual promises,
covenants, agreements, representations and warranties hereinafter set forth, and
of other good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, the Parties
agree as follows:
1. REORGANIZATION AND MERGER. Upon the terms and subject to the
conditions of this Agreement, the Merger Agreement, the Steelton Plan
of Liquidation, and the Mechanics Merger, the Reorganization is to be
accomplished in the manner described herein.
(a) Merger of Sun Acquisition and Steelton. In accordance with the
provisions of this Agreement, the Merger Agreement and the laws
of the Commonwealth of Pennsylvania, at the Effective Date (as
hereinafter defined), Sun Acquisition shall be merged with and
into Steelton, the separate corporate existence of Sun
Acquisition shall cease, and Steelton shall continue its
corporate existence as the surviving corporation of the Merger as
a Pennsylvania business corporation under the name "Steelton
Bancorp, Inc." with all the rights and powers provided to such
corporation under the Pennsylvania Business Corporation Law of
1988, as amended (the "Business Corporation Law"). Also at the
Effective Date, all of the outstanding shares of Steelton's
common stock, par value $.10 per share (the "Steelton Common
Stock"), except for shares held by Steelton as treasury shares,
shares owned by any direct or indirect subsidiary of Steelton,
and shares of Steelton Common Stock owned by any Steelton
shareholder who elects to exercise dissenters' rights in
accordance with the Business Corporation Law ("Dissenting
Shares"), will be converted into the right to receive Twenty-Two
Dollars and Four Cents ($22.04) in cash per share without
interest in the manner specified in Section 1(c) hereof, and each
outstanding share of Sun Acquisition common stock shall be
converted into one fully paid and non-assessable share of
Steelton Common Stock, resulting in all outstanding shares of
Steelton being owned by Sun at and after the Effective Date. At
the Effective Date, Sun shall be the sole shareholder of Steelton
and Steelton shall be a wholly-owned subsidiary of Sun.
(b) Effective Date. At the Effective Date (as hereinafter defined),
the Merger shall be effected pursuant to the provisions of and
with the effects provided by the Business Corporation Law, and
the Steelton Plan of Liquidation and the Mechanics Merger shall
be thereafter effectuated. The Effective Date shall be the date
and time of the later to occur of the acceptance for filing by
the Secretary of State of the Commonwealth of Pennsylvania of
articles of merger of Sun Acquisition and Steelton, or such later
date and time as shall be specified in such articles as agreed to
by the Parties, as the case may be; provided, however, that on
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such Effective Date, the Steelton Plan of Liquidation shall be
effectuated and the Mechanics Merger shall be effectuated as soon
or practicable thereafter. Unless otherwise mutually agreed upon
in writing by Sun Acquisition and Steelton, upon the terms and
subject to the conditions of this Agreement and the exhibits
hereto, the Effective Date shall occur on or before the thirtieth
(30th) calendar day following the later of (i) the receipt of all
requisite regulatory approvals and the expiration of all
applicable waiting periods, and (ii) the receipt of all requisite
shareholder approvals, unless the Parties mutually agree to a
later date. The closing of the transactions contemplated hereby
(the "Closing") shall take place at 5:00 p.m. local time at the
offices of Sun on the Effective Date, or at such other time or
place as the Parties shall mutually agree. At the Effective Date,
Sun Acquisition shall cease to exist as a separate corporation,
and Steelton shall become the surviving corporation of the Merger
(the "Surviving Corporation"). The Articles of Incorporation and
Bylaws of Steelton, as in effect immediately prior to the
Effective Date, shall be the Articles of Incorporation and Bylaws
of the Surviving Corporation.
(c) Conversion of Steelton Common Stock. Each share of Steelton
Common Stock issued and outstanding immediately prior to the
Effective Date, including the shares of Steelton Common Stock
issued pursuant to the Mechanics Savings Bank Restricted Stock
Plan to the extent that such shares were not previously issued
and outstanding (the "Restricted Stock Plan" and the "Restricted
Shares"), which Restricted Shares shall become fully vested
pursuant to the terms of the Restricted Stock Plan upon the
occurrence of the Merger (other than shares of Steelton Common
Stock held by Steelton as treasury stock, shares owned by any
direct or indirect subsidiary of Steelton and Dissenting Shares)
("Eligible Shares"), shall, by virtue of this Agreement and the
Merger Agreement and without any action on the part of the holder
thereof, be cancelled and converted into the right to receive
Twenty-Two Dollars and Four Cents ($22.04) in cash without
interest, subject to the provisions of Section 1(f) below (the
"Merger Consideration"). In no event shall the number of Eligible
Shares exceed 300,290 shares. The aggregate amount paid for all
Eligible Shares shall be the "Aggregate Merger Consideration." In
no event shall the Aggregate Merger Consideration exceed
$7,200,327. Each share of Steelton Common Stock held in the
treasury of Steelton, held by any direct or indirect subsidiary
of Steelton immediately prior to the Effective Date shall
automatically, by virtue of this Agreement and the Merger
Agreement, be cancelled and retired, and shall cease to exist,
without any conversion thereof into the right to receive the
Merger Consideration.
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(d) Sun Common Stock. Each share of Sun's common stock, with no par
value, (the "Sun Common Stock") issued and outstanding
immediately prior to the Effective Date shall, on and after the
Effective Date, continue to be issued and outstanding as an
identical share of Sun Common Stock. Each share of Sun Common
Stock issued and held in treasury of Sun as of the Effective
Date, if any, shall, on and after the Effective Date, continue to
be issued and held in the treasury of Sun.
(e) Sun Acquisition Common Stock. At the Effective Date, each issued
and outstanding share of Sun Acquisition Common Stock shall be
converted into one fully paid and non-assessable share of
Steelton Common Stock, resulting in all outstanding shares of
Steelton being owned by Sun at and after the Effective Date.
After the Effective Date, Sun shall be the sole shareholder of
Steelton, and Steelton shall be a wholly-owned subsidiary of Sun.
(f) Exchange of Stock Certificates. Certificates underlying shares of
Steelton Common Stock shall be exchanged for the Merger
Consideration in accordance with the following procedures:
(i) Registrar and Transfer Company, the transfer agent of Sun
shall act as agent (the "Exchange Agent") in effecting and
receiving, after the Effective Date, the exchange of stock
certificates (the "Certificates"), which Certificates,
immediately prior to the Effective Date, represented
outstanding shares of Steelton Common Stock (other than
those shares excluded by Section 1(c) hereof), in exchange
for the Merger Consideration. Upon surrender of a
Certificate for exchange and cancellation together with a
letter of transmittal (as described below) duly executed,
the holder of such Certificate shall be entitled to receive
in exchange therefor, and within three (3) business days of
receipt of a Certificate for exchange and cancellation
together with a duly executed letter of transmittal, the
Exchange Agent shall pay to such holder the Merger
Consideration multiplied by the number of shares of Steelton
Common Stock formerly represented by such Certificate, and
the Certificate so surrendered shall be cancelled.
(ii) At the Effective Date and until so surrendered and
exchanged, each such Certificate shall represent solely the
right to receive the Merger Consideration. If the Merger
Consideration (or any portion thereof) is to be delivered to
any person other than the person in whose name the
Certificate representing shares of Steelton Common Stock
surrendered and exchanged therefor is
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registered, it shall be a condition to such exchange that
the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer, and that the
person requesting such exchange shall pay to the Exchange
Agent any transfer or other taxes required by reason of the
payment of such cash to a person other than the registered
holder of the Certificate surrendered, or shall establish to
the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable. Notwithstanding the
foregoing, neither the Exchange Agent nor any Party hereto
shall be liable to a holder of Steelton Common Stock for any
Merger Consideration delivered to a public official pursuant
to applicable abandoned property, escheat and similar laws.
(iii)At or prior to the Effective Date, Sun Acquisition shall
deposit in trust with the Exchange Agent cash in an
aggregate amount equal to the product of (i) the number of
shares of Eligible Shares and (ii) the Merger Consideration
(the "Payment Fund"); provided, however, that in no such
event shall the number of Eligible Shares entitled to the
Merger Consideration exceed 300,290 shares or the Aggregate
Merger Consideration exceed $7,200,327.
(iv) The Exchange Agent shall, pursuant to irrevocable
instructions by Sun, make the payments referred to in
Section 1(f) hereof out of the Payment Fund. The Payment
Fund shall not be used for any purpose except as provided
herein. If any Steelton shareholders who initially exercised
dissenters' rights lose the right to dissent because of a
failure to comply with the Business Corporation Law
subsequent to the Effective Date, Sun shall promptly deposit
additional cash in the Payment Fund in an amount equal to
the product of the number of Dissenting Shares held by such
Steelton shareholders multiplied by the Merger
Consideration. Promptly following the date which is two
years after the Effective Date, the Exchange Agent shall
return to Sun all cash, Certificates and other instruments
then in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties
shall terminate. Thereafter, each holder of a Certificate
entitled to receive therefor Merger Consideration at the
Effective Date may surrender such Certificate to Sun and
(subject to applicable abandoned property, escheat and
similar laws), receive in exchange therefor the Merger
Consideration, without interest, and shall have no greater
rights against Sun or Sun Acquisition than may be accorded
to general creditors of Sun under applicable law. Sun shall
have no liability to Steelton
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shareholders for compliance with applicable abandoned
property, escheat and similar laws.
(v) Within five business days after the Effective Date, the
Exchange Agent shall mail to each record holder of
Certificates in a form reasonably satisfactory to Sun
Acquisition and Steelton a letter of transmittal and
instructions for use in surrendering such Certificates and
receiving the Merger Consideration therefor. The letter of
transmittal shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange
Agent.
(vi) After the Effective Date, there shall be no transfers on the
stock transfer books of Steelton.
(g) Stock Options, Stock Option Plans and Related Matters.
Immediately prior to or at the Effective Date, each holder of a
then-outstanding option to purchase shares of Steelton Common
Stock heretofore granted under a stock option plan, program or
arrangement of Steelton shall have received in settlement thereof
a cash payment from Steelton in an amount equal to the excess of
the Merger Consideration over the per share exercise price under
such stock option, multiplied by the number of shares of Steelton
Common Stock covered by such option. All such options
automatically shall be deemed cancelled and of no further effect
as of the Effective Date. In no event shall the amount paid by
Steelton in settlement of such options exceed $581,935 in the
aggregate.
(h) Shareholders' Meetings. Steelton shall, as soon as practicable,
hold a meeting of its shareholders (the "Steelton Shareholders'
Meeting") to submit for shareholder approval this Agreement and
the transactions contemplated hereby. Provided that the Merger is
approved by at least two-thirds of the Board of Directors of
Steelton, an affirmative vote of at least a majority of the votes
cast by all holders of Steelton Common Stock entitled to vote
thereon shall be required for such approval and adoption of this
Agreement and the transactions contemplated hereby. Subject to
its fiduciary duty, Steelton's Board of Directors shall recommend
to its shareholders approval of this Agreement, the Merger
Agreement, the Merger, and the transactions contemplated hereby
and thereby, and use their best efforts to obtain shareholder
approval.
(i) Proxy Statement.
(i) Steelton shall, with the cooperation of Sun, prepare and
file with the Securities and Exchange Commission ("SEC"),
the proxy
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statement to be distributed in connection with the Steelton
Shareholders' Meeting (as may be amended from time to time,
the "Proxy Statement") in order to consummate the
transactions contemplated hereby as soon as reasonably
practicable and to satisfy all applicable requirements under
the Securities Exchange Act of 1934, as amended ("Exchange
Act"), the rules and regulations thereunder, and the rules
and regulations of the OTS and the FDIC.
(ii) Sun and Sun Acquisition will furnish such information
concerning Sun and Sun Acquisition as is necessary in order
to cause the Proxy Statement, insofar as it relates to Sun
and Sun Acquisition, to comply with Section 1(i) above. Sun
and Sun Acquisition agree promptly to advise Steelton if at
any time prior to the Steelton Shareholders' Meeting any
information provided by it in the Proxy Statement becomes
incorrect or incomplete in any material respect and to
provide Steelton with the information needed to correct such
inaccuracy or omission. Sun and Sun Acquisition will furnish
Steelton with such supplemental information as may be
necessary in order to cause such Proxy Statement, insofar as
it relates to Sun and Sun Acquisition, to comply with
Section 1(i) above after the mailing thereof to Steelton
shareholders.
(j) Cooperation, Regulatory Approvals. The Parties shall cooperate
fully, and shall cause each of their affiliates to cooperate
fully, in the preparation and submission by them, as promptly as
reasonably practicable, of such notices, applications, petitions,
and other documents and materials as may be required or any of
them may reasonably deem necessary (or desirable) to the Board of
Governors of the Federal Reserve System (the "Federal Reserve"),
the Pennsylvania Department of Banking (the "Banking
Department"), the SEC, the FDIC, the OTS, other regulatory
authorities, holders of the voting shares of capital stock of
Steelton, and any other persons for the purpose of obtaining any
approvals or consents necessary to consummate the transactions
contemplated by this Agreement and the Reorganization. Prior to
the making of any such filings with any regulatory authority or
the making of any written disclosures with respect to the
transactions contemplated hereby to shareholders or any third
person (such as mailings to shareholders or press releases), the
Parties shall submit to each other the materials to be filed,
mailed or released. Any such materials must be acceptable to both
Sun and Steelton (such acceptance not to be unreasonably
withheld) prior to the filings with any regulatory authorities or
the disclosures to shareholders or any third person, except to
the extent
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that any party is legally required to proceed prior to obtaining
the acceptances of the other Parties.
(k) Steelton Liquidation. Immediately following the Merger of Sun
Acquisition with and into Steelton, Steelton shall adopt,
undertake and effectuate a complete liquidation and dissolution
under the Steelton Plan of Liquidation.
(l) Mechanics Merger. Following the effectuation of the Steelton Plan
of Liquidation, Mechanics shall merge with and into Sun Bank
pursuant to the Mechanics Merger.
(m) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Dissenting Shares shall not be converted into or
exchangeable for the right to receive the Merger Consideration
provided in Section 1(c) hereof, unless and until the holder of
such Dissenting Shares shall have lost his right to dissent under
the Business Corporation Law. If such holder shall have lost such
right before the Effective Date, each of his shares of Steelton
Common Stock shall thereupon be deemed to have been converted
into an Eligible Share. If such holder shall have lost such right
after the Effective Date, each of his shares of Steelton Common
Stock shall thereupon be deemed to have been converted into, as
of the Effective Date, the Merger Consideration.
2. REPRESENTATIONS AND WARRANTIES BY SUN AND SUN ACQUISITION. Sun and Sun
Acquisition, as applicable, represent and warrant to Steelton as follows:
(a) Organization, Good Standing, Authority, Insurance, Etc. Sun is a
registered bank holding company under the Bank Holding Company Act of
1956, as amended, and is validly existing and in good standing under
the laws of the Commonwealth of Pennsylvania. Sun has all requisite
corporate power and authority to conduct its business as it is now
conducted, to own and operate its properties and assets and to lease
properties used in its business. Sun has all requisite corporate power
and authority to enter into this Agreement, and subject to obtaining
any required regulatory and shareholder approvals, to perform and
carry out the provisions of and all its obligations under this
Agreement. Sun owns, directly or indirectly, all of the issued and
outstanding shares of Sun Bank. Sun Bank is a Pennsylvania-chartered
bank and trust company, having its corporate headquarters in
Selinsgrove, Pennsylvania, and is duly organized to engage in the
banking business as an insured bank under the Federal Deposit
Insurance Act, as amended.
(b) Agreement, Authority, Absence of Conflicts. The execution, delivery
and performance of this Agreement and the consummation of the
transactions
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contemplated herein have been duly and validly authorized by the Board
of Directors of Sun. Assuming receipt of regulatory approvals, no
other corporate action on the part of Sun is necessary for Sun to
authorize this Agreement or to consummate the transactions
contemplated herein. This Agreement has been duly executed and
delivered by Sun and, assuming due authorization, execution and
delivery by Steelton and Mechanics, constitutes a valid and binding
obligation of Sun, enforceable in accordance with its terms, except as
it may be limited by bankruptcy, insolvency, receivership or similar
laws, now or hereafter in effect relating to creditor's rights. The
execution, delivery and consummation of this Agreement will not
constitute a violation or breach or a default under the Articles of
Incorporation or Bylaws of Sun, any agreement, indenture or other
instrument to which Sun is a party, or, to the knowledge of Sun, any
statute, rule, regulation, order, writ, injunction, decree, or
directive applicable to Sun.
(c) Sufficient Resources. Sun has sufficient resources to capitalize and
shall capitalize Sun Acquisition no later than the Effective Date with
sufficient financial resources to enable Sun Acquisition to lawfully
satisfy its obligations pursuant to this Agreement without the need to
borrow funds or to raise additional equity capital, unless otherwise
required after the date hereof by a regulatory agency.
(d) Sun Acquisition Representations and Warranties. (i) Sun Acquisition is
a Pennsylvania business corporation organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania; (ii)
Sun Acquisition has all requisite corporate power and authority to
enter into this Agreement and the Merger Agreement, and subject to
obtaining any required regulatory and shareholder approvals, to carry
out the provisions of and all of its obligations under this Agreement
and the Merger Agreement; and (iii) the Board of Directors of Sun
Acquisition shall duly and validly authorize the execution, delivery
and performance of this Agreement and the Merger Agreement, which
agreements shall be approved by Sun as the sole shareholder of Sun
Acquisition. This Agreement and the Merger Agreement will constitute a
valid and binding obligation of Sun Acquisition enforceable in
accordance with its terms, except as it may be limited by bankruptcy,
insolvency, receivership or similar laws now or hereafter in effect
relating to creditors' rights. The execution, delivery and
consummation of this Agreement will not constitute a violation or
breach or default under the Articles of Incorporation or Bylaws of Sun
Acquisition, any statute, rule, regulation, order, writ, injunction,
decree or other instrument or agreement to which Sun Acquisition is a
party at such time.
(e) Ownership of Steelton Common Stock. As of the date hereof, neither Sun
nor any subsidiaries of Sun directly or indirectly owns, or has any
rights to acquire, any shares of Steelton Common Stock, other than
pursuant to this Agreement.
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(f) Full Disclosure. None of the information with respect to Sun or any
subsidiary of Sun which has been furnished to Steelton or Mechanics
has been or will be included by Sun in the Proxy Statement, or any
application to, or filing with, any regulatory authority made in
connection with the transactions contemplated hereby will, at the
respective time it is furnished, distributed, mailed or filed, be
false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements
therein not misleading in light of the circumstances under which they
were made.
(g) CRA Rating. Sun Bank has satisfactory Community Reinvestment Act
rating.
(h) Tax Treatment. As of the date of this Agreement, there exist no facts
or circumstances that would preclude or impair satisfaction of the
conditions set forth in Section 9(e) of this Agreement.
3. REPRESENTATIONS AND WARRANTIES BY STEELTON AND MECHANICS.
Steelton and Mechanics represent and warrant to Sun and Sun Acquisition
(and the word "it" in this Section 3 refers to Steelton, Mechanics and each
subsidiary of either) that, as of even date herewith and except as
specifically disclosed in the Annex of disclosure schedules included
herewith, as follows:
(a) Organization, Good Standing, Authority, Deposit Insurance, Etc.
Steelton is a corporation organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. Each of
the subsidiaries of Steelton, including Mechanics and any subsidiary
thereof (individually a "Steelton Subsidiary," collectively the
"Steelton Subsidiaries") is an entity of the respective type set forth
on Schedule 3(a) hereto, and is organized, validly existing and in
good standing under the laws of the respective jurisdiction of
incorporation set forth on Schedule 3(a). All subsidiaries of Steelton
are listed on Schedule 3(a). Each of Steelton and the Steelton
Subsidiaries has all requisite corporate power and authority to
conduct its business as it is now conducted, to own and operate its
properties and assets and to lease properties used in its business.
Each of Steelton and Mechanics has all requisite corporate power and
authority to enter into this Agreement, the Merger Agreement, and all
exhibits attached hereto, as applicable and, subject to obtaining any
required regulatory and shareholder approvals, to perform and carry
out the provisions of and all of their respective obligations under
this Agreement, the Merger Agreement, and all exhibits hereto. Each of
Steelton and the Steelton Subsidiaries is qualified to do business as
a foreign corporation and is in good standing in each jurisdiction in
which such qualification is necessary under applicable law, except
where the failure to be so qualified and in good standing would not
have a Material Adverse Effect on the business, operations, assets or
financial condition of Steelton and the Steelton Subsidiaries taken as
a whole. Mechanics is federally
10
chartered savings bank and a member in good standing of the Federal
Home Loan Bank of Pittsburgh. All customer deposits held by Mechanics
are insured by the SAIF administered by the FDIC in accordance with
the Federal Deposit Insurance Act. Mechanics has paid all assessments
and filed all reports required by the Federal Deposit Insurance Act.
(b) Capitalization, Investments. As of the date hereof, the authorized
capital stock of Steelton consists of 8,000,000 shares of common
stock, par value $.10 per share, of which 300,290 shares are duly
issued and outstanding, fully paid and non-assessable, plus 116,225
shares are held in treasury as issued but not outstanding, and
2,000,000 shares of preferred stock, no par value, none of which are
issued and outstanding. Except as set forth in Schedule 3(b) hereto,
there are no authorized, issued or outstanding options, convertible
securities, warrants or other rights to purchase or acquire any of
Mechanics' or Steelton's capital stock from Mechanics or Steelton,
there is no commitment of Mechanics or Steelton to issue the same, and
other than by operation of law, there are no outstanding agreements,
restrictions, contracts, commitments or demands of any character to
which Steelton or Mechanics is a party, which relate to the transfer
or restrict the transfer of any shares of Steelton's or Mechanics'
capital stock. Except as disclosed in Schedule 3(b), to the knowledge
of Steelton, there are no shareholder agreements, understandings or
commitments relating to the right of any shareholder to vote or
dispose of shares of Steelton or shares of Mechanics. The authorized
capital stock of each of the Steelton Subsidiaries ("Steelton
Subsidiaries' Capital Stock") consists of the respective number of
shares of capital stock, with the respective par value per share, set
forth on Schedule 3(b), of which the respective number of outstanding
shares set forth on Schedule 3(b) have been duly authorized, validly
issued, and are fully paid and non-assessable. Except as set forth on
Schedule 3(b), all shares of the Steelton Subsidiaries' Capital Stock,
which are issued and outstanding, are owned directly or indirectly by
Steelton. Except as set forth on Schedule 3(b), there is no
authorized, issued or outstanding capital stock of any of the Steelton
Subsidiaries, there is no commitment of any of the Steelton
Subsidiaries to issue any of the same and, other than by operation of
law, there are no outstanding agreements, restrictions, contracts,
commitments or demands of any character which relate to the transfer
or restrict the transfer of any shares of the Steelton Subsidiaries'
Capital Stock. No share of Steelton or of a Steelton Subsidiary has
been issued in violation of the preemptive rights of any person.
(c) Financial Statements and Exchange Act Reports. Steelton has furnished
to Sun or made available to Sun audited consolidated statements of
financial condition for Steelton and its subsidiaries as of the end of
Steelton's last two fiscal years, and audited consolidated statements
of (i) operations, (ii) shareholders' equity, and (iii) cash flows for
each of the last two fiscal years, including the notes to said audited
consolidated financial statements, together with the reports of
11
Steelton's independent certified public accountants, pertaining to
said audited consolidated financial statements. Steelton has also
furnished to Sun or made available to Sun Steelton's (i) Quarterly
Reports on Form 10-QSB for the quarters ended March 31, June 30, and
September 30, 2002, containing unaudited statements of financial
condition of Steelton as of such dates and unaudited statements of
operations and cash flows of Steelton for the interim periods
reflected therein, (ii) any Current Reports on Form 8-K filed by
Steelton since December 31, 2000, and (iii) all management letters
from Steelton's independent certified public accountants since January
1, 2000. For purposes of this Agreement, the "Steelton Statement"
shall mean the audited consolidated statements of financial condition
(balance sheet and income statement) and the audited statements of
operations, shareholder equity and cash flows for Steelton and the
Steelton Subsidiaries as of December 31, 2001 (including the notes
thereto) and the Quarterly Reports on Form 10-QSB for the quarters
ended March 31, June 30, and September 30, 2002, containing unaudited
statements of financial condition of Steelton as of such dates and
unaudited statements of operations and cash flows of Steelton for the
interim periods reflected therein. The above audited and unaudited
consolidated statements of financial condition (balance sheet and
income statement) present fairly the financial condition of Steelton
on a consolidated basis at the dates thereof, in accordance with
generally accepted accounting principles consistently applied. The
above audited and unaudited consolidated statements of (i) operations,
(ii) shareholders' equity, and (iii) cash flows present fairly the
results of the operations of Steelton on a consolidated basis for the
periods indicated, in accordance with generally accepted accounting
principles consistently applied. Except as and to the extent reflected
or reserved against in the Steelton Statement, or as otherwise
disclosed pursuant to this Agreement or in Steelton's 2002 Annual
Report to Shareholders or as set forth in Schedule 3(c), neither
Steelton nor any of the Steelton Subsidiaries had, at the date
thereof, any material liabilities or obligations, or any other
liabilities or obligations which in the aggregate would be material,
secured or unsecured (whether accrued, absolute, contingent or
otherwise), including, without limitation, any tax liabilities, which
should be reflected in the Steelton Statement in accordance with
generally accepted accounting principles consistently applied. The
financial statements, books and records of Steelton and the Steelton
Subsidiaries are maintained in accordance with generally accepted
accounting principles consistently applied.
(d) Absence of Certain Developments. Since December 31, 2001, except as
disclosed in reports filed by Steelton prior to the date of this
Agreement pursuant to the Securities Act of 1933 or the Exchange Act,
there has been no material adverse change in the financial condition,
business or results of operations of Steelton and the Steelton
Subsidiaries taken as a whole. Since such date, each of Steelton and
the Steelton Subsidiaries has conducted its business only in the
12
ordinary course and is in compliance in all material respects with all
laws which govern the ownership of its property and the conduct of its
business.
(e) Taxes. Mechanics is a "domestic building and loan association" as
defined in Section 7701(a)(19) of the Code. Except as set forth on
Schedule 3(e) hereto, (i) each of Steelton and the Steelton
Subsidiaries has filed all tax returns (as described below) that it is
required to file and all taxes (as described below) of Steelton or any
of the Steelton Subsidiaries to be due from Steelton or any of the
Steelton Subsidiaries have been duly paid, other than taxes or charges
which are not as yet due, delinquent or have not been finally
determined, and no extensions for the time of payment have been
requested; (ii) no additional assessments of tax for which adequate
provisions in the Steelton Statement have not been made, have been
proposed, are pending or, to the knowledge of Steelton, threatened by
any governmental authority; and (iii) no waivers of statutes of
limitation concerning taxes associated with either Steelton or any of
the Steelton Subsidiaries are in effect as of the date hereof. Except
as set forth on Schedule 3(e), the accruals and reserves for tax
liabilities reflected in the Steelton Statement are adequate for the
payment of all of Steelton's and the Steelton Subsidiaries' respective
federal, state, county, municipal, local and foreign tax liabilities,
including interest and penalties, whether proposed, pending,
threatened or disputed, for all periods ended on or prior to December
31, 2001, and for which Steelton or any of the Steelton Subsidiaries
may, at said date, have been liable, other than tax liabilities with
respect to property acquired after December 31, 2001, through
repossession, foreclosure or purchase under similar circumstances or
as a result of the transactions contemplated by this Agreement. Except
as set forth on Schedule 3(e), Internal Revenue Service audits of
Steelton and the Steelton Subsidiaries have been completed (or not
commenced) through the year ended December 31, 1997, and all
deficiencies, if any, resulting from completed audits have been paid.
Copies of all material correspondence and documents relating to
federal, state, county, municipal or local income, capital stock,
franchise, or other similar taxes in respect of the five most recently
completed tax years have been made available to Sun. Except as set
forth on Schedule 3(e), neither Steelton nor any of the Steelton
Subsidiaries has executed or filed with the Internal Revenue Service
any agreement that is currently in effect and extends the period for
assessment and collection of any federal tax.
The Internal Revenue Service has not, to the knowledge of Steelton,
commenced, or given notice of its intention to commence, any
examination or audit of the federal income tax returns of Steelton or
any Steelton Subsidiary for any year subsequent to the year ended
December 31, 1997. Except as disclosed on Schedule 3(e), the accruals
and reserves reflected in the Steelton Statement as of this date are
adequate to cover all taxes, including interest and penalties thereon,
if any, payable or accrued as a result of Steelton's operations for
all prior periods. For purposes of this Section 3(e), "tax returns"
shall mean all
▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ and local tax returns, reports and
declarations, including, without limitation, consolidated federal
income tax returns of Steelton and the Steelton Subsidiaries,
declarations of estimated tax and tax reports required to be filed on
or before this date with respect to income, properties or operations,
and "taxes" shall mean all federal, state, county, municipal, and
local or foreign income, gross receipts, windfall profits, severance,
property, production, sales, use, license, excise, franchise,
employment, withholding or similar taxes, together with any interest,
additions, or penalties with respect thereto and any interest in
respect of such additions or penalties.
(f) Litigation. Except as set forth on Schedule 3(f) hereto, no material
action, suit, claim, counterclaim or other litigation, proceeding or
investigation of Steelton, is pending or, to the knowledge of
Steelton, threatened against Steelton or any of the Steelton
Subsidiaries before any court or governmental or administrative
agency, domestic or foreign. There are no outstanding orders, writs,
injunctions, judgments, decrees, directives, consent agreements or
memoranda of understanding involving Steelton or any Steelton
subsidiary and any federal regulatory agency, federal, state or local
court or governmental authority or arbitration tribunal that could
materially and adversely affect the condition, financial or otherwise,
of the assets, liabilities, business or operations of Steelton and the
Steelton Subsidiaries taken as a whole or that in any manner restrict
the right of Steelton and the Steelton Subsidiaries taken as a whole
to conduct their business as presently conducted. Neither Steelton nor
any of the Steelton Subsidiaries is aware of any fact or condition
presently existing that might, to their knowledge, give rise to any
litigation, investigation, or proceeding which, if determined
adversely to Steelton or any of the Steelton Subsidiaries, would
materially and adversely affect the condition, financial or otherwise,
of the assets, liabilities, business or operations of Steelton and the
Steelton Subsidiaries taken as a whole.
(g) Brokerage. Except as set forth on Schedule 3(g) hereto, there are no
claims for brokerage commissions, finder's fees or similar
compensation arising out of or due to any act of Steelton or any of
the Steelton Subsidiaries in connection with the transactions
contemplated by this Agreement or based on any agreement or
arrangement made by or on behalf of Steelton or any of the Steelton
Subsidiaries.
(h) Properties. Except as set forth on Schedule 3(h) hereto, each of
Steelton and the Steelton Subsidiaries has good and marketable title,
free and clear of any mortgage, pledge, lien, charge or other
encumbrance, to all of its real or personal property, loans and other
assets reflected in the Steelton Statement or acquired by it
subsequent to the date thereof, except for (i) mortgages, pledges,
liens, charges or encumbrances on such property or assets described or
referred to, or reflected, in the Steelton Statement; (ii) liens for
current taxes not yet due; (iii)
14
such imperfections of title, encumbrances and easements, if any, as
are not individually or in the aggregate substantial or material in
character, amount or extent and do not materially detract from the
value, or interfere with the present or proposed use, of their
properties and assets subject thereto; (iv) dispositions of such
property or assets in the ordinary course of business; (v) mortgages,
pledges, liens, charges or encumbrances, on assets other than real or
personal property, incurred in the ordinary course of business
subsequent to December 31, 2001; and (vi) liens or encumbrances on
property acquired through repossession, foreclosure or purchase under
similar circumstances. The structure and other improvements to real
estate, furniture, fixtures and equipment reflected in the Steelton
Statement or acquired subsequent to the date of such statement are in
good operating condition and repair (ordinary wear and tear excepted)
and comply in all material respects with all applicable laws,
ordinances and regulations, including, without limitation, all
building codes, zoning ordinances and other similar laws. Except as
set forth on Schedule 3(h), Steelton and each of the Steelton
Subsidiaries own or have the right to use all real and personal
properties and assets necessary to conduct their respective business
as now conducted. Except as set forth on Schedule 3(h), each lease
pursuant to which Steelton or any of the Steelton Subsidiaries, as
lessee, leases real or personal property is valid and in effect in
accordance with its respective terms, and there is not, under any of
such leases, on the part of the lessee any material existing default
or any event which with notice or lapse of time, or both, would
constitute such a default, other than defaults which would not
individually or in the aggregate have a Material Adverse Effect on the
financial condition, business, or operating results of Steelton and
the Steelton Subsidiaries taken as a whole. Except as set forth on
Schedule 3(h), each of such leases is assumable by Sun or its assigns
in connection with the transactions contemplated by this Agreement and
without payment of any penalty or special assessment.
(i) Compliance with Applicable Laws. Except as disclosed on Schedule 3(i)
hereto, Steelton and the Steelton Subsidiaries are in compliance in
all material respects with all statutes, laws, ordinances, rules,
regulations, judgments, orders, decrees, directives, consent
agreements, memoranda of understanding, permits, concessions, grants,
franchises, licenses, and other governmental authorizations or
approvals applicable to Steelton and the Steelton Subsidiaries or to
any of their properties, and all permits, concessions, grants,
franchises, licenses, certificates of authority, and other
governmental authorizations and approvals necessary for the conduct of
the business of Steelton and the Steelton Subsidiaries as presently
conducted (the absence of which could have a Material Adverse Effect
on the business, prospects, operations, assets or financial condition
of Steelton and the Steelton Subsidiaries taken as a whole) have been
duly obtained and are in full force and effect and there are no
proceedings pending, or to the knowledge of Steelton and the Steelton
Subsidiaries, threatened, which may result in the revocation,
cancellation, suspension or
15
material adverse modification of any such permits, concessions,
grants, franchises, licenses, and other governmental authorizations
and approvals.
(j) Contracts and Commitments, Etc. Each contract (other than loans to or
contracts with customers incurred by Steelton in the ordinary course
of business) which involves aggregate payments or receipts in excess
of $50,000 per year to which Steelton or any of the Steelton
Subsidiaries is a party, or by which Steelton or any of the Steelton
Subsidiaries is bound, including without limitation every employment
contract, employment benefit plan, agreement, lease, license and other
commitment to which Steelton is a party or by which Steelton or its
properties may be bound ("Material Contracts"), is identified in
Schedule 3(j) hereto. Except as disclosed on Schedule 3(j), all such
Material Contracts are valid and in full force and effect, and all
parties thereto have in all material respects performed all
obligations required to be performed by them to date and are not in
default in any material respect and no event has occurred which, with
the lapse of time or notice by a third party or both could result in a
default by Steelton or a Steelton Subsidiary under such Material
Contract or under any provision of the Articles of Incorporation or
Bylaws of Steelton or any of the Steelton Subsidiaries. Schedule 3(j)
identifies each such Material Contract that requires the consent or
approval of third parties to the execution and delivery of this
Agreement or to the consummation of the transactions contemplated
herein.
(k) Insurance. Steelton and the Steelton Subsidiaries have in effect and
full force insurance coverage and policies with reputable insurers,
which in respect of amounts, types and risks insured is customary with
industry practices for the businesses conducted by Steelton and the
Steelton Subsidiaries. No notices of cancellation have been received
in connection therewith.
(l) No Guarantees. Except as disclosed in Schedule 3(l) hereto, neither
Steelton nor any of the Steelton Subsidiaries is obligated as
guarantor, co-▇▇▇▇▇▇ or surety (or otherwise in a secondary liability
capacity) for any obligation of any kind of any other person or entity
(other than Steelton or any of the Steelton Subsidiaries).
(m) Examination Reports. Neither Steelton nor any of the Steelton
Subsidiaries is subject to any cease and desist order, written
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 is a recipient of any extraordinary
supervisory letter from, or has adopted any board resolutions since
January 1, 2000, providing for the taking of corrective measures at
the request of or as mandated by federal or state governmental
authorities charged with the supervision or regulation of savings and
loan associations or savings and loan holding companies or engaged in
the insurance of savings deposits (collectively "Thrift Regulators"
and individually "Thrift Regulator"), nor has it been advised by any
Thrift Regulator that it is contemplating issuing or requesting (or is
16
considering the appropriateness of issuing or requesting) any such
order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions
(of the type described above) or similar undertaking.
(n) Agreement, Authority, Absence of Conflicts. The execution, delivery
and performance of this Agreement and the Merger Agreement have been
duly and validly authorized by the Boards of Directors of Steelton and
Mechanics, as the case may be, and do not and, subject to obtaining
all required authorizations and approvals, will not violate any of the
(i) provisions of, or constitute a default under or give any person or
party the right to accelerate payment or performance under any
Material Contract; or (ii) the Articles of Incorporation or Bylaws of
Steelton or any of the Steelton Subsidiaries. This Agreement and the
Merger Agreement have been duly executed and delivered by Steelton and
constitute, assuming the due authorization, execution and delivery
thereof by Sun or Sun Acquisition, as the case may be, a valid and
binding obligation of Steelton and Mechanics, respectively,
enforceable in accordance with its terms, except as may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium,
conservatorship, receivership or other similar laws now or hereafter
in effect relating to or affecting the enforcement of creditors'
rights generally or the rights of creditors of federal savings
institutions or their holding companies, (ii) general equitable
principles, and (iii) laws relating to the safety and soundness of
insured depository institutions, and except that no representation is
expressed as to the effect or availability of equitable remedies or
injunctive relief (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(o) Reporting. Since January 1, 2000, Steelton has timely filed all
reports required to be filed by it pursuant to the Securities Act of
1933 and the Exchange Act and the rules and regulations promulgated
thereunder, and all such reports are complete and correct in all
material respects.
(p) Full Disclosure. None of the information with respect to Steelton or
any of the Steelton Subsidiaries which has been furnished to Sun
pursuant to this Agreement or has been or will be included by Steelton
in the Proxy Statement, or any application to, or filing with, any
regulatory agency made in connection with the transactions
contemplated hereby will, at the respective time it is furnished,
distributed, mailed or filed, be false or misleading with respect to
any material fact, or omit to state any material fact necessary in
order to make the statements therein not misleading in light of the
circumstances under which they were made.
(q) Employee Benefit Plans. Each "employee benefit plan," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), that now covers any employee of Steelton, its
predecessors or
17
affiliates, or any of the Steelton Subsidiaries, complies in all
material respects with all applicable requirements of ERISA, the Code
and other applicable laws. Neither Steelton nor any of its
predecessors or affiliates or any of the Steelton Subsidiaries has
engaged in any "prohibited transaction" (as defined in Section 406 of
ERISA or Section 4975 of the Code) or any breach of fiduciary
responsibility under Part 4 of Title I of ERISA, with respect to any
such plan, which prohibited transaction is likely to result in any
material penalties or taxes under Section 502 of ERISA or Section 4975
of the Code, or any material liability to any participant or
beneficiary of such plan. No material liability to the Pension Benefit
Guaranty Corporation has been incurred by Steelton with respect to
itself or its predecessors or affiliates or any of the Steelton
Subsidiaries with respect to any such plan which is subject to Title
IV of ERISA, or with respect to any "single employer plan" (as defined
in Section 4001(a)(15) of ERISA) currently or formerly maintained. No
such plan had an "accumulated funding deficiency" (as defined in
Section 302 of ERISA) (whether or not waived) as of the last day of
the end of the most recent plan year ending prior to the date hereof.
The fair market value of the assets of each such plan exceeds the
present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under each such plan as of the end of the most
recent plan year, calculated on the basis of the actuarial assumptions
used in the most recent actuarial valuation for each such plan. As of
January 1, 2002, all accrued contributions and other payments to be
made under each qualified retirement plan have been set aside
therefor. No notice of a "reportable event" (as defined in Section
4043 of ERISA) for which the 30-day reporting requirement has not been
waived has been required to be filed for any such plans within the
12-month period ending on the date hereof. Neither Steelton, its
predecessors or affiliates nor any of the Steelton Subsidiaries has
provided, or is required to provide, security to any such plans
pursuant to Section 401(a)(29) of the Code. Steelton, its predecessors
and affiliates and each of the Steelton Subsidiaries have contributed
to no "multiemployer plan," as defined in Section 3(37) of ERISA, on
or after September 26, 1980 except as set forth on Schedule 3(q).
Steelton, its predecessors and affiliates and each of the Steelton
Subsidiaries have no obligation for retiree health and life benefits
under any benefit plan, contract or arrangement except as set forth on
Schedule 3(q) hereto. Steelton, its predecessors and affiliates and
each of the Steelton Subsidiaries have no obligation for any post
retirement benefits under any plan, contract or arrangement, except as
set forth on Schedule 3(q) hereto. To the knowledge of Steelton, all
actuarial valuations and other documents and information concerning
benefit plans delivered or made available in connection with this
Agreement are true and correct as of the date(s) shown thereon, and
all actuarial methods and assumptions are appropriate for such plans,
and are consistent with the methods and assumptions permitted by the
Code and ERISA. Except as set forth on Schedule 3(q), all such plans
are funded to such level as would permit termination without further
funding such that, upon termination, the assets of
18
each such plan would then be sufficient to pay all vested accrued
benefits thereunder, and there would be no employer liability under
Title IV of ERISA. Since 1990, there has been no audit of any benefit
plan of Steelton or of any Steelton Subsidiary by the Department of
Labor, the IRS or the Pension Benefit Guarantee Corporation.
(r) Labor Matters. Neither Steelton nor any Steelton Subsidiary is a party
to, or is bound by, any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor
organization, nor is Steelton or any Steelton Subsidiary the subject
of a proceeding asserting that Steelton or any Steelton Subsidiary has
committed an unfair labor practice or seeking to compel Steelton or
such Steelton Subsidiary to bargain with any labor organization as to
wages and conditions of employment, nor is there any strike or other
labor dispute involving Steelton or any Steelton Subsidiary pending,
or, to the knowledge of Steelton, threatened, that might have a
Material Adverse Effect on the condition, financial or otherwise, of
the assets, liabilities, business or operations of Steelton and the
Steelton Subsidiaries taken as a whole. Neither Steelton nor any
Steelton Subsidiary is subject to or a party in any complaint or
action before any local human relations commission, the Pennsylvania
Human Relations Commission, the Equal Employment Opportunity
Commission or the Department of Labor.
Except as provided on Schedule 3(r), Steelton has no pension,
retirement, stock purchase, stock bonus, savings or profit sharing
plan, any deferred compensation, consultant, bonus, life insurance,
death or survivor benefit, health insurance, sickness, disability,
medical, surgical, hospital, severance, layoff or vacation plan or any
other incentive welfare, or employee benefit plan or arrangement. With
respect to those plans and arrangements listed on Schedule 3(r),
Steelton has provided to Sun an accurate and complete copy of the most
recent plan documents, the most recent annual report filed with the
United States Department of Labor and the Internal Revenue Service,
the most recent financial and actuarial reports, and the most recently
issued Internal Revenue Service Rulings or determination letters.
(s) Environmental Matters. For purposes of this paragraph (s), the
following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement
with any governmental entity relating to (1) the protection,
preservation or restoration of the environment (including, without
limitation, air, water vapor, surface water, groundwater, drinking
water supply, surface soil, subsurface soil, plant and animal life or
any other natural resource), and (2) the use, storage, recycling,
treatment, generation,
19
transportation, processing, handling, labeling, production, release or
disposal of Hazardous Substances. The term Environmental Law includes
without limitation (1) the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. ss.9601, et
seq.; the Resource Conservation and Recovery Act, as amended, 42
U.S.C.ss.6901, et seq.; the Clean Air Act, as amended, 42
U.S.C.ss.7401, et seq.; the Federal Water Pollution Control Act, as
amended, 33 U.S.C.ss.1251, et seq.; the Toxic Substances Control Act,
as amended, 15 U.S.C.ss.9601, et seq.; the Emergency Planning and
Community Right to Know Act, 42 U.S.C.ss.11001, et seq.; the Safe
Drinking Water Act, 42 U.S.C.ss.300f, et seq.; and all comparable
state and local laws, and (2) any common law (including without
limitation common law that may impose strict liability) that may
impose liability or obligation for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any
Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous
or otherwise regulated under any Environmental Law, whether by type or
by quantity, including any matter containing any such substance as a
component. Hazardous Substances include without limitation petroleum
or any derivative or by-product thereof, asbestos, radioactive matter,
and polychlorinated biphenyls.
"Steelton Loan Portfolio Properties and Other Properties Owned" means
those properties serving as collateral for loans in Steelton's loan
portfolio, or properties currently owned or operated by Steelton or
any Steelton Subsidiary (including, without limitation, in a fiduciary
capacity).
Except as set forth on Schedule 3(s) hereto:
(1) Neither Steelton nor any Steelton Subsidiary is, to the knowledge
of Steelton or Mechanics, in violation of or liable under any
Environmental Law;
(2) None of the Steelton Loan Portfolio Properties and Other
Properties Owned, to the knowledge of Steelton or Mechanics, are
in violation of or liable under any Environmental Law;
(3) None of the Steelton Loan Portfolio Properties and Other
Properties Owned have, to the knowledge of Steelton or Mechanics,
Hazardous Substances on or in them; and
(4) There are no actions, suits, demands, notices, claims,
investigations or proceedings pending or, to the knowledge of
Steelton, threatened relating to the liability of Steelton or any
Steelton Subsidiary in connection with
20
any property that previously served as collateral for a loan or
was previously owned or leased or that relates to the Steelton
Loan Portfolio Properties and Other Properties Owned under any
Environmental Law, including without limitation any notices,
demand letters or requests for information from any federal or
state environmental agency relating to any such liabilities under
or violations of Environmental Law.
(t) Proceedings. As of the date of this Agreement, there is no pending or,
to the knowledge of Steelton or Mechanics, threatened, legal or
governmental proceeding against Steelton or any Steelton Subsidiary,
and Steelton and Mechanics are not aware of any fact or circumstance
which would adversely affect Steelton's or Mechanics' ability to
obtain any of the required regulatory approvals or satisfy any of the
other conditions required to be satisfied in order to consummate the
transactions contemplated by this Agreement.
(u) Undisclosed Liabilities. Except as set forth on Schedule 3(u), since
December 31, 2001, neither Steelton nor any Steelton Subsidiary has
incurred any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except liabilities or
obligations incurred in the ordinary course of business or which would
not have a Material Adverse Effect on the financial condition,
business, prospects or operating results of Steelton and the Steelton
Subsidiaries taken as a whole.
(v) Financial Institutions Bond. Since January 1, 2000, Steelton and the
Steelton Subsidiaries have continuously maintained in full force and
effect a financial institutions bond insuring against acts of
dishonesty by each of its employees. Except as disclosed on Schedule
3(v) hereto, no claim has been made under any such bond since January
1, 2000, and Steelton and Mechanics is unaware of any fact or
condition presently existing which might form the basis of a claim
under any such bond. Mechanics has no reason to believe that its
present financial institutions bond will not be renewed by its carrier
on substantially the same basis and terms (other than an immaterial
premium rate increase) as those now in effect.
(w) Repurchase Agreements. With respect to any agreement pursuant to which
Steelton or any Steelton Subsidiary has purchased securities subject
to an agreement to resell, Steelton or the Steelton Subsidiary has a
valid, perfected first lien or security interest in the government
securities or other collateral securing the repurchase agreement, and
the value of such collateral equals or exceeds the amount of the debt
secured thereby. Except as disclosed on Schedule 3(w) which identifies
location and type of securities, Steelton maintains physical
possession of purchased securities that are subject to an agreement to
resell.
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(x) Assumability of Leases and Contracts. Except as disclosed on Schedule
3(x) hereto, all Material Contracts are assumable and assignable and
do not contain any term or provision that would accelerate or increase
payments that would otherwise be due by Steelton or the Steelton
Subsidiary to such person or entity or change or modify the provisions
or terms of such contract by reason of this Agreement or the
transactions contemplated hereby.
(y) Loans. Except as disclosed on Schedule 3(y) hereto, the loans
reflected as assets on the Steelton Statement, or acquired since that
date, are, in all material respects, the legal, valid and binding
obligations of the respective obligors named therein, enforceable in
accordance with their terms, subject to bankruptcy, insolvency and
other laws of general applicability relating to or affecting
creditors' rights and to general equity principles. All such loans,
and the collateral and other security therefor, and the documentation
for and administration of the same, satisfy in all material respects
the rules, regulations or directives of the OTS, FDIC, or other
applicable governmental authorities and are in accordance with their
terms in all material respects.
(z) Loan Portfolio. Except as disclosed on Schedule 3(z) hereto, all
evidences of indebtedness reflected as assets of Steelton or any
Steelton Subsidiary in the Steelton Statement are in all material
respects binding obligations of the respective primary obligors
associated therewith, and no material amount thereof is subject to any
defenses known to Steelton or any Steelton Subsidiary which may be
asserted against Steelton or any Steelton Subsidiary. Except as set
forth in Schedule 3(z), Steelton has made available or delivered to
Sun a true and correct list and brief description of all real property
(other than personal residences) in which Steelton or any Steelton
Subsidiary has an interest as creditor or mortgagee securing an amount
or amounts greater than $50,000 to one borrower, or a series of
related borrowers. Except as set forth in Schedule 3(z), (i) there are
no outstanding real property loans (other than personal residences)
held by Steelton with an unpaid balance of $10,000 or more on which a
default has occurred and (ii) Mechanics has no loans reflected as
assets in such financial statements which have principal balances in
excess of $10,000 except for fully-secured mortgage loans. For
purposes hereof, "default" shall include but not be limited to a
failure of an obligor to make payments with respect to any loans for
60 days or more past the due date for such payment.
(aa) Trademarks, Trade Names. Steelton owns, or has the right to use, all
trademarks, servicemarks, trade names and copyrights used in or
necessary for the ordinary conduct of its existing business as
heretofore conducted, and the consummation of the transactions
contemplated hereby will not alter or impair any such rights. Except
as set forth in Schedule 3(aa), no claims are pending for the use of
any trademarks, servicemarks, trade names or copyrights or challenging
or questioning the validity or effectiveness of any license or
22
agreement relating to the same nor is there any valid basis for any
such claim, challenge or question, and, to the knowledge of Steelton,
the use of such trademarks, servicemarks, trade names and copyrights
by Steelton or any Steelton Subsidiary does not infringe on the rights
of any person.
(bb) Accuracy of Representations. Until Closing, Steelton will promptly
notify Sun if any of the representations contained in this Section 3
ceases to be true and correct in all material respects subsequent to
the date hereof.
(cc) Absence of Questionable Payments. From and after December 31, 2001,
Steelton has not, nor, to the knowledge of Steelton, has any director,
officer, agent, employee, consultant or other person associated with,
or acting on behalf of, Steelton, (i) used any Steelton or Steelton
Subsidiary corporate funds for unlawful contributions, gifts,
entertainment or unlawful expenses relating to political activity; or
(ii) made any direct or indirect unlawful payments to governmental
officials from any Steelton corporate funds, or established or
maintained any unlawful or unrecorded accounts with funds received
from Steelton or any Steelton Subsidiary.
(dd) Powers of Attorney, Guarantees. Except as set forth on Schedule 3(dd),
neither Steelton nor any Steelton Subsidiary has any power of attorney
outstanding, or any obligation or liability, either actual, accruing
or contingent, as guarantor, surety, cosigner, endorser, comaker or
indemnitor in respect of the obligation of any person, corporation,
partnership, joint venture, association, organization or other entity,
except for letters of credit issued in the ordinary course of business
which are listed on Schedule 3(dd).
(ee) CRA Compliance. Mechanics has a satisfactory Community Reinvestment
Act rating.
(ff) Derivatives. Except as set forth in Schedule 3(ff), neither Steelton
nor any Steelton Subsidiary owns or holds any derivatives, "caps" or
"floors" in their investment portfolio in an amount of $100,000 in the
aggregate.
(gg) Loan Loss Reserves. The loan loss reserve of Mechanics reflected in
the Steelton Statements is and the loan loss reserve shown on the
consolidated financial statements of Steelton and the Steelton
Subsidiaries for periods after the date of this Agreement will be, in
the reasonable good faith judgment of management of Steelton, adequate
in accordance with generally accepted accounting principles,
directives of governmental authorities, and all regulations, rules and
directives of the FDIC and the OTS.
23
4. ACCESS TO AND INFORMATION CONCERNING PROPERTIES, RECORDS, ETC. Steelton and
Mechanics shall, to the extent permitted by law, give to Sun, its counsel,
accountants, financial advisors and other representatives full access, at
reasonable times and upon reasonable notice (so as not to interfere
unreasonably with the ordinary course and conduct of business of Steelton
or any of the Steelton Subsidiaries), throughout the period prior to the
Closing, access to all of their respective properties, books, contracts,
commitments and records, including, but not limited to, minute books,
Charters, Articles of Incorporation and Bylaws, and shall furnish to Sun
during such period all such information concerning Steelton and the
Steelton Subsidiaries and their respective affairs as Sun may reasonably
request. Without limiting the effect of the foregoing, such access shall in
no event be more limited than that granted by a public company to its
independent accountants in the course of their conduct of an audit of its
financial statements (to the extent such access is permitted by applicable
law, regulation or order). In addition, Steelton and the Steelton
Subsidiaries shall make their respective officers available at reasonable
times and upon reasonable notice to discuss with Sun's designated
representatives the substance of all documents, financial statements and
other information provided by Steelton and the Steelton Subsidiaries, and
other matters as Sun shall reasonably deem pertinent to the transactions
contemplated under this Agreement. All information disclosed by any party
hereto or any subsidiary thereof to another party pursuant to this Section
4 shall be subject to Section 13 hereof (regarding confidential treatment
of confidential or non-public information).
5. AFFIRMATIVE COVENANTS OF SUN AND SUN ACQUISITION.
(a) Sun covenants and agrees that, throughout the period commencing on the
date hereof and ending on the date of Closing, Sun will for its own
part:
(i) Conduct of Business. Conduct its business in a manner that will
not adversely affect Sun's ability to obtain all necessary
regulatory approvals for the transactions contemplated hereby or
Sun's ability to perform its obligations under this Agreement;
(ii) Laws, Rules, Etc. Comply with and perform all material
obligations and duties imposed upon it by all federal and state
laws and all rules, regulations and orders imposed by federal or
state governmental authorities, except in respects not materially
adverse to the business, operations, assets or financial
condition of Sun or which would not materially impair the ability
of Sun to consummate the transactions contemplated hereby;
(iii)Best Efforts. Use its best efforts to assure, to the extent
reasonably within its control, as soon as it is reasonably
practicable, the satisfaction of the conditions to the
effectiveness of the transactions contemplated hereunder and the
transactions contemplated by this Agreement;
24
(iv) Notices. Notify Steelton of (i) any fact or circumstance of which
the executive officers of Sun have knowledge which would, absent
disclosure by Sun to Steelton and Steelton's subsequent consent
to such fact or circumstance, not permit Sun to satisfy the
conditions set forth in Section 10(a)(i) of this Agreement, and
(ii) any material breach of any of its covenants and agreements
contained herein; and
(v) Regulatory Applications. Use its best efforts to file all
requisite regulatory applications with respect to the
transactions contemplated by this Agreement as soon as possible,
and to thereafter use its best efforts to file any necessary
amendments promptly. Copies of such applications and all
correspondence to and from the regulatory authorities shall be
promptly provided to Steelton and its counsel.
(vi) Tax Treatment. Take no action that, in the reasonable good faith
judgment of management of Sun, would preclude or impair the
satisfaction of the conditions set forth in Section 9(e) of this
Agreement.
(b) Sun Acquisition covenants and agrees that, throughout the period
commencing on the date hereof and ending on the date of Closing, Sun
Acquisition will, for its own part prior to the Effective Date of the
Merger, engage only in the transactions contemplated by this Agreement
and the Merger Agreement, and will have no material liabilities and
will have incurred no material obligations except in connection with
the performance of the transactions provided in this Agreement and in
the Merger Agreement.
6. AFFIRMATIVE COVENANTS OF STEELTON AND MECHANICS. Steelton and Mechanics
covenant and agree that, throughout the period commencing on the date
hereof and ending on the date of Closing, except for specific proposed
actions or inaction as shall otherwise be consented to in writing by Sun,
Steelton will for its own part, and it will cause the Steelton Subsidiaries
to:
(a) Conduct of Business. Conduct their businesses, including extensions of
credit and mortgage banking operations, only in the ordinary course
consistent with past practices and written policies, and there will be
no Material Adverse Effect (as defined in Section 19 hereof) in the
business, operations, assets or financial condition of Steelton and
the Steelton Subsidiaries taken as a whole between the date hereof and
the date of Closing;
(b) Preservation of Business. Use their best efforts to maintain and
preserve their businesses and business organizations intact,
including, but not limited to, maintaining goodwill and relationships
with customers and others having business dealings with Steelton and
the Steelton Subsidiaries, preserving and
25
collecting all material claims and causes of action belonging to
Steelton and the Steelton Subsidiaries, and maintaining their books of
account and other records;
(c) Properties. Maintain and keep their properties, both real property and
tangible personal property, in as good repair and condition in all
material respects as they presently exist, except for depreciation due
to ordinary wear and tear and damage due to unavoidable casualty;
(d) Insurance. Maintain in full force and effect all insurances customary
with industry practices for the businesses conducted by Steelton and
the Steelton Subsidiaries;
(e) Contracts, Etc. Perform all its material obligations under agreements,
contracts, leases, documents and instruments relating to or affecting
their assets, properties and businesses;
(f) Financial Statements. Furnish to Sun:
(i) As soon as practicable and in any event within forty-five (45)
days after the end of each of the first three quarters in each
fiscal year, consolidated statements of operations of Steelton
and the Steelton Subsidiaries for such period and for the period
beginning at the commencement of the fiscal year and ending at
the end of such quarterly period, and a consolidated balance
sheet of Steelton and the Steelton Subsidiaries as of the end of
such quarterly period, setting forth in each case in comparative
form figures for the corresponding periods ending in the
preceding fiscal year, subject to changes resulting from year-end
adjustments;
(ii) Within ninety days of the end of the period being audited, copies
of all audit reports submitted to Steelton by independent
auditors in connection with each annual, interim or special audit
of the books of Steelton and the Steelton Subsidiaries made by
such accountants;
(iii)As soon as practicable, copies of all such financial statements
and reports as it shall send to its shareholders and of such
regular and periodic reports as Steelton or the Steelton
Subsidiaries may file with the SEC, the OTS, or any other
regulatory authority;
(iv) Promptly upon any executive officer of Steelton obtaining
knowledge of any condition or event which would constitute a
material violation of the terms and conditions of this Agreement
or the Merger Agreement or which would constitute a material
default under any material indenture, mortgage, agreement or
other instrument securing or relating to any indebtedness of
Steelton or the Steelton Subsidiaries for borrowed
26
money, a certificate of the President of Steelton, specifying the
nature of such material violation or default and what action
Steelton has taken or is taking or proposes to take with respect
thereto;
(v) Promptly upon becoming aware that any person has given notice to
Steelton or any Steelton Subsidiary or taken any other action
with respect to a claimed violation or default of the type
referred to in subsection (iv) of this Subsection (f), a written
notice describing the notice given or action taken by such
person, the nature of such violation or default and what action
Steelton has taken or is taking or proposes to take with respect
thereto; and
(vi) With reasonable promptness, such additional financial data as Sun
may reasonably request.
(g) Laws, Rules, Etc. Comply with and perform all material obligations and
duties imposed upon it by all federal, state, county, local and
municipal laws and all rules, regulations, directives, decrees,
orders, and ordinances imposed by federal, state, county, local or
municipal governmental authorities, including, but not by way of
limitation of the above, compliance with examination reports,
regulations and rulings of the OTS;
(h) Corporate Existence. Maintain its existence, in the case of Steelton,
as a corporation validly existing in good standing under the laws of
the Commonwealth of Pennsylvania, and in the case of the Steelton
Subsidiaries, as an entity of the respective type set forth on
Schedule 3(a) in good standing under the laws of the respective
jurisdictions set forth on Schedule 3(a);
(i) Notices. Notify Sun of (i) any fact or circumstance of which the
executive officers of Steelton have knowledge which would, absent
disclosure by Steelton to Sun and Sun's subsequent consent to such
fact or circumstance, not permit Steelton to satisfy the conditions
set forth in Section 9(a)(i) of this Agreement, (ii) any material
breach of any of its covenants and agreements contained herein, and
(iii) any Material Adverse Effect (as defined in Section 19 hereof) in
its financial condition, business, operations, assets, prospects or
operating results on a consolidated basis;
(j) Best Efforts. Use its best efforts to assure, to the extent reasonably
within its control, as soon as it is reasonably practicable, the
satisfaction of the conditions to the effectiveness of the
transactions contemplated by this Agreement. Steelton and the Steelton
Subsidiaries shall cooperate with Sun and shall use their best efforts
to do or cause to be done all things necessary or appropriate on their
part in order to fulfill the conditions precedent set forth in this
Agreement and to consummate this Agreement and the Merger Agreement.
In particular,
27
without limiting the generality of the foregoing, Steelton and the
Steelton Subsidiaries shall:
(i) cooperate with Sun in the preparation of all required
applications for regulatory approval of the transactions
contemplated by this Agreement;
(ii) in the case of Steelton, call a special or annual meeting of its
shareholders and take, in good faith, all actions which are
necessary or appropriate on its part in order to secure the
approval and adoption of this Agreement and the Merger Agreement
by its shareholders at that meeting;
(iii)cooperate with Sun in making the employees of Steelton and the
Steelton Subsidiaries reasonably available for training by Sun
prior to the Effective Date, to the extent such training is
deemed reasonably necessary by Sun; and
(iv) make additions to loan loss reserves and make loan writeoffs,
writedowns and other adjustments that reasonably should be made
by Mechanics in light of generally accepted accounting
principles, directives of governmental authorities, and all
regulations, rules and directives of the FDIC and the OTS from
the date of this Agreement until the Effective Date;
(v) use its best efforts to assure that persons who currently hold
outstanding stock options of Steelton agree to surrender same in
accordance with the terms of this Agreement.
(k) Amend Corporate Documents. Amend or modify the Articles of
Incorporation or Bylaws or any other documents of Steelton or the
Steelton Subsidiaries in a manner reasonably requested by Sun if
necessary to effectuate the transactions contemplated hereby;
(l) Terminate Stock Plans. Terminate all plans involving the issuance of
Steelton Common Stock as of the date hereof (other than the issuance
of Common Stock pursuant to the grants of options issued, as of the
date hereof, pursuant to Mechanic Savings Bank's 2000 Stock Option
Plan or vesting of awards under the Restricted Stock Plan and
allocations under the ESOP Plan) and amend or terminate the
outstanding Steelton stock plans by the Effective Date. On, or prior
to the Effective Date, Mechanics Bank shall take such actions as are
necessary to provide for the vesting of all outstanding awards under
the Restricted Stock Plan (as disclosed as Schedule 7(b)) and the
distribution of the Common Stock related to such awards and of any
accrued cash attributable to cash dividends previously paid on the
Common Stock represented by such
28
awards and held in arrears, including any necessary withholding of
Common Stock related to such awards valued at $22.04 per share in
order to satisfy any federal, state or local income and employment tax
obligations of the recipient of such awards and any related tax
reporting of such vesting, distribution or withholding activities;
(m) Steelton Benefit Plans. All Steelton employee benefit plans, except
the Supplemental Director Retirement Plan, shall be terminated prior
to or as of the Effective Date. The ESOP shall be terminated as of the
Effective Date in accordance with its terms in effect as of the date
of this Agreement. The 401K Plan shall be terminated as of the
Effective Date in accordance with its terms; all participants shall be
100% vested as of the Effective Date. The Mechanics Defined Benefit
Plan shall be terminated as of the Effective Date;
(n) Good Faith Cooperative Effort to Revise Structure. Steelton and
Mechanics hereby agree to cooperate with Sun to approve any revision
to this Agreement, or to the attached Exhibits, involving a structural
change to the Merger and the transactions contemplated thereunder
provided that such cooperation and approval does not impact upon the
amount of consideration to be received by the shareholders of Steelton
or other payments to other parties under this Agreement; and
(o) Change in Control. All change in control payments shall be paid out by
Steelton or Mechanics to the individuals and in the amounts as set
forth in Schedule 6(o).
7. NEGATIVE COVENANTS OF STEELTON AND MECHANICS. Steelton and Mechanics
covenant and agree that, throughout the period commencing on the date
hereof and ending on the date of Closing, except for proposed specific
actions as shall otherwise be consented to in writing by Sun, they will not
for their own part, nor will they cause or permit any of the Steelton
Subsidiaries or affiliates to:
(a) Amend its Charter, Articles of Incorporation or Bylaws;
(b) Except as set forth in Schedule 7(b), issue, sell or otherwise dispose
of (or authorize or agree to issue, sell or dispose of) any shares of
its capital stock or any securities or documents convertible into or
representing a right or option to purchase any such shares, or enter
into any other agreements to issue or sell any shares of capital stock
or change the presently outstanding shares of capital stock into a
greater or lesser number of shares either by way of a
recapitalization, reclassification, reorganization, consolidation of
shares or the like, or by a stock split, stock dividend, or by way of
a merger or consolidation;
(c) Purchase, redeem, retire or otherwise acquire, or hypothecate, pledge
or otherwise encumber, any shares of capital stock;
29
(d) Merge into, consolidate with, or be purchased or acquired by, any
other corporation, entity or person (or agree to any such merger,
consolidation, affiliation, purchase or acquisition), or permit (or
agree to permit) any other corporation, entity or person to be merged,
consolidated or affiliated with it or be purchased or acquired by it,
or, except to realize upon collateral and except for purchases or
sales of loans in the ordinary course of its business, acquire (or
agree to acquire) all or substantially all of the assets of any other
corporation, entity or person or sell or dispose (or agree to sell or
dispose) all or any substantial part of its assets, in each case;
(e) Make, declare or pay any dividend, other than its regular semiannual
cash dividend in an amount not to exceed $.09 per share on the
Steelton Common Stock consistent with its prior declaration and
payment dates, or declare or make any distribution on any shares of
its capital stock;
(f) Enter into any employment contracts, deferred compensation
arrangements, or other agreements or arrangements affecting
compensation or benefits including change of control agreements or
severance agreements, or pay any bonus to, or increase the rate of
compensation of any director, officer, employee or consultant of
Steelton or any Steelton Subsidiary, other than bonuses and increases
in the rate of compensation of employees of Steelton or any Steelton
Subsidiary in the ordinary course of business consistent with past
practice or as set forth in Schedule 7(f);
(g) Enter into or modify (except as may be required by applicable law or
to effect the transactions contemplated by this Agreement) any
pension, retirement, stock option, stock purchase, severance, profit
sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement related thereto, in respect of any
current or former directors, officers or other employees;
(h) Except for indebtedness and contingent liabilities incurred in the
ordinary course of business (e.g., deposit liabilities, Federal Home
Loan Bank advances by Mechanics, and non-material reverse repurchase
agreements), incur any indebtedness or liability for borrowed money
evidenced by notes, bonds, debentures or other similar obligations;
(i) Solicit or encourage inquiries or proposals with respect to, or
furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition or purchase of
all or a material portion of its assets (whether owned by it directly
or owned by any Steelton Subsidiary), or of a substantial equity
interest in it or any business combination with it or any Steelton
Subsidiary, provided however, that it may respond to an unsolicited,
bona fide, written offer, if the Steelton Board of Directors
determines in good
30
faith, after consultation with outside legal counsel that the failure
to do so would constitute a breach of the Steelton Board of Directors'
fiduciary duty under Pennsylvania law, and Steelton shall notify Sun
immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or
discussions are sought to be initiated with, Steelton or any Steelton
Subsidiary; and Steelton and the Steelton Subsidiaries shall not
permit any officer, director, agent, advisor, or affiliate to do any
of the above and shall instruct its and each Steelton Subsidiary's
officers, directors, agents, advisors and affiliates to comply with
the above except to the extent that the Steelton Board of Directors,
after consultation with outside legal counsel, determines that the
failure to do so would constitute a breach of the Steelton Board of
Directors fiduciary duty under Pennsylvania law;
(j) Except in the ordinary course of business, enter into or assume any
material contract, incur any material liability or obligation, make
any material commitment, acquire or dispose of any property or asset
or engage in a transaction or subject any of Steelton's or Steelton
Subsidiaries' properties or assets to any material lien, claim,
charge, or encumbrance of any kind whatsoever;
(k) Take or permit to be taken any action which would constitute a breach
of any representation, warranty or covenant set forth in this
Agreement;
(l) Enter into any related party transaction except such related party
transactions relating to extensions of credit made in accordance with
applicable laws, regulations and rules and in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable arm's
length transactions with other persons that do not involve more than
the normal risk of collectibility or present other unfavorable
features;
(m) Sell or otherwise dispose of any capital stock of any Steelton
Subsidiary;
(n) Change any method, practice or principle of accounting except as may
be required by generally accepted accounting principles or any
applicable regulator;
(o) Waive, release, grant or transfer any rights of value or modify or
change in any material respect any existing agreement to which
Steelton or any Steelton Subsidiary is a party, other than the
ordinary course of business, consistent with past practice;
(p) Other than residential mortgages, make any loan or other credit
facility commitment in excess of $75,000 to any affiliate in the
ordinary course of business or compromise, expend, renew or modify any
such commitment outstanding;
31
(q) Except consistent with past practice, enter into, renew, extend or
modify any other transaction with any affiliate;
(r) Enter into any swap or similar commitment, agreement or arrangement
which is not consistent with past practice and which increases the
credit or interest rate risk over the levels existing at June 30,
2002;
(s) Enter into any derivative, cap or floor or similar commitment,
agreement or arrangement, except in the ordinary course of business
and consistent with past practices;
(t) Knowingly take any action that would, under any statute, regulation or
administrative practice of the Federal Reserve, the FDIC, the
Department of Banking, the SEC, or the OTS, materially or adversely
affect the ability of either party to obtain any required approvals
for consummation of the transaction;
(u) Sell, transfer, lease or encumber any servicing rights or other assets
except for mortgage loans and related servicing rights in the ordinary
course of business, which ordinary course of business shall not
include, however, the present servicing portfolio on closed loans
maintained by Steelton and the Steelton Subsidiaries, or purchase any
assets except for mortgage loans and servicing rights related thereto
from third party mortgage loan originators with respect to which
Mechanics is a party to an existing contract;
(v) Materially alter or vary its methods or policies of (i) underwriting,
pricing, originating, warehousing, selling and servicing, or buying or
selling rights to service mortgage loans, (ii) hedging (which term
includes both buying futures and forward commitments from financial
institutions) its mortgage loan positions or commitments, and (iii)
obtaining financing and credit;
(w) Incur any debt other than debt incurred to fund or purchase mortgage
loans from Steelton or a Steelton Subsidiary;
(x) Directly or indirectly agree to take any of the foregoing actions
specified in subsections (a) through (w) above.
8. CONDITIONS TO THE OBLIGATIONS OF SUN, SUN ACQUISITION, STEELTON, AND
MECHANICS. The Closing shall be expressly conditioned upon the following:
(a) Approval of Shareholders. Approval and adoption of this Agreement and
the transactions and agreements contemplated hereby by a vote of the
shareholders of Steelton, as required by applicable law and by
Steelton's Articles of Incorporation, shall have been obtained and
certified;
32
(b) Approval of Regulatory Agencies. All required consents and approvals
of all regulatory agencies and other authorities having jurisdiction
over the transactions contemplated by this Agreement, the Merger
Agreement, the Steelton Plan of Liquidation and the Mechanics Merger,
including without limitation the SEC, OTS, Department of Banking, FDIC
and Federal Reserve, shall have been granted and obtained, without the
imposition of any non-standard term or condition which would
materially impair the value of Steelton and the Steelton Subsidiaries
to Sun or otherwise impact Sun in a materially adverse way and all
applicable notice and waiting periods shall have expired or passed;
(c) Dissenters' Rights. Holders of no more than ten percent (10%) of
outstanding shares of Steelton shall have exercised their statutory
appraisal or dissenters' rights;
(d) Antitrust Laws. The pre-merger notification provisions of Section 7A
of the ▇▇▇▇▇▇▇ Act shall have been complied with by the Parties
hereto, and all other statutory or regulatory requirements with
respect to the ▇▇▇▇▇▇▇ Act shall have been satisfied;
(e) Suits, Actions. No Party hereto shall be subject to any action, suit,
proceeding, order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of
the transactions contemplated by this Agreement;
(f) Statutes, Orders. No statute, rule, regulation, order, injunction or
decree shall have been enacted, entered, promulgated or enforced by
any governmental authority which prohibits or makes illegal the
consummation of the transactions contemplated by this Agreement; and
(g) Other Requirements. All other requirements prescribed by law which are
necessary to the consummation of the transactions contemplated by this
Agreement shall have been satisfied.
(h) Payment of Retention Bonuses. Retention bonuses as set forth in
Schedule 8(h) shall have been paid out by Mechanics on or prior to the
Effective Date in an amount not to exceed $12,600 in the aggregate.
(i) Vacation. Individuals set forth in Schedule 8(i) shall have been paid
by Mechanics for all unused vacation leaves as of the Effective Date
in an amount not to exceed $16,500 in the aggregate.
9. CONDITIONS TO THE OBLIGATIONS OF SUN AND SUN ACQUISITION. Consummation by
Sun and Sun Acquisition of the transactions contemplated hereby is
33
subject to the following conditions precedent, any of which, however, may
be waived, to the extent permitted by applicable law or regulation, by the
consent in writing of Sun and Sun Acquisition.
(a) Representations, Warranties and Covenants.
(i) The representations and warranties of Steelton (both on its own
behalf and on behalf of the Steelton Subsidiaries) contained
herein (A) shall have been true and correct in all material
respects on the date hereof, and (B) other than as disclosed by
Steelton to, and approved by, Sun in writing prior to or at the
Closing, shall be true and correct in all material respects as of
the Closing, except as otherwise provided or permitted by this
Agreement and except as to any representation or warranty which
specifically relates to an earlier date.
(ii) Steelton and the Steelton Subsidiaries shall have duly performed
or complied in all material respects with all covenants, not
otherwise waived by Sun and Sun Acquisition in writing, required
by this Agreement to be performed by Steelton and the Steelton
Subsidiaries prior to or at the Closing.
(iii)Sun shall have received a certificate of Steelton dated as of
the Closing, signed by the President and the Chief Financial
Officer of Steelton, certifying in such detail as Sun may
reasonably request the fulfillment of the conditions set forth in
Sections 9(a)(i) and (ii) above.
(b) Opinion of Special Counsel. Sun shall have received an opinion or
opinions dated as of the Effective Date from ▇▇▇▇▇▇▇, Spidi & ▇▇▇▇▇,
or other counsel reasonably satisfactory to Sun substantially in the
form attached hereto as Exhibit 4.
(c) Suit, Action, Etc. No suit, action or other proceeding shall be
pending or directly threatened by any federal, state or other
governmental agency, commission or authority having jurisdiction or
authority over Steelton, any Steelton Subsidiary, Sun or Sun
Acquisition or by any other person, in which it is sought to restrain
or prohibit consummation of the transactions contemplated by this
Agreement and which in the reasonable and good faith judgment of the
management of Sun, based upon the written advice of its counsel, is
meritorious and adversely affects the prospects of such consummation.
(d) Financial Statements. Sun shall have received audited consolidated
statements of financial condition (balance sheet, statement of income,
statements of operations, shareholders equity and cash flow and
related notes) for Steelton and its subsidiaries as of December 31,
2002.
34
(e) Tax Ruling or Opinion. Sun shall have received at the Closing, a
ruling from the Internal Revenue Service or an opinion of its
independent public accountant, that the transactions contemplated by
this Agreement, the Merger Agreement, the Steelton Plan of Liquidation
and the Mechanics Merger will not be taxable transactions to Sun, will
qualify for treatment under Section 338 of the Internal Revenue Code
of 1986, as amended, and will not have adverse tax consequences or
result in adverse tax attributes to the Parties. Such ruling or
opinion shall be in a form and of content reasonably satisfactory to
Sun.
(f) Closing Documents. Steelton and Mechanics shall have delivered to Sun
and Sun Acquisition such other certificates and documents as Sun and
Sun Acquisition and their counsel may reasonably request (all of the
foregoing certificates and other documents being herein referred to as
"Steelton Closing Documents").
(g) Outstanding Stock Options. All unexercised stock options, derivatives
or other instruments of Steelton that are issuable by Steelton or
issued and outstanding of Steelton shall have been retired, redeemed,
surrendered, exercised or otherwise satisfied or settled prior to the
Effective Date.
(h) Effectiveness of Transactions. All transactions contemplated by and
provided for in this Agreement, the Merger Agreement, the Steelton
Plan of Liquidation, and the Mechanics Merger Agreement shall be
imminent and there shall be no impediment existing that would
materially impair the Parties' ability to effectuate same.
10. CONDITIONS TO THE OBLIGATIONS OF STEELTON AND MECHANICS. Consummation by
Steelton and Mechanics of the transactions contemplated hereby is subject
to the following conditions precedent, any of which, however, may be
waived, to the extent permitted by applicable law or regulation, by the
consent in writing of Steelton and Mechanics.
(a) Representations and Warranties.
(i) The representations and warranties of Sun and Sun Acquisition
contained herein (A) shall have been true and correct in all
material respects on the date hereof, and (B) other than as
disclosed by Sun to, and approved by, Steelton and Mechanics in
writing prior to or at the Closing, shall be true and correct in
all material respects as of the Closing, except as otherwise
permitted by this Agreement and except as to any representation
or warranty which specifically relates to an earlier date.
(ii) Sun and Sun Acquisition shall have duly performed or complied in
all material respects with all covenants, not otherwise waived by
Steelton
35
and Mechanics in writing, required by this Agreement to be
performed by Sun and Sun Acquisition prior to or at the Closing.
(iii)Steelton shall have received a certificate of Sun dated as of
the Closing, signed by the President and the Chief Financial
Officer of Sun, certifying in such detail as Steelton may
reasonably request the fulfillment of the conditions set forth in
Sections 10(a)(i) and (ii) above.
(b) Opinion of Special Counsel. Steelton shall have received an opinion or
opinions dated as of the Effective Date from ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, P.C.,
or other counsel reasonably satisfactory to Steelton substantially in
the form attached hereto as Exhibit 5.
(c) Suit, Action, Etc. No suit, action or other proceeding shall be
pending or directly threatened by any federal, state or other
governmental agency, commission or authority having jurisdiction or
authority over Steelton, any Steelton Subsidiary, Sun or Sun
Acquisition, or by any other person, in which it is sought to restrain
or prohibit consummation of the transactions contemplated by this
Agreement.
(d) Deposit into Payment Fund. On or prior to the Effective Date, Sun
Acquisition shall have deposited cash into the Payment Fund in an
amount sufficient to enable Sun and Sun Acquisition to satisfy their
obligations to pay the Aggregate Merger Consideration under this
Agreement.
(e) Steelton Fairness Opinion. Steelton shall have obtained from its
independent financial advisors an opinion dated within five business
days of the date that the Steelton Board of Directors approved this
Agreement stating that the Merger Consideration to be received by the
holders of Steelton Common Stock is fair from a financial point of
view and an update of such opinion within five business days of the
date of mailing of the Proxy Statement for the Steelton Shareholders'
Meeting.
11. TERMINATION OF AGREEMENT. This Agreement may be terminated at any time
prior to the Effective Date, whether before or after its approval and
adoption by the shareholders of Steelton, only if one or more of the
following events shall occur:
(a) By any Party to this Agreement, if the Closing shall not have occurred
on or before June 30, 2003, unless the failure to so consummate by
such time is due to the breach of this Agreement by the Party seeking
to terminate, or such later date as shall have been agreed to by the
Parties hereto (the "Termination Date").
(b) At any time by the mutual written agreement of the Parties hereto.
36
(c) By Sun, immediately upon the expiration of thirty (30) days from the
date that Sun or Sun Acquisition has given notice to Steelton of
Steelton's or Mechanics' material misrepresentation or breach of any
warranty or representation or breach in any material respect,
individually or collectively, of any covenant or agreement herein;
provided, however, that no such termination shall take effect unless
it is reasonably evident that Steelton or Mechanics cannot or will not
fully and completely correct the grounds for termination as specified
in the aforementioned notice on or before the date of Closing.
(d) By Steelton, immediately upon the expiration of thirty (30) days from
the date that Steelton or Mechanics has given notice to Sun of Sun's
or Sun Acquisition's material misrepresentation or breach of any
warranty or representation or breach in any material respect,
individually or collectively, of any covenant or agreement herein;
provided, however, that no such termination shall take effect unless
it is reasonably evident that Sun or Sun Acquisition cannot or will
not fully and completely correct the grounds for termination as
specified in the aforementioned notice on or before the date of
Closing.
(e) By any Party, by giving written notice to Steelton in the event that,
prior to the Effective Date, Steelton permits or agrees to permit, any
of the following: (i) a merger of Steelton or Mechanics with any other
corporation, financial institution, entity or Person; (ii) a
consolidation of Steelton or Mechanics with any other corporation,
financial institution, entity or Person; (iii) an acquisition by
Steelton or Mechanics of control over any other entity, financial
institution, corporation or Person; (iv) the creation of any
subsidiary; (v) the acquisition, liquidation, sale or disposal of all
or substantially all of Steelton's or Mechanics' assets; or upon the
occurrence of any of the following: (vi) the failure of Steelton's
shareholders to approve this Agreement or the Merger Agreement at a
meeting called for such purpose after the disclosure by any person
(other than Sun) or the receipt by Steelton of an offer or proposal to
acquire 20 percent or more of Steelton or Mechanics Common Stock, or
to acquire, merge or consolidate with Steelton or Mechanics or to
purchase or acquire all or substantially all of Steelton's or
Mechanics' assets; (vii) the acquisition by any person (other than
Sun) of beneficial ownership of 20 percent or more of Steelton or
Mechanics Common Stock exclusive of shares of Steelton or Mechanics
Common Stock sold directly or indirectly to such person by Sun; or
(viii) any person (other than Sun) shall have commenced a tender or
exchange offer, or shall have filed an application with an appropriate
bank regulatory authority with respect to a publicly announced offer,
to purchase or acquire securities of Steelton or Mechanics such that,
upon consummation of such offer, such person would own, control or
have the right to acquire 20 percent or more of Steelton or Mechanics
Common Stock.
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(f) By any Party to this Agreement any Party has been informed in writing
by the SEC, OTS, the FDIC, the Banking Department, the Federal Reserve
or any other required regulatory authority that a required approval or
consent will not be granted and the time period for all appeals and
reconsideration has expired.
(g) By any Party to this Agreement, by giving written notice to the other
Parties if the shareholders of Steelton fail to approve this
Agreement, so long as Steelton has not breached its obligations
pursuant to Section 6(j)(ii) of this Agreement and none of the events
listed in Section 11(e)(i) through (viii) shall have occurred.
(h) By any Party to this Agreement, if Steelton shall give notice that it
has entered into or intends to enter into an Acquisition Transaction
with a party other than Sun, Sun Acquisition or Sun Bank. For purposes
of this Agreement, "Acquisition Transaction" means any merger,
consolidation, share exchange, joint venture, business combination or
similar transaction or any purchase of all or any material portion of
the assets of an entity.
12. EXPENSES. Any termination of this Agreement pursuant to Sections 11(a),
11(b) or 11(g) hereof shall be without cost, expense or liability on the
part of any Party to the others. Any termination of this Agreement pursuant
to Section 11(c) or 11(d) hereof shall also be without cost, liability or
expense on the part of any Party to the others, unless the breach of a
representation or warranty or covenant is caused by the willful conduct or
gross negligence of a Party, in which event said Party shall be liable to
the other Parties for out-of-pocket costs and expenses including without
limitation, reasonable legal, accounting and investment banking fees and
expenses, incurred by such other Party in connection with their entering
into this Agreement and their carrying out of any and all acts contemplated
hereunder ("Expenses).
So long as Sun shall not have breached its obligations hereunder, if this
Agreement is terminated by any Party pursuant to Section 11(e) or 11(h)
hereof, Steelton shall promptly, but in no event later than three (3)
business days after such termination, pay Sun a fee of $350,000, which
amount shall be payable by wire transfer of same day funds. If Steelton
fails to promptly pay the amount due pursuant to this Section 12, and, in
order to obtain such payment, Sun commences a suit which results in a
judgment against Steelton for all or a substantial portion of the fee set
forth in this Section 12, Steelton shall pay to Sun all costs and expenses
(including reasonable attorneys' fees) incurred by Sun in connection with
such suit.
Subject to the provisions of this Section 12, each Party hereto will bear
all Expenses incurred by it in connection with this Agreement and the
transactions contemplated hereby; provided, however, that all filing and
other fees (other than federal and state income taxes) required to be paid
to any governmental agency or authority in connection with the consummation
of the transactions contemplated hereby shall be
38
paid by Sun. Notwithstanding anything herein to the contrary, in no event
shall fees payable by any Party upon the termination of the Agreement in
accordance with Section (11)(c), (d), (e), (g) or (h) exceed an aggregate
of $350,000.
13. CONFIDENTIALITY. Any non-public or confidential information disclosed by
either Steelton (including any Steelton Subsidiary) or by Sun to the other
Parties pursuant to this Agreement or as a result of the discussions and
negotiations leading to this Agreement or otherwise, or to which any Party
has acquired or may acquire access pursuant to which the disclosing Party
indicates (either expressly, in writing or orally, or by the context of the
disclosure or access) that such information is non-public or confidential
shall be kept strictly confidential and shall not be used in any manner by
the recipient except in connection with the transactions contemplated by
this Agreement. To that end, the Parties hereto will each, to the maximum
extent practicable, restrict knowledge of and access to non-public or
confidential information of the other Party to its officers, directors,
employees and professional advisors who are directly involved in the
transactions contemplated hereby and who reasonably need to know such
information. Further to that end, all non-public or confidential documents
(including all copies thereof) obtained hereunder by any Party shall be
returned as soon as practicable after receiving a request from the other
Party following any termination of this Agreement.
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. The representations,
warranties and agreements of the parties set forth in this Agreement shall
not survive the Closing, and shall be terminated and extinguished at the
Closing, and from and after the Closing none of the Parties hereto shall
have any liability to the other on account of any breach or failure of any
of those representations, warranties and agreements; provided, however,
that the foregoing clause shall not (i) apply to agreements of the Parties
which by their terms are intended to be performed either in whole or in
part after the Closing, and (ii) shall not relieve any Party or person of
liability for fraud, deception or intentional misrepresentation.
15. CERTAIN POST-MERGER AGREEMENTS. The Parties hereto agree that:
(a) Employees.
(i) Immediately prior to or as of the Effective Date, Steelton shall
terminate all employee benefit plans, including all qualified
employee pension, profit sharing and stock bonus plans (including
its Employee Stock Ownership Plan but excluding the Supplemental
Director Retirement Plan) and all employees of Steelton and the
Steelton Subsidiaries will, to the extent provided by the
relevant plan and by law, become fully vested in and eligible to
receive benefits under all such plans of Steelton and the
Steelton Subsidiaries and such plans will be fully funded prior
to termination. Steelton shall distribute all vested accrued
benefits as soon
39
as reasonably practicable following such termination and shall
obtain such regulatory determinations as may be appropriate to
ensure the qualified status of such plans pursuant to '401(a) of
the Code upon termination. Sun and Sun Acquisition shall have no
liability under such plans.
(ii) Sun shall grant to all employees accepting employment credit for
all their respective service with Steelton for the purposes of
determining their participation, eligibility and vesting rights,
but not for the purposes of benefit accrual, in any and all
thrift, medical, life insurance, disability, pension plans,
severance and other employee benefits plans or programs currently
maintained by Sun. Sun shall provide coverage for pre-existing
medical conditions to the extent that such condition is currently
covered under Steelton's plan, provided that such conditions
would be covered under Sun's plan if it were not pre-existing. In
such an event of differing coverages such person shall be covered
by Steelton's COBRA plan.
(iii)Nothing in this Agreement shall obligate or require Sun to hire
or employ any Steelton, Mechanics, or Steelton Subsidiary
employee on or after the Effective Date nor will it grant any
third party beneficiary right to any such employee.
(iv) As provided herein, provided the affected employee executes a
satisfactory release, Sun will provide or allow severance
payments to employees of Steelton and the Steelton Subsidiaries
(other than employees whose severance benefits are provided for
in written employment agreements) whose employment is terminated
(other than for cause) on or after the Effective Date and before
the expiration of six months following the Effective Date, in the
amount equal to two weeks pay for each year of service with
Steelton or a Steelton Subsidiary, with a minimum of four weeks
pay and maximum of 26 weeks pay. In computing such severance
payments for non-exempt, full time employees, overtime and bonus
are excluded. In computing such severance payments for exempt
part-time employees, the weekly compensation shall be based on
one-fifty-second (1/52) of the employee's total compensation,
excluding overtime and bonus payments paid in 2002. For full-time
exempt employees, weekly compensation is calculated by taking
1/52 of the employee's 2002 annual salary, excluding bonus.
(b) Existing Employment Agreements. As of the Effective Date Mechanics
shall pay out the change of control provisions of the employment
contracts in effect as of the date hereof with the following persons:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇. As of the
Effective Date, Mechanics shall pay out the
40
change of control obligations in effect as of the date hereof for
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇. Such payout amounts as are set
forth in Schedule 15(b).
(c) Board of Directors of Sun. Upon consummation of all of the
transactions contemplated by this Agreement, and subject to receipt of
any required regulatory approvals, Sun will appoint ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, CPA to its Board of Directors for a term expiring at the
annual shareholders' meeting to be held in 2004.
(d) Sun Bank Advisory Board. Following the Merger, Sun will form a paid
advisory board whose membership will be initially comprised of those
members of the Steelton Board of Directors as of the Effective Date.
The board fees payable to such advisory directors are set forth in
Schedule 15(d).
(e) Supplemental Director Retirement Plan. Sun will honor the terms of
Steelton's Supplemental Director Retirement Plan.
(f) Indemnification and Insurance. On and after the Effective Date and for
a period ending six (6) years thereafter, Sun shall indemnify, defend
and hold harmless all former and then-existing directors, officers,
employees and agents of Steelton or of any of Steelton Subsidiary
against all losses, claims, damages, costs, expenses, liabilities or
judgments or amounts that are paid in settlement (with the approval of
Sun, which approval shall not be unreasonably withheld) or in
connection with any claim, action, suit, proceeding or investigation
based in whole or in part on or arising in whole or in part out of the
fact that such person is or was a director, officer, employee or agent
of Steelton or any Steelton Subsidiary, whether pertaining to any
matter existing or occurring at or prior to the Effective Date and
whether asserted or claimed prior to, or at or after, the Effective
Date to the same extent as such officer, director, employee or agent
would be entitled to indemnification by Steelton or any Steelton
Subsidiary as of the date hereof including the right to advancement of
expenses, provided, however, that any such officer, director, employee
or agent of Steelton may be indemnified by Sun only to the extent
permitted by applicable law and to the extent permitted by Sun's
Articles of Incorporation and Bylaws. In addition, Sun shall use
commercially reasonable efforts to obtain and maintain a directors'
and officers' liability insurance tail coverage policy with respect to
the directors and officers of Steelton and the Steelton Subsidiaries
relating to periods prior to the Effective Date and for a period
ending three (3) years thereafter.
(g) Adjustments. After approval of this Agreement, the Merger Agreement
and the transactions contemplated hereby by the Steelton Shareholders
at the Steelton Shareholders' Meeting and at or immediately prior to
the Effective Date, Steelton and Mechanics shall make reasonable
writedowns, charge offs, adjustments and expense payments that Sun may
reasonably request.
41
16. ENTIRE AGREEMENT. This Agreement, together with such other agreements as
are executed by the parties in connection herewith, on the date hereof,
represents the entire understanding of the parties hereto with reference to
the transactions contemplated hereby and supersedes any and all other oral
or written agreements heretofore made. All terms and provisions of this
Agreement, together with such other agreements as are executed by the
parties in connection herewith, on the date hereof, shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Nothing in this Agreement is intended to confer
upon any other person any rights or remedies of any nature whatsoever under
or by reason of this Agreement except as expressly provided.
17. PUBLICITY. The content and timing of all publicity and announcements
concerning this Agreement, and all transactions contemplated by this
Agreement, shall be subject to joint consultation and approval of the
Parties hereto, subject, however, to the legal obligations applicable to
public companies.
18. AMENDMENT AND WAIVER. Prior to the Effective Date, any provision of this
Agreement may be: (i) waived by the party benefited by the provision; or
(ii) amended or modified at any time (including the structure of the
transaction) by an agreement in writing between the parties hereto approved
by their respective boards of directors.
19. CERTAIN DEFINITIONS; INTERPRETATION. As used in this Agreement, the
following terms shall have the meanings indicated:
"Material" means having, or reasonably likely to have a Material
Adverse Effect on the Party in question (as the case may be).
"Material Adverse Effect," when applied to a Party, shall mean an
event, occurrence or circumstance which (a) has or is reasonably
likely to have a Material Adverse Effect on the financial position
results of operations or business of the Party and its subsidiaries,
taken as a whole, or (b) would materially impair the Party's ability
to perform its under this Agreement or the consummation of the Merger
and the other transactions contemplated by this Agreement; provided
however, that Material Adverse Effect and material impairment shall
not be deemed to include the impact of (i) changes in banking and
similar laws of general applicability or interpretations thereof by
courts of governmental authorities (ii) changes in generally accepted
accounting principles or regulatory accounting requirements applicable
to thrifts, banks, savings and loan holding companies or bank holding
companies, generally (iii) actions or omission of Sun or Steelton
taken with the prior written consent of the other in contemplation of
the transactions contemplated hereby, and (iv) the Merger and related
expenses associated with the transactions contemplated by this
Agreement on the operating performance of the Parties to this
Agreement; and further provided that the negative impact to the
financial position or results of
42
operations or business of Steelton or Mechanics because of the
exceptions itemized in clauses (i), (ii) and (iv) of this Section 19
(excluding consideration of transaction expenses set forth at
Disclosure Schedule 19) do not or would not exceed, individually or in
the aggregate, Three Hundred and Fifty Thousand Dollars ($350,000).
"Person" includes an individual, corporation, partnership,
association, limited liability company, trust or unincorporated
organization.
"Subsidiary," with respect to a Person, means any other Person
controlled by such Person.
When a reference is made in this Agreement to Exhibits, Sections or
Schedules, such reference shall be to a Section of, or Schedule to, this
Agreement unless otherwise indicated. The table of contents, tie sheet and
headings contained in this Agreement are for ease of reference only and
shall not affect the meaning or interpretation of this Agreement. Whenever
the words "include," "includes," or "including" are used in this Agreement,
they shall be deemed followed by the words "without limitation". Any
singular term in this Agreement shall be deemed to include the plural, and
any plural term the singular.
20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania except to the
extent that federal law is controlling.
21. COMMUNICATIONS. All notices, claims, requests, demands, consents and other
communications which are required or permitted to be given hereunder shall
be in writing and shall be deemed to have been duly given if hand
delivered, sent by recognized overnight delivery service, sent by certified
or registered mail, postage prepaid, return receipt requested, or by
confirmed telecopy as follows:
(a) If to Sun or Sun Acquisition, to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
President and Chief Executive Officer
SUN BANCORP, INC.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
or to such other person or place as shall be designated to Steelton in
writing, and with a copy to:
43
Sun's counsel:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇., Esquire
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(b) If to Steelton or Mechanics, to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President and Chief Executive Officer
STEELTON BANCORP, INC.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
P.O. Box 7614
Steelton, PA 17113
or to such other person or place as shall be designated to Sun in
writing, and with a copy to:
Steelton's counsel:
▇▇▇▇▇▇▇ ▇▇▇▇▇, Esquire
▇▇▇▇▇▇▇, SPIDI & FISCH
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Any such notice or other communication so addressed shall be deemed to have
been received by the addressee (i) if hand-delivered or sent by overnight
delivery, on the next business day following the date so delivered or sent,
(ii) if sent by registered or certified mail, five (5) business days
following the date sent, or (iii) if sent by telecopy, upon verbal
telephone confirmation of receipt thereof by an individual authorized to
accept telecopy communications at the above-specified telecopy number as of
the date of such receipt or confirmation.
22. SUCCESSORS AND ASSIGNS. The rights and obligations of the Parties hereto
shall inure to the benefit of and shall be binding upon the successors and
assigns of each of them; provided, however, that neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by
any Party hereto without the prior written consent of the other Parties.
23. HEADINGS, ETC. The headings of the Sections and Subsections of this
Agreement have been inserted for convenience only and shall not be deemed
to be a part of this Agreement.
44
24. SEVERABILITY. In the event that any one or more provisions of this
Agreement shall for any reason be held invalid, illegal or unenforceable in
any respect, by any court of competent jurisdiction, such invalidity,
illegality or unenforceability shall not affect any other provisions of
this Agreement and the Parties shall use their best efforts to substitute a
valid, legal and enforceable provision which, insofar as practicable,
implements the purposes and intents of this Agreement.
25. NO THIRD PARTY BENEFICIARY. Except as expressly provided for herein,
including but not limited to Section 15 hereof, nothing in this Agreement
is intended to confer upon any person who is not a Party hereto any rights
or remedies of any nature whatsoever under or by reason of this Agreement.
26. COUNTERPARTS. To facilitate execution, this Agreement may be executed in as
many counterparts as may be required; and it shall not be necessary that
the signatures of, or on behalf of, each Party, or that the signatures of
all persons required to bind any Party, appear on each counterpart; but it
shall be sufficient that the signature of, or on behalf of, each Party, or
that the signatures of the persons required to bind any Party, appear on
one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of
this Agreement to produce or account for more than a number of counterparts
containing the respective signatures of, or on behalf of, all of the
Parties hereto.
27. FURTHER ASSURANCES. Each Party will execute and deliver such instruments
and take such other actions as any other Party hereto may reasonably
request in order to carry out the intent and purposes of this Agreement.
28. DISCLOSURE SCHEDULES. The inclusion of a given item in a disclosure
schedule annexed to this Agreement shall not be deemed a conclusion or
admission that such item (or any other item) is material or has a Material
Adverse Effect. Information disclosed for on section shall constitute
disclosure for other sections whether or not specifically referenced.
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